Federal deficit triples from year ago
posted by Josiah Garber on December 15, 2009
in Economics, Politics
AP – WASHINGTON – The federal budget deficit has surged to an all-time high of $1.42 trillion as the recession caused tax revenues to plunge while the government was spending massive amounts to stabilize the financial system and jump-start the economy.
The imbalance for the budget year ended Sept. 30 more than tripled last year’s record. The Obama administration projects deficits will total $9.1 trillion over the next decade unless corrective action is taken.
As a portion of the economy, the budget deficit stood at 10 percent, the highest since World War II, according to government data released Friday.
Failure to curb runaway deficits could trigger a financial train wreck that would push interest rates and inflation higher, and send the dollar crashing if foreigners suddenly started dumping their holdings of Treasury securities.
None of those problems are evident now as the worst recession since the 1930s has depressed borrowing by consumers and businesses, giving the government a break on the interest it paid this year on the record debt. Net interest payments actually fell by about $10 billion in 2009 from 2008.
But economists worry investors will grow fearful of the nation’s ability to repay all the debt unless the administration and Congress begin developing credible plans to deal with the deficit problem once the recession has ended and unemployment has begun to come down.
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