US deficit forecast to be four times last year’s record
Stimulus spending is one reason. Tax revenues also drop during a recession.
By Mark Trumbull | Staff writer/ August 12, 2009 edition
To put some context on a new estimate that puts this year’s federal deficit at $1.8 trillion, consider this: That amount had never been spent by the federal government in a single year until 2000, let alone borrowed.
That’s right. As the decade began, the US government spent $1.8 trillion in a year for the first time. Now it’s poised to spend that much in excess of its tax revenues.
The Treasury released the latest figures Wednesday, showing spending of about $3 trillion in the past 10 months, and revenues of only $1.74 trillion.
With two months to go in the fiscal calendar, the Obama administration is projecting that the imbalance will end up totaling $1.84 trillion, more than four times last year’s record-high. The monthly deficit for July, also reported this week, came in a bit above what economists had expected.
The record red ink stems from familiar sources. The government is spending prodigiously on stimulus, to lift the economy out of recession, and on rescuing the financial system from a credit crisis. The cost of wars in Iraq and Afghanistan add to the tab.
Meanwhile, in recessions tax revenues tend to fall, and this one is no exception. Government receipts were down about 6 percent in July from a year before.
The good news is that many of these forces are cyclical or temporary. The massive stimulus won’t last forever, and revenues from taxes should rise again when the economy grows healthier.
“We expect this year’s deficit will be … 10.5 percent of GDP [gross domestic product] and next year’s to equal 8.3 percent of GDP as the spending spree and revenue weakness persist into the first year of the recovery,” Merrill Lynch economist Drew Matus wrote in a report last week. The report predicted shrinking deficits after that, but warned that the “the long-term outlook remains poor.”
That’s the bad news, many economists agree. The fiscal position will remain difficult, since baby boomers are already starting to retire in a wave that will grow more costly in coming years.
The soaring deficits have raised worries among foreign owners of US 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.
The concern, however, is that rates could begin rising if foreigners lose confidence in the government’s ability to manage its debt burden.
In bond markets, prices fell Wednesday after a fairly weak auction of $23 billion in 10-year Treasury notes. The Treasury Department is auctioning a record $75 billion in debt this week.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.75 percent from 3.70 percent ahead of the auction results and 3.67 percent late Tuesday.
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 national defense.
Material from the Associated Press was used in this report
—–
Follow us on Twitter.
( More stories )
Comments
3. Angelou | 08.12.09
Thanks a lot Bush. I wish republicans in the house would help us get out of this mess instead of saying NO to everything that might help alleviate these problems. “They helped create this mess and now refuse to help us get out of it.”
5. Beltway Greg | 08.12.09
Lest we forget the last time we ran a surplus? During the Clinton administration then Bush came in and sent us a check to help us get over the hard feelings that resulted from the election in 2000, cut taxes and spent like a drunken sailor and invaded the wrong country and allowed the banks to leverage themselves to the hilt. Obama should give the birthers exactly what they want. He should stop propping up the weak sectors of our economy and create Hoovervilles so that those who cannot handle money can live in tents. The government should effectively shut down the homebuilding industry until the excess inventory of homes is gone. Let the builders work with people to remodel the foreclosed homes. As it is we will simply inflate our way out of this mess and we’ll have about a decade of slow growth, no growth. Short the dollar and buy commodities as inflation is our only hope.
6. RR | 08.12.09
Isn’t the large Medicaid Tab the real reason they want to revamp healthcare? Even a liberal Annenberg Challenge democrat isn’t foolish enough to propose more deficit spending. Private Insurance is about risk pools. If they are expanding the risk pools to people who can only afford a very small premium. Will those of us with more meatier tax returns have to shoulder even higher healthcare premiums under the new proposals to defer the Govt’s Medicaid costs? Is this, in a sense, a plan to institute a new healthcare ‘tax’ or surcharge without calling it a tax to try to reduce the deficit? (By the way: Tell Pew Public Trusts to start doing some real charity and to stop spending Millions trying to dismantle a National Landmark in PA, The Barnes Foundation. KEEP THE BARNES IN MERION!)
7. Dano… | 08.12.09
The interest alone is over $1400 PER PERSON…not just tax paying people but every man woman and child. If we do not get a handle on this, we will be the next bankruptcy on the chopping block, except that there will be no one to bail us out.
8. carlos castro | 08.12.09
the only thing that are going to say is keep giving money to the others country, i know the reason because yoy whant to be mister nice country, thats is the raso that we are how we are hope this finish with a good end , dont belive so
9. Cedar | 08.12.09
Wow! This from the president who promised “change” from the deficit spending of the previous 8 years under Bush. I didn’t realize he meant the change was to spend MORE.
10. JamesJ | 08.13.09
I am 43-years old and not one year of my life or my fathers life have we lived in a deficit free america.
11. Read | 08.13.09
Have no fear, Obama is here! He has all the Nobel prize winners in the world to advise him.
Trut Obama, it is one of the change we can believe in!
12. Mike | 08.13.09
Angelou - So your want the Republicans to say “yes” to every bit of spending that Obammy and his Aunt Nancy and Uncle Harry want???? You really think that will help us in the LONG run? I am willing to bet you don’t know the first thing about running a business, let alone balancing a checkbook. You would make a perfect politician!
13. corky | 08.13.09
Republicans spend too much (look at Bush and Schwarzenegger). Democrats spend too much (look at all of them). The best thing we can do is limit government at all levels. Healthcare reform? right.
14. Stanich | 08.13.09
The one lesson liberals are unable to learn is that spending by a government only gets in the way of a market based economy. They hang from their branch by their feet and tell us the “world is upside down”
Its all about them being in power! Problem solving is not their strong suit. Creating problems is where the demorats excel1
15. Mr Johnson | 08.13.09
Does history have any example we could learn from? Didn’t Germany try to spend it’s way out of debt in the early 1900s?? Wonder if this will work out better this time..
Both parties have failed us. Bush was a joke of a president and Obamas path is (finacially) an accelerated version of Bushs “borrow and spend” insanity.
16. Benjamino Neb | 08.13.09
just change washington d.c. this way -
Be president for only 6 years - ONE time - THAT’s it -
Senate and Congress is 8 years and then GET OUT AND GO HOME - THAT’s it !!
these people use their offices to spend and save for themselves - and we pay the whole bill ALL THE TIME - what part of this is fair ??????????
17. p green | 08.13.09
It is amazing that not one person has commented that the basic premise of the article is completely false!
The only way to get to a fourfold Obama increase from last year’s deficit (under Bush) is to continue the lie that was the last administration’s false accounting.
The so-called Bush “deficit” last year was about $420 billion, but that did NOT include the cost of the wars and related costs (say $600 billion), disaster relief (say $100B), borrowing from Social Security Trust Fund (about $200 billion), plus various “off budget” items. Bush’s last year total deficit is actually about $1.4 trillion, not $420 billion.
Obama, on the other hand, has included the costs of the two wars, disaster relief, unemployment insurance payments, etc., plus the stimulus in the deficit calculation. Also, TARP costs are not part of the budget, despite what right wingers like to say; much of that money will be repaid plus provide taxpayers a return in the region of 4-15%. Obama brought the correct manner of accounting back to the budget, so the deficit definition has changed back to its traditional approach - that’s why it has quadrupled.
18. Norris Hall | 08.16.09
The same folks who lobbied to spend $100 billion dollars a year to bring democracy to Iraq, to rebuild their army, to train their police force, to rebuild their bridges, schools and road and to get their water system and electrical grid up and running…these are the same ones that are complaining about spending the same amount of money to bring health insurance to Americans who are uninsured.
So I get it. It’s ok to spend money on Iraqis but it’s not ok to spend money on Americans.
So how about this. Who do you think ends up paying for all those uninsured folks to crowd the emergency wards of our hospitals.
Look in the mirror. Surprise!!!
Trackbacks/Pingbacks
Leave a Comment
We do not publish all comments, and we do not publish comments immediately. The comments feature is a forum to discuss the ideas in our stories. Constructive debate - even pointed disagreement - is welcome, but personal attacks on other commenters are not, and will not be published.
Tip: Do not write a novel. Keep it short. We will not publish lengthy comments. Come up with your own statements. This is not a place to cut and paste an email you received. If we recognize it as such, we won't post it.
Please do not post any comments that are commercial in nature or that violate copyrights.
Finally, we will not publish any comments that we regard as obscene, defamatory, or intended to incite violence.
1. JSmith | 08.12.09
Fed is pumping in all the money into the system. Why is there no inflation? - All the money is being sucked into China. There is an enormous source of money and and enormous sink - China (and to a lesser degree China).
So as long as Americans continue to spend in dollars and Chinese are willing to sell goods in exchange for Dollars and store dollars in their stockpile, all is hunky are dory.