Sunday, October 11, 2009

U.S. deficit hits record high of $1.4 trillion!

The US budget deficit hit a record $1.4 trillion! "The deficit was equal to 9.9% of gross domestic product (GDP) - more than treble the 2008 level and the highest since the end of World War II."


BBC reports:
The US budget deficit hit a record $1.4 trillion in the year to 30 September, US Congress estimates say.

Analysts had predicted a $1.6tn deficit but revised the estimate, which comes after the end of the US financial year.

The deficit was equal to 9.9% of gross domestic product (GDP) - more than treble the 2008 level and the highest since the end of World War II.

The surging deficit was put down to increased government spending and a big drop in tax revenues.

The previous record deficit was $459bn, set last year.

The CBO said the increased spending was due in large part to the government's Troubled Asset Relief Program for financial firms, the $787bn economic stimulus, and the rescue of mortgage giants Fannie Mae and Freddie Mac.

Unemployment benefit payouts have surged as jobless figures have climbed, but observers say the full impact of stimulus spending is yet to feed through. Much of the planned construction work which formed part of the kick-start package has not yet begun.

The huge deficits have raised worries about the willingness of foreigners to keep purchasing US Treasury debt - in the form of bonds - which itself has contributed to recent falls in the value of the US dollar.

Economists have predicted that the deficits could result in high interest rates as the government is forced to offer more attractive rates to lure investors.

Republicans said that the data underlined the dangers of President Obama's policy of spending and borrowing.

"How many alarm bells have to be set off before Washington Democrats get serious about tackling dangerous budget deficits?", House Minority Leader John Boehner said.

The White House has insisted it is suffering for the financial crisis it inherited from the Bush administration.

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