$1 Trillion Federal Deficit? We're On Track To Hit That Record High
WASHINGTON — The federal government ran a record budget deficit in November, putting Uncle Sam on track to post an all-time high annual shortfall of $1 trillion or more.
In just the first two months of the budget year that started Oct. 1, the deficit totaled $401.6 billion, nearly matching the record gap of $455 billion posted for all of last year, according to Treasury Department data released Wednesday. If the deficit does top $1 trillion for the current budget year, it also would be a post-World War II high when measured as a percentage of the economy.
The increased red ink stems from both lower tax revenue and increased spending that is a result of the recessionary economy. The government is receiving less in business and personal income taxes while spending more on programs such as unemployment insurance and food stamps.
Elsewhere, emergency aid for the nation's imperiled auto industry was thrown into jeopardy Wednesday as some Republicans revolted against a hard-fought deal between Democrats and the Bush White House to speed $14 billion to the ailing carmakers.
Then there's the $700 billion bank rescue program. The Treasury report showed that the government spent $76.5 billion from the program in November and $191.5 billion over the past two months.
A congressional oversight panel on Wednesday questioned whether Treasury is following a clear strategy in its use of those funds. The panel, which includes academic and labor representatives, also asked in a report whether the rescue effort has helped any homeowners avoid foreclosure.
The 37-page oversight report offers no specific conclusions, but the questions suggest sharp disagreements with Treasury Secretary Henry Paulson's stewardship of the program and echo some of the criticism raised in a Government Accountability Office audit of the program last week.
Many Democrats in Congress have criticized Treasury for not using the funds to help homeowners.
The department said Wednesday that the gap between the government's revenue collections and what it paid out last month totaled $164.4 billion, the largest deficit ever recorded for the month of November. The deficit was $98.2 billion in November 2007.
An annual deficit of $1 trillion would equal 6.7 percent of the gross domestic product, the economy's total output in a single year. That would surpass the previous postwar record in GDP terms of 6 percent sent in 1983 when Ronald Reagan was president.
And some economists think the annual deficit will be even higher. David Rosenberg, North American economist at Merrill Lynch, projected that it could reach $1.5 trillion, depending on how large an economic stimulus package is approved next year.
The Treasury Department plans to use $250 billion of the $700 billion program to make direct purchases of bank stock, providing the nation's financial institutions with an infusion of cash in the hopes that they will resume more normal lending practices.
The government provided $115 billion to eight of the largest financial institutions in October, including Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. Treasury said Tuesday that overall it has provided more than $155 billion to 77 banks.
Some analysts argue that the deficit is effectively lower than Treasury's figures because the government has received stakes in the banks in return for the capital. The government could get some or all of the money back when it sells those ownership stakes in the future.
The Congressional Budget Office said last week that accounting for the value of those stakes would reduce the combined deficit for October and November to $267 billion, rather than the $401.6 billion reported by Treasury.
Besides the $700 billion rescue package, the Treasury also is making purchases of mortgage-backed securities in an effort to bolster demand for these assets. Those purchases totaled $23.2 billion in November and $44.7 billion over the past two months.
Still, even budget hawks acknowledge that now is a good time for the government to step up its borrowing. With the Treasury Department paying the lowest rates on government debt in years, taxpayers will pay less in interest on all the new debt.
In recent days, the Treasury has sold one-month bills at zero percent and three-month bills at rates near zero.
That's because the financial meltdown has caused large institutional investors to seek out the safety of T-bills, increasing demand and lowering the yield on government debt.
But Robert Bixby, executive director of the Concord Coalition, a nonpartisan budget watchdog group, warned that the low rates won't last forever.
"This is like a teaser rate for the federal government," he said, referring to the low initial interest rates that many mortgage lenders offered to entice consumers to buy a home. Many homeowners have since struggled to pay higher rates that have kicked in after the teaser rate.
But Rosenberg thinks the U.S. can afford the extra spending, as total public debt is equal to about 40 percent of the U.S. economy, he said in a research note Tuesday.
That is "well below any level that would suggest a cause for concern about the credit rating on U.S. debt."
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Associated Press Writers Martin Crutsinger and Jim Kuhnhenn contributed to this report.
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CHRISTOPHER S. RUGABER | December 10, 2008 06:55 PM EST |
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