New estimates from the US White House on Friday predict the budget deficit will reach a record US$1.47 trillion this year. The US government is borrowing US$0.41 of every US dollar it spends.
That is actually a little better than the administration predicted in February.
The new estimates paint a grim unemployment picture as the economy experiences a relatively jobless recovery. The unemployment rate, presently averaging 9.5 percent, would average 9 percent next year under the new estimates.
The Office of Management and Budget (OMB) report has ominous news for US President Barack Obama should he seek re-election in 2012 — a still-high unemployment rate of 8.1 percent. That would be well above normal, which is closer to a rate of 5.5 percent to 6 percent.
“The US economy still faces strong headwinds,” the OMB report said.
They include tight credit markets, a high inventory of unsold housing and retrenchment by state governments bound by balanced budget mandates. The European debt crisis has also had an impact.
“Despite these headwinds, the administration expects economic growth and job creation to continue for the rest of [next year] and to rise in 2011 and beyond,” the report said.
While there is a slight improvement in the deficit for the current year compared with the administration’s February forecast, next year’s predicted US$1.42 trillion of red ink — that is US$0.37 of borrowing for every US dollar spent — is looking worse. It’s about US$150 billion more than previously predicted, because of still-slumping tax revenues.
The current record holder is the US$1.41 trillion deficit for last year.
The report put the deficit at 10 percent of GDP this year and 9.2 percent of GDP next year. It would never reach the 3 percent figure under Obama’s predictions — which underestimate war costs and depend on assumptions of tax increases that may not materialize, it said.
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