The federal deficit surged higher into record territory in August, hitting $1.38 trillion with one month left in the budget year.
The soaring deficits have raised worries about the willingness of foreigners to keep purchasing Treasury debt. The Chinese, now the largest foreign owners of U.S. Treasury securities, have expressed concerns about runaway deficits. Treasury Secretary Timothy Geithner and other administration officials have sought to address those concerns by insisting that once the recession is over and the financial system is stabilized, the administration will move forcefully to get the deficits under control.
Republican critics contend the administration does not have a credible plan to address future deficits.
“The $9 trillion question is when will the White House do more than just pay lip service to tackling these jaw-dropping deficits that threaten our economic stability,” House Republican Leader John Boehner of Ohio said in a statement. “Piling more and more debt on future generations while massively increasing federal spending is not a response.”
Private economists worry the country could face the grim prospect of seeing interest rates soar in future years and the dollar weaken as foreigners dump their U.S. holdings.
The Treasury Department said Friday that last month’s deficit was $111.4 billion, below the $152 billion that economists expected. Still, the imbalance added to a flood of red ink already accumulated through the recession and massive spending needed to stabilize the banking system.
The Obama administration last month trimmed its forecast for this year’s deficit to $1.58 trillion, from an earlier $1.84 trillion. The recovery of the banking system led to the reduced estimate as it meant the administration did not need to get an additional $250 billion in bailout support for banks.
The $1.58 trillion estimate for the full budget year signals that that administration expects the imbalance in September to be around $200 billion. That would be a sharp deterioration from September 2008 when the government closed out that budget year with a $45.7 billion surplus.
Many private economists have slightly smaller deficit estimates for the full year but all agree that 2009 will be a record-holder by a large margin. The previous record deficit in dollar terms was $454.8 billion last year.
The administration’s revised budget forecasts issued last month also underscored how much the government’s fiscal picture has deteriorated. It is now projecting the deficit over the next decade will total $9 trillion, $2 trillion more than its estimates from a few months ago.
The deterioration partly reflects the country’s deep recession, the worst since the 1930s. That downturn has cut into government receipts and pushed up spending in such areas as unemployment benefits and food stamps, along with the cost of fighting wars in Iraq and Afghanistan.
In addition, the government is using a $787 billion economic stimulus program passed by Congress last February to jump-start growth and is spending massive amounts from the $700 billion financial bailout package passed in October 2008 to stabilize the financial system.
The Treasury Department budget report for August showed the government collected $145.5 billion in revenues, a drop of 7.3 percent from August 2008.
It marked the 16th consecutive month that revenues have been lower than the previous year, a string that reflects how much the recession, which began in December 2007, has cut into personal income and corporate taxes.
Spending in August totaled $256.9 billion, down 4.5 percent from the year before. However, that comparison was misleading because the deficit last month was lowered by timing shifts which saw some payments shifted into July because Aug. 1 fell on a Saturday.
Primarily because of the timing shifts, last month’s deficit was 0.5 percent lower than in August 2008.
For the first 11 months of the budget year, spending totals $3.26 trillion, up 18.7 percent from a year ago, while tax receipts fell 16.1 percent to $1.89 trillion.
The spending increases include the administration’s estimate that $174.2 billion has been tapped from the financial bailout fund and another $84.9 billion went toward propping up mortgage giants Fannie Mae and Freddie Mac. In addition, federal spending on unemployment benefits totaled $104.7 billion through August, up from $41.4 billion in the year-ago period.
Copyright 2009 The Associated Press.