Bigger deficit to hit the US

The numbers came out yesterday from a report coming out of the White House and the Congress.  Over the next decade, the huge deficit spending and reduced tax collections resulting from the recession will push the US deficit to a 25% higher number of $9 trillion.  For next year alone, budget deficit is projected to rise to $1.5 trillion from previous $1.26 trillion.  This is also the second year the US will be experiencing a deficit in the trillion dollar level.  If it is any consolation, the Congressional Budget Office has a lower estimate of $7 trillion in deficits because it assumes that the tax cuts implemented under the Bush administration will cease to exist by 2011.  With such a huge deficit, interest rates could rise, the dollar could weaken, and inflation could be triggered.

From the WSJ:

The Office of Management and Budget revised its May deficit projections to forecast a record, $1.58 trillion deficit for the fiscal year that ends Sept. 30. Spending, much aimed at stabilizing the financial sector and boosting the economy, will rise by 24% this year, the largest increase since 1952 and the height of the Korean War, according to the CBO. Tax revenues will fall 17% from last year’s levels, the largest drop since 1932.

The deficit will improve only slightly in fiscal 2010, to $1.5 trillion, worse than the $1.3 trillion forecast in May. And it will stay high, adding $9 trillion onto the federal debt through 2019. Borrowing alone will account for 40% of federal revenues in 2010.

This deficit, when compared to the country’s GDP will take more than 11 percent of it.  Some additional input from Bloomberg:

The outlook for the 2009 fiscal year is slightly better than the previous forecast. The government’s shortfall will peak this year at $1.58 trillion before narrowing over the next decade. That is less than the $1.84 trillion projected in May because budget officials were able to delete hundreds of billions of dollars that had been set aside for bank bailouts.

Last year’s deficit was $459 billion.

The CBO estimates the budget deficit will total $1.6 trillion this year, or 11.2 percent of the GDP, and $1.4 trillion in 2010.

Following is a set of charts comparing previous and revised numbers for the federal debt as well as changes in GDP, consumer prices and unemployment.

WSJdebt

This issue is highlighted further by the ongoing health care debate and it raises the question whether Obama will keep his promise of not raising taxes for those who earn less than $250,000, which was one of his strongest selling points when he was still campaigning for the presidency.

Read Bloomberg’s or WSJ’s report.

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