Ahead of the Bell: Federal Budget
Budget deficit expected to approach record $1.3 trillion through July, more red ink to come
On Wednesday August 12, 2009, 8:25 am EDT
Buzz up! 0 Print.WASHINGTON (AP) -- The federal budget deficit is expected to approach $1.3 trillion with two months remaining in the budget year.
Economists surveyed by Thomson Reuters expect the deficit for July will total $177.5 billion, about $75 billion higher than the deficit for July 2008. In the budget year that began Oct. 1, the deficit is expected to total $1.27 trillion.
The Treasury Department is scheduled to release the budget report for July on Wednesday at 2 p.m. EDT.
When the budget year ends, the administration is projecting the deficit will hit $1.84 trillion. That would be four times the size of last year's imbalance of $454.8 billion, the current record in dollar terms.
The deficit has been driven higher by massive amounts of spending to combat the longest recession since World War II and stabilize the U.S. financial system. The cost of wars in Iraq and Afghanistan also is a major factor.
The downturn also has cut sharply into government tax revenues as massive job layoffs have reduced individual tax payments and the weak economy has slashed corporate tax payments.
The soaring deficits have raised worries among foreign owners of U.S. Treasury securities including the Chinese, the largest holder of such debt.
President Barack Obama's economic team sought to reassure the Chinese during high-level talks last month that the administration is committed to reducing the deficits once the current economic and financial crises have been resolved.
So far interest rates have remained low as the Federal Reserve, which is wrapping up a two-day meeting Wednesday, has kept a key short-term rate at a record near zero in an effort to jump-start economic growth.
The concern, however, is that rates could begin rising despite the Fed's efforts if foreigners suddenly lose confidence in the government's ability to manage its debt burden. Should foreigners begin dumping their Treasury securities, U.S. interest rates would soar and the value of the dollar would plunge.
The total public debt now stands at $11.6 trillion. Interest payments on the debt cost $452 billion last year, the largest federal spending category after Medicare-Medicaid, Social Security and defense.
The overall debt is now slightly more than 80 percent of the annual output of the entire U.S. economy, as measured by the gross domestic product. During World War II, it briefly rose to 120 percent of GDP.
The debt is largely financed by the sale of Treasury bonds and bills.
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