Record US deficit stokes concern

By Martin Crutsinger Washington

What is $1.42 trillion (R10.4 trillion)? It is more than the US's total national debt for its first 200 years and more than $4 700 for every American man, woman and child.

It is also the 2009 US federal budget deficit, three times more than any other deficit before. Some economists warn that unless the government start to cut spending or raise taxes, it could sow the seeds of another economic crisis.

Treasury figures released on Friday showed that the government spent $46.6 billion more than it received in September, a month that normally records a surplus. That boosted the shortfall for the full fiscal year that ended last month to $1.42 trillion. The previous year's deficit was $459 billion.

As a percentage of US economic output, it's the biggest deficit since World War II.

Forecasts of more red ink mean the federal government is heading toward spending 15 percent of its money by 2019 just to pay interest on the debt, up from 5 percent this year.

President Barack Obama has pledged to reduce the deficit once the great recession ends and the unemployment rate starts falling, but economists worry that the government lacks the will to make the hard political choices to get control of the imbalances.

Friday's report showed that the government paid $190bn in interest over the last 12 months on Treasury securities sold to finance the federal debt. Experts say this tab could quadruple in a decade as the size of the government's total debt rises to $17.1 trillion by 2019.

Without significant budget cuts, that would crowd out government spending in such areas as transport, law enforcement and education.

Already, interest on the debt is the third-largest category of government spending, after the government's entitlement programmes and the military.

As the biggest borrower in the world, the government has been the prime beneficiary of record low interest rates. The new budget report showed that interest payments fell by $62bn this year even as the debt was soaring.

The Congressional Budget Office projects that the debt held by investors both in the US and abroad will increase by $9.1 trillion over the next decade, pushing the total to $17.1 trillion under Obama's spending plans.

The $1.42 trillion deficit for 2009 - which was less than the $1.75 trillion projection that Obama made February - includes the cost of the government's financial sector bailout and the economic stimulus programme. Income taxes also dwindled as a result of the recession. Coupled with the impact of the tax cuts under former president George W Bush earlier in the decade, tax revenues fell 16.6 percent.

"We should be desperately worried about deficits of this size," says Mark Zandi, the chief economist at Moody's Economy.com. "The economic pain will be felt much sooner than people think, in the form of much higher interest rates and much higher rates of inflation." This could result in stagflation - a mix of inflation and economic stagnation.

The administration has pledged to include a deficit-reduction plan in its 2011 budget, which will go to Congress in February.

Treasury needs record $361B April-June borrowing

By MARTIN CRUTSINGER

WASHINGTON (AP) — The Treasury Department said Monday it will need to borrow $361 billion in the current April-June quarter, a record amount for that period.

It's the third straight quarter the government's borrowing needs have set records for those periods.

Treasury also estimated it will need to borrow $515 billion in the July-September quarter, down slightly from the $530 billion borrowed during the year-ago period. The all-time high of $569 billion was set in the October-December period.

The huge borrowing needs reflect the soaring costs of the $700 billion financial rescue program and the recession, which is nearing a record as the longest in the post World War II period.

The slump has cut sharply into tax revenue and boosted government spending for benefit programs such as unemployment insurance and food stamps.

The administration is projecting the federal deficit for the entire budget year ending Sept. 30, will total a record $1.75 trillion. A deficit at that level would nearly quadruple the previous record of $454.8 billion set last year.

To cover the government's heavy borrowing needs, Congress in February boosted the limit for the national debt to $12.1 trillion as part of the legislation that enacted President Barack Obama's $787 billion economic stimulus program. The national debt now stands at $11.1 trillion.

The government released its estimate of borrowing needs for the quarter before a news conference Wednesday when officials are scheduled provide exact details of how much debt the government plans to sell next week and in what maturity levels as part of Treasury's regular quarterly debt auctions.

The $361 billion estimate for borrowing this quarter compared with borrowing needs of just $13 billion in the year-ago period. Normally the government's borrowing needs shrink sharply in the April-June quarter because of all the tax revenue being collected.

The government announced in February that it was bringing back the seven-year note and doubling the number of 30-year bond auctions it would hold each year to help finance the surging borrowing needs.

Obama pledges to slash deficit — after increase

(So just how EXACTLY does this rationale work? You increase borrowing to slash the deficit? I think Congressional Republicans need to hold him at his word if he wants to half the deficit in four years - except they need to go a step further by using CBO pre-inauguration projections which King Banian of SCSU Scholars denotes would have been only 147 billion instead of 555 billion.)

By LIZ SIDOTI
Associated Press

WASHINGTON – Urging strict future restraint even as current spending soars, President Barack Obama pledged on Monday to dramatically slash the skyrocketing annual budget deficit as he started to dole out the record $787 billion economic stimulus package he signed last week.

"If we confront this crisis without also confronting the deficits that helped cause it, we risk sinking into another crisis down the road," the president warned, promising to cut the yearly deficit in half by the end of his four-year term. "We cannot simply spend as we please and defer the consequences."

He said he would reinstitute a pay-as-you-go rule that calls for spending reductions to match increases and would shun what he said were the past few years' "casual dishonesty of hiding irresponsible spending with clever accounting tricks." He called the long-term solvency of Social Security "the single most pressing fiscal challenge we face by far" and said reforming health care, including burgeoning entitlement programs, was a huge priority.

Wall Street seemed unimpressed by all the talk. The Dow Jones industrials dropped 251 points for the day.

Obama goes before Congress and the nation Tuesday night to make the case for his agenda and his budget plans, which the White House is to release in more detail on Thursday.

On Monday, he sought to prepare people for tough choices ahead.

He summoned allies, adversaries and outside experts to what the White House characterized as a summit on the nation's future financial health one week after triumphantly putting his signature on the gargantuan spending-and-tax-cut measure designed to stop the country's economic free fall and, ultimately, reverse the recession now months into its second year.

At the same time, federal regulators announced a revamped program to shore up the nation's banks that could give the government increasing ownership. It was the administration's latest attempt to bolster the severely weakened banking system without nationalizing any institutions, which the White House has said it does not intend to do.

Obama said there would be another summit next week on health care reform. "It's not that I've got summititis here," he added wryly.

By the president's account, the administration inherited a $1.3 trillion deficit for the current fiscal year from the Bush administration — that's the figure Obama says he'll cut in half — and the stimulus law, coupled with rescue efforts for ailing automakers, the financial industry and beleaguered homeowners will raise this year's red ink to $1.5 trillion.

The administration hopes to trim the deficit by scaling back Iraq war spending, raising taxes on the wealthiest and streamlining government.

"We are paying the price for these deficits right now," Obama said, estimating the country spends $250 billion — one in every ten dollars of taxpayer money — in interest on the national debt. "I refuse to leave our children with a debt that they cannot repay."

As an example of a purchasing process "gone amok," the president said he had ordered a thorough review of his new fleet of Marine One helicopters, now far over budget. He was asked about the fleet by former presidential rival John McCain at the end of the White House meeting.

"The helicopter I have now seems perfectly adequate to me," Obama said, to laughter. "Of course, I've never had a helicopter before. So, you know, maybe I've been deprived and I didn't know it."

Earlier, Obama met with Republican and Democratic governors who are poised to benefit from his unprecedented emergency economic package. He told the chief executives, attending a three-day National Governors Association meeting in Washington, that he would begin distributing $15 billion to their states within two days to help them with Medicaid payments to the poor.

The recession has strapped state budgets, in particular in regard to the Medicaid program that is jointly underwritten by states and the federal government. In total, states will eventually receive $90 billion for Medicaid from the new law.

One month into office as the economy continues its downward spiral, Obama is seeking to balance twin priorities: turning around dismal conditions with a huge injection of spending while lowering huge budget deficits. With his re-election race just a few years away, he also has an interest in avoiding being labeled as a big-government, big-spending Democrat.

The White House meetings opened a jam-packed White House week that includes a State-of-the-Union-style address to Congress Tuesday night and the president's first budget proposal on Thursday. A common thread: addressing current economic turmoil while controlling the country's long-term costs.

"This will not be easy," Obama told his White House audience, which included congressional leaders, 2008 GOP presidential nominee McCain, and Republican Sen. Judd Gregg of New Hampshire, who recently backed out as Obama's commerce secretary.

After Obama spoke, attendees broke into five groups to brainstorm how to address costly areas including military weapons, Social Security, health care and tax reform.

During one, Rep. Henry Waxman, D-Calif., said, "Our deficit really cannot be controlled until we figure out how to deal with health care costs." At another, House Republican leader John Boehner of Ohio proposed raising the Social Security retirement age to 70 over a number of years.

Afterward, Obama emphasized areas where he said there was agreement and consensus on moving forward in a bipartisan way, including that the country must ensure people have retirement security, that the tax process must be simplified and that the existing budgeting process isn't working. He also directed his team to pull together a final report from the sessions in 30 days.

Official: Obama wants to halve budget deficit

By LIZ SIDOTI
Associated Press Writer

WASHINGTON – Barack Obama wants to cut the federal deficit in half by the end of his first term, mostly by scaling back Iraq war spending, raising taxes on the wealthiest and streamlining government, an administration official said Saturday as the president worked to finalize his first budget request.

Obama's proposal for the 2010 fiscal year that begins Oct. 1 projects that the estimated $1.3 trillion deficit he has inherited from former President George W. Bush will be halved to $533 billion by 2013. That's a difference of 9.2 percent of the overall economy now vs. 3 percent in four years.

"We can't generate sustained growth without getting our deficits under control," Obama said in his weekly radio and Internet address that seemed to preview his intentions. He said his budget will be "sober in its assessments, honest in its accounting, and lays out in detail my strategy for investing in what we need, cutting what we don't, and restoring fiscal discipline."

He's expected to outline some broad themes of his budget request Monday at a White House summit on fiscal policy and touch on it during his first speech to Congress on Tuesday evening. He is slated to officially send at least a summary of it to Congress on Thursday, barely a week after his $787 billion economic stimulus plan becoming law.

Obama's budget also is expected to take steps toward his campaign promises of establishing universal health care and lessening the country's reliance on foreign oil.

The official, who spoke on the condition of anonymity because the president has not yet released his budget, said Obama hopes to achieve his deficit-reduction goal by generating savings as he follows through on three core campaign promises over the next four years.

He has pledged to wind down the Iraq war by withdrawing most combat troops within 16 months of taking office. He also has said he would let the temporary Bush tax cuts expire in 2011 for people making more than $250,000 a year, effectively raising taxes on those people. And, he has vowed to scale back spending and improve government efficiency by eliminating programs that don't work.

The budget projections suggest that Obama hasn't backed off of any of those priorities, despite relatively little movement on them and at least one misstep in his first month in office as he concentrated on lobbying for the economic stimulus plan and rescuing the housing, auto and financial sectors.

Pentagon officials still are trying to determine exactly how to scale back the U.S. troop commitment in Iraq. The president's sweeping economic plan didn't include any of the tax increases Obama, as a candidate, had said he would impose on wealthy taxpayers. And, Nancy Killefer, his selection for a newly created position charged with eliminating inefficient government programs, withdrew amid personal tax issues.

Cutting the deficit by half in a mere four years is a lofty goal at any time, let alone in such dire economic circumstances. The question is whether Obama can do it while also turning around a recession now well into its second year.

Obama has pledged to make deficit-reduction a priority both as a candidate and a president. But he also has said economic recovery must come first.

In his first month in office, he has overseen enormous amounts of spending aimed at stabilizing the economy, reversing the recession and heading off even more turmoil.

Last week, he signed into law the $787 billion stimulus measure that is meant to create jobs but certainly will add to the nation's skyrocketing national debt. He also is implementing the $700 billion financial sector rescue passed on Bush's watch; about $75 billion of it is being used toward Obama's plan to help homeowners facing foreclosure. At the same time, the administration is weighing requests by General Motors Corp. and Chrysler LLC for an additional $21.6 billion. The ailing automakers already have received a combined $17.4 billion in federal loans.

Yet, even as he's spending a ton of taxpayer money, Obama also is pressing the need for getting "exploding deficits" under control.

The nonpartisan Congressional Budget Office says that this year's budget deficit will be at least a record $1.2 trillion — about two times that of the year before. That total includes financial bailouts and rescue plans Congress approved since last Oct. 1, the start of the government's budget year, but not Obama's hefty stimulus package that's now law.

Some private economists are forecasting that the budget deficit for the current year will hit $1.6 trillion. And, the Treasury Department has said that the recession and massive costs for the $700 billion financial bailout have pushed the federal deficit to an all-time high for the first four months of the budget year.

Obama's budget director, Peter Orszag, told lawmakers recently that even after the economy recovers, annual deficits could reach $750 billion or so and steadily exceed $1 trillion by the end of the next decade. And, Obama himself has said, without decisive action, "trillion-dollar deficits will be a reality for years to come."

Budget deficit to reach $1.2 trillion

By Lori Montgomery Washington Post
Updated: 01/07/2009 10:59:53 PM CST

WASHINGTON — The nation's budget deficit will soar to an unprecedented $1.2 trillion this year, congressional budget analysts said Wednesday, a startling tide of red ink that could dampen enthusiasm on Capitol Hill for some of President-elect Barack Obama's most ambitious priorities.

In the first official estimate of the damage done to the nation's finances by a weakening economy and various financial sector bailouts, the Congressional Budget Office reported that the gap between government spending and available revenue will exceed 8 percent of the overall economy by the end of September, a yawning chasm not seen since the end of World War II.
The news drew a grim reaction from Congress, where the chairman of the Senate Budget Committee, Sen. Kent Conrad, D-N.D., called the figure "jaw-dropping." While lawmakers said they expect to dig this year's hole even deeper by approving a massive stimulus package aimed at pulling the nation out of recession, Conrad and his House counterpart, Rep. John Spratt, D-S.C., said they have warned Obama to limit the package to temporary measures that will not add to the deficit in future years.

The two Democratic budget leaders also cautioned Obama to find ways to pay for any other initiatives he pursues after taking office later this month, including expensive promises to expand access to health care for the uninsured, develop new sources of alternative energy and offer a bevy of new tax cuts to middle-class families.

"We should be very skeptical about any policy changes that add to the deficit and the debt that are permanent in nature," Conrad told reporters.

At a news conference in Washington, Obama greeted news of the mounting deficit by vowing to ensure that government dollars — either in the stimulus package or routine programs — are not wasted.

To that end, he announced the appointment of Nancy Killefer, an assistant secretary of the Treasury in the Clinton administration, to serve as "chief performance officer" in the White House budget office. In the newly created post, Killefer will be tasked with retooling budget practices and slashing unnecessary programs.

Obama once again declined to say how he plans to eliminate the growing budget gap, which is projected to narrow somewhat as the economy improves but explode again as the retiring baby boom generation sends the cost of the entitlement programs — Social Security, Medicaid and Medicare — skyrocketing. Obama said he will offer "very specific outlines" for addressing short- and long-term deficits when he submits his first budget proposal to Congress next month.
"We are beginning consultations with members of Congress around how we expect to approach the deficit," Obama said. "We expect that discussion around entitlements will be a part, a central part, of those plans."

So far, however, Conrad said Obama's team has been cool to requests to establish a bipartisan task force that would re-examine the entitlement programs, as well as the nation's tax system, and develop a long-term plan for bringing costs and revenue in line.

WSJ: U.S. Deficit Hits Record As Corporate Profits Fall

From the Friday April 11, 2008 issue of the Wall Street Journal (page A12)

By Michael M. Phillips

The foreclosure crisis and the turmoil on Wall Street appear to be putting a squeeze on the federal budget, leaving record deficits in their wake as corporate-income-tax revenues fall.

The Treasury Department reported Thursday that receipts from corporate income taxes fell 16% to $129 billion in the first half of fiscal 2008, which began Oct. 1. The federal deficit during the period hit an all-time high of $311 billion, and was up 20% from a year earlier.

"Corporate tax revenues are declining significantly," Peter Orszag, head of the nonpartisan Congressional Budget Office, said in an interview. "We're experiencing a period in which corporate tax revenues grew extremely rapidly for several years, and now that's being reversed to some degree."

While government data don't identify revenue sources by industry, analysts looking at corporate profitibability say that the biggest revenue declines probably are due to the setbacks to banks, investment banks and other financial institutions arising from the collapse of the subprime-mortgage market.

"It's partly an economic slowdown, but it's much more focused than that," said J.D. Foster, a former chief economist at the White House Office of Management and Budget and now a senior fellow at the conserative Heritage Foundation. "In recent years we have gotten an inordinate proportion of our corporate tax receipts from the financial sector. And who's getting hammered [now]?"

The wave of home-loan defaults sweeping the nation has sent shocks through banks and Wall Street firms that invested heavily in risky securities backed by those mortgages. The International Monetary Fund forecast this week that, over two years, the crisis will saddle financial institutions world-wide with $945 billion in losses.

In part because of rising revenues from taxes on individuals' incomes, federal receipts overall hit a record in the first half of the fiscal year, reaching $1.15 trillion, an increase of 2% from a year earlier. Individual-income-tax receipts accounted for $504 billion, up from $479 billion in the first half of fiscal 2007. The periods ended before the height of the tax-filing season in early April.

Nonetheless, the reduction in corporate tax revenues combined with a 6% jump in federal spending to $1.46 trillion to create the record budget shortfall.

U.S. deficit looms over stimulus talks

Yes, I know it's old news by now, just trying to get through the backlog of information I've needed to post for quite awhile now.


U.S. deficit looms over stimulus talks
Current plan to jump-start economy could push deficit to $400 billion

By Kevin G. Hall
McClatchy Newspapers

St. Paul Pioneer Press
Thursday January 24, 2008 Pg 3A

As the Bush administration and Congress try to craft an economic stimulus plan, a dark cloud hangs over them: the federal deficit.

Iraq war costs of $9.6 billion a month and a gaping federal deficit that's funded by borrowing from foreign governments limit how aggressively the U.S. government can cut taxes or boost spending to fend off a recession.

Just over the horizon, a fiscal crisis that some call a day of reckoning looms larger.

Statistics released Wednesday by the nonpartisan Congressional Budget Office show that the federal deficit, the gap between what the government spends and the revenue it collects, is projected to leap to $250 billion in the current budget year. That's up 53 percent from the $163 billion deficit in fiscal 2007.

If Congress approves the roughly $140 billion stimulus plan now being discussed, the deficit for the 2008 fiscal year, which began Oct. 1, could swell to almost $400 billion.

The CBO presented those estimates to Congress on Wednesday as part of its budget and economic outlook for 2008 to 2018.

"Ongoing increases in health care costs, along with the aging of the population, are expected to put subtantial pressure on the budget in coming decades," Director Peter Orszag told the House Budget Committee. "Those trends are already evident in the current projection period."

Lawmakers can sharply cut government spending, sharply raise taxes or pass some combination of spending cuts and tax increases, Orszag said.

The Bush administration frequently notes that although the deficit is high, it's low in hsitorical terms as a percentage of the total economy - 1.5 percent this budget year, according to CBO estimates.

That's true. But it's a snapshot of the moment. Seen in the context of what lies ahead, the deficit puts the U.S. economy on a weaker footing to address the fiscal challenges that successive Congresses have ducked.

Comptroller General David Walker, the chief auditor of the government's balance sheet, has all but shouted from the rooftop that the U.S. government had more than $50 trillion in unfunded liabilities at the close of 2006, compared with the $20 trillion in 2000. That number is the sum of everything the government has promised to pay in the future, from pensions and government healthcare to interest on the debt.

The liabilities now amount to about $170,000 per person or $440,000 per U.S. household, according to Walker. The largest drivers of this trend are big entitlement programs such as Social Security and Medicare, the government insurance program for the elderly. These programs will come under even more strain when the first baby boomers - Americans born between 1946 and 1964 - reach official retirement age in two years.

Some economists believe that to avoid passing the burden to future generations of Americans, lawmakers and President Bush should propose ways to pay for the stimulus - a combination of tax rebates for consumers and tax relief for business - over a longer time frame.

"If we do something right now like a tax rebate and a couple of other things, it would be sensible to pay for it over a five-year period or something like that," said Alice Rivlin, a former vice chairman of the Federal Reserve who's now a senior researcher at the Brookings Institution, a center-left policy research organization.

While supportive of a short-term stimulus, Rivlin said long-term challenges must be considered.

"In the long run, we are in serious deficit trouble, and the long run is not so long anymore," said Rivlin, who was the director of the Congressional Budget Office from 1975 to 1983.

AP - Deficit falls to lowest level in 5 years

The following article appeared on Oct. 11, 2007, courtesy of the Associated Press.

Deficit falls to lowest level in 5 years
Both spending, revenue at record marks in 2007
BY MARTIN CRUTSINGER
Associated Press


WASHINGTON - The Bush administration reported Thursday that the federal budget deficit fell to $162.8 billion in the just-completed budget year, the lowest amount of red ink in five years.

The administration credited the president's tax cuts for helping generate record-breaking revenues but warned of an approaching "fiscal train wreck" unless Congress deals with unsustainable growth in Social Security, Medicare and Medicaid.

President Bush, appearing with his economic team to trumpet the news, noted that the deficit turned out to be $81 billion lower than it was projected to be in February. He said the deficit represents 1.2 percent of gross domestic product - less than the average of the last 40 years.

"By keeping taxes low we can grow the economy, and by working with Congress to set priorities we can be fiscally responsible and we can head toward balance," Bush said after the meeting across the street from the White House. "And that's exactly where we're headed."

The deficit for the 2007 budget year that ended on Sept. 30 was 34.4 percent lower than the $248.2 billion deficit recorded in 2006, reflecting faster growth in revenues than in government spending.

Administration officials said the government was on track to accomplish Bush's goal of eliminating the deficit by 2012. But Democrats said the improvement in the deficit this year did not mask the fact that Bush's economic policies transformed the budget surpluses of the Clinton years into record deficits and an unprecedented increase in the national debt.

The debate over the president's signature tax cuts and their impact on the economy are certain to be played out in the coming presidential campaign. Republican candidates are vowing to make permanent Bush's tax cuts, which are due to expire at the end of 2010; Democrats want to roll back the tax cuts received by the wealthiest taxpayers.

Both revenues and spending climbed to record levels in 2007. Spending rose by 2.8 percent to $2.73 trillion while revenues rose by a faster 6.7 percent to a record $2.57 trillion, a gain the administration attributed to the economic stimulus from the president's tax cuts.

"This year's budget results further demonstrate how the president's tax relief, combined with spending discipline, has helped promote a sustained economic expansion, which led to revenue growth and resulted in a declining deficit," said White House budget director Jim Nussle.

But administration officials said while the short-term budget deficit was improving, greater efforts were needed to deal with the budgetary pressures that will arise in future years with the approaching retirement of 78 million baby boomers.

"For the sake of our children and grandchildren, Congress should begin to take action to prevent this fiscal train wreck," Nussle said in a statement accompanying the budget figures.

Senate Budget Committee Chairman Kent Conrad, D-N.D., said that Bush would "go down in history as the most fiscally irresponsible president ever. The fact is that the nation's debt has exploded on his watch - rising by $3 trillion since 2001, to $9 trillion today."

Bush recently signed into law a measure increasing the government's borrowing ceiling to $9.815 trillion. It was the fifth debt increase of Bush's presidency. The national debt is the accumulation of the annual deficits.

The deficit hit an all-time high in dollar terms of $413 billion in 2004 and has been coming down since.

The Congressional Budget Office projects the deficit will improve further in the 2008 budget year, which began on Oct. 1, projecting a decline to $155 billion before the imbalance starts to rise again in 2009.