December budget deficit sets record
WASHINGTON (AP) – The federal budget deficit hit an all-time high for the month of December, and the red ink for the first three months of the current budget year is rising at a more rapid pace than last year’s record clip.
The massive tide of red ink, reflecting the continued fallout from a deep recession and a severe financial crisis, highlights the challenge facing President Barack Obama as he pledges to get control of runaway deficits.
The Treasury Department said Wednesday that the deficit last month totaled $91.85 billion, the largest December deficit on record. The figure was in line with economists’ expectations.
For the first three months of the current budget year, which began on Oct. 1, the deficit totaled $388.51 billion, 16.8 percent higher than the $332.49 billion imbalance recorded during the same period a year ago.
Last year’s deficit surged to $1.42 trillion, more than three times the record of the previous year, an imbalance of $454.8 billion set in 2008.
The Obama administration is projecting that this year’s deficit will climb even higher to $1.5 trillion, which would be 5.6 percent higher than the 2009 deficit. That figure will be revised when the president sends his new budget to Congress in early February.
The red ink is being caused by the impact a severe recession has had on government revenues and the billions of dollars being spent to stimulate the economy and stabilize the financial system.
So far, the government has been able to finance the soaring imbalances with low interest rates as the Federal Reserve has worked to keep rates low in an effort to jump-start economic growth.
However, economists warn that the government’s financing costs will begin rising sharply once the recovery begins and the Fed starts raising rates to make sure inflation does not get out of control.
Foreign governments, including China, the largest holder of U.S. Treasury securities, have also expressed concerns about the outlook for deficit reduction in coming years.
The administration contends that the government has no choice but to spend these vast sums to keep the country from falling into an even deeper downturn. The administration is pledging to move forcefully to get the deficits under control once the economy has begun growing again and the unemployment rate is on a sustained downward path.
Obama’s deficit-cutting plans are expected to be featured prominently in the budget the president will submit to Congress in early February for the 2011 budget year that will begin next Oct. 1.
The country’s deficit woes are being made worse by the recession, the country’s worst downturn since the 1930s. Individual income taxes are down, reflecting the millions of people who have lost their jobs, and corporate tax revenues have fallen as companies have struggled to deal with dropping demand for their products.
At the same time, government spending on unemployment benefits, food stamps and other programs to deal with the hard times have soared while the government has also mobilized a $700 billion bailout fund for the financial system and a $787 billion economic stimulus program passed by Congress last February.
Through the first three months of the budget year, government revenues totaled $487.78 billion, a drop of 10.9 percent from the same period a year ago. Revenues have fallen for 20 straight months when compared to tax receipts for the same month in the previous year.
Outlays through December totaled $878.28 billion, a decline of 0.4 percent from the same period a year ago. That drop reflected smaller outlays for the government’s $700 billion rescue program compared with the same period a year ago when the program was just getting started and the Bush administration was rushing to pump billons of dollars into the financial system.
The $91.85 billion deficit for December was the largest imbalance ever recorded in that month, when the government often runs surpluses because of quarterly tax payments.
The administration in August forecast that the deficits over the next decade would total $9.05 trillion with it never falling below $739 billion in any one year during that period.
While the administration is pledging to work to improve that deficit outlook, private economists wonder whether Obama will be able to break the political gridlock that has prevented a significant attack on the deficits even before the recession made them worse.