WORLD> America
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WORLD> America
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US budget deficit tops $1t for 1st time
(Agencies)
Updated: 2009-07-14 07:04 The debt is largely financed by the sale of Treasury bonds and bills. Many private economists say the administration had no choice but to take aggressive action during the financial crisis. "We have a deep recession hammering tax revenues and forcing the government to provide a lot of help to the economy," said Mark Zandi, chief economist at Moody's Economy.com. "But without this help, the downturn would be even more severe."
President Franklin D. Roosevelt made that mistake in 1936. Believing the Depression largely over, he sought to reduce public spending and to balance the federal budget, but that undermined a fragile recovery, pushing the economy back under water in 1937. Japanese leaders made a similar mistake in the 1990s when they temporarily withdrew government stimulus spending, prolonging Japan's recession into one that lasted a full decade. Republicans in Congress are seizing on the deficit -- and the persistence of the recession -- to attack Democrats. "Washington Democrats keep borrowing and spending money we don't have," said House Republican Leader John Boehner of Ohio. So far, interest rates have remained low. This is partly because the Federal Reserve has kept a key short-term rate at a record near zero. Also, all the economic troubles in housing and the rest of the economy have depressed demand for credit by the private sector, meaning the government's borrowing costs are relatively low. The benchmark 10-year Treasury security has risen by about a percentage point in recent weeks, but analysts note it is still trading at historically low levels of around 3.35 percent. Geithner travels later this week to Saudi Arabia and the United Arab Emirates, where he is expected to face questions about the US deficit. As he did during a visit to China last month, Geithner will try to reassure investors in the Middle East that their US holdings are safe from a calamitous bout of inflation. The deficit of $1.09 trillion so far this year compares to an imbalance of $285.85 billion through the same period a year ago. The deficit for the 2008 budget year, which ended Sept. 30, was $454.8 billion, the current record in dollar terms. Revenues so far this year total $1.59 trillion, down 17.9 percent from a year ago, reflecting higher unemployment, which cuts into payroll taxes and corporate tax receipts. Under the administration's budget estimates, the $1.84 trillion deficit for this year will be followed by a $1.26 trillion deficit in 2010, and will never dip below $500 billion over the next decade. The administration estimates the deficits will total $7.1 trillion from 2010 to 2019.
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