WASHINGTON — The proposed $700 billion bailout of the financial system is staggering, for sure, but there have been times when American debt relative to the size of the whole economy has been just as big — sometimes much bigger.

The Bush administration plan to shore up banks rattled by the meltdown of the housing market and clenched-up credit markets would raise the federal debt to an all-time high of more than $11 trillion.

Details are still being worked out in Congress — and both political parties on Tuesday rebuffed dire warnings that a recession, layoffs and a rash of foreclosures would occur if the bailout plan isn't quickly approved — but the proposal would lift the legal limit for government borrowing to $11.3 trillion, $700 billion higher than what it is now and twice what it was a decade ago.

Economists warn ballooning the federal debt could weaken the U.S. dollar, raise interest rates and weaken the already faltering economy.

Wall Street continues to be jittery. The Dow Jones industrials sank 161 points and now are off more than 500 this week after initially surging on the bailout announcement last week.

Deepening market trouble was just one piece of the economic havoc that Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson told senators would ensue if Congress lags in acting on the administration's proposal to rescue tottering financial institutions.

But without the bailout plan, Paulson and Bernanke sketched out a dire scenario for senators at a contentious daylong hearing: Neither businesses nor consumers would be able to borrow money, and the world's largest economy would grind to a virtual halt.

The legislation the administration is promoting would allow the government to buy bad mortgages and other rotten assets held by troubled banks and financial institutions. Getting those debts off their books should bolster those companies' balance sheets, making them more inclined to lend and easing one of the biggest choke points in the credit crisis.

If the plan works, it should help lift a major weight off the national economy that is already sputtering.

Democrats were determined to wrest concessions from the administration on domestic spending and middle-class economic aid. And they said Republicans had to share in the politically tricky task of pushing through a financial bailout six weeks before the elections at a time when millions of everyday Americans are economically strapped and would struggle with higher taxes to help pay the national debt.

Still, compared with the existing $9.5 trillion debt, "another $700 billion is not enormous," said William Cline, a senior fellow at the Peterson Institute for International Economics, writing on the institute's Web site.

The national debt is the accumulated total of each year's deficit — the difference between what the government gets in taxes and what it spends. The debt has grown this decade because of borrowing to pay for the wars in Iraq and Afghanistan.

Many economists consider $5.5 trillion a more accurate current figure for the debt, since $9.5 trillion includes debt the government owes to itself in the Social Security and Medicare trust funds.

At the moment, that figure is roughly equal to 39 percent of the $14.3 trillion U.S. economy. That's much lower than after World War II, when the debt reached 109 percent of total economic output in 1946.

Steven Hess, lead U.S. analyst for credit rating agency Moody's Investors Services, said he expects the debt will climb to the mid-40s as a percentage of the economy because of the bailout and the higher cost of entitlement programs such as Social Security.

That's similar to the levels of the late 1980s and early 1990s. The ratio reached almost 50 percent in 1993, up from about 25 percent in 1981. Many economists expect the bailout to continue the recent trend of higher debt as a percentage of the whole economy. The current figure of 39 percent is up from 33 percent in 2001.

In a report Monday, Moody's reiterated its triple-A credit rating of U.S. debt, saying the rating is based on the United States' "diversified, flexible and innovative economy and competent policy making."

Top ratings like that help the U.S. borrow at low cost.

Separately, law enforcement officials said the FBI had begun investigating four institutions whose collapse helped trigger the financial crisis.

The FBI is looking at potential fraud by mortgage giants Fannie Mae and Freddie Mac, Lehman Brothers Holdings Inc. and insurer American International Group Inc., said two officials, speaking on condition of anonymity because of the sensitivity of the investigations. The inquiries, still in preliminary stages, will focus on the financial institutions and the people who ran them, one senior law enforcement official said.

As for the bailout plan, both parties' presidential candidates — GOP Sen. John McCain and Democrat Sen. Barack Obama — joined fellow senators in insisting on alterations in the administration's drastic prescription.

Democrats and Republicans alike demanded that the bailout limit pay packages for executives of companies helped by the rescue.

Democrats also were pushing proposals to let the government take some type of stake in the companies that it helps. The administration has balked at that, fearing it would discourage financial companies from getting the help they need through the bailout, thereby blunting the plan's effectiveness.

Democrats also want to let judges rewrite mortgages to lower bankrupt homeowners' monthly payments, another demand the administration is resisting.

Paulson was asked repeatedly why taxpayers should accept the burdens of a bailout.

"You worry about taxpayers being on the hook?" he replied at one point. "Guess what — they're already on the hook." Paulson suggested that the fallout from the credit crisis would hit almost everyone in the pocketbook unless forceful action was taken. Moreover, the flawed and outdated regulatory system, which didn't catch abuses, needs to be overhauled, he said.

In New York, meanwhile, Bush was telling the U.N. General Assembly that the United States was taking "bold steps" to prevent an economic calamity that would be sure to have major effects around the world.

One of the tricky issues confronting policymakers is how to price the distressed assets that the government would ultimately buy.

Bernanke suggested buying the assets at a "hold-to-maturity" price, which would be based on an estimate of what the securities would eventually be worth as payments came in over the years.

"If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits," Bernanke said. "First, banks will have a basis for valuing those assets and will not have to use fire-sale prices. Their capital will not be unreasonably marked down."

In contrast, if banks use existing "mark-to-market" rules that require them to value the holdings at what similar securities have recently sold for — in some cases pennies on the dollar — it could make the whole bailout futile because it would hurt many banks' balance sheets, causing some to fail. "This creates something of a vicious circle," he said.

Contributing: Julie Hirschfeld Davis, Martin Crutsinger, Erin Conroy, Associated Press