Print

Mail

wiki links

US budget may return to a deficit

Busted budget * According to official figures, the US is likely to rack up a US$21 billion deficit for the fiscal year that began on Oct. 1. * For the following year, the deficit is likely to fall to US$14 billion. * A slowing economy, tax cuts and the US war in Afghanistan are blamed for the shortfall.

The US will run a deficit of about US$21 billion in the fiscal year that began Oct. 1, the Congressional Budget Office estimates, as a slowing economy, tax cuts and a war on terrorism end a string of four consecutive surpluses.

The deficit will narrow to US$14 billion in 2003, with surpluses likely in succeeding years, CBO Director Dan Crippen said in testimony before Congress.

The deficit will swell beyond the CBO estimate this year as Congress adds more money for the war against terrorism at home and abroad. Passage of the tax cuts that President George W. Bush wants Congress to pass to stimulate the economy would mean an even bigger deficit.

The size of the projected deficit was larger than most private economists had forecast. "It was a surprise,'' said Astrid Adolfson, an economist at MCM Moneywatch in New York. "Many people were expecting flatter numbers."

After Congress adds spending for the war on terrorism and domestic projects favored by members -- particularly those up for re-election this year -- the deficit for fiscal 2003 probably will grow to at least US$125 billion, said Stanley Collender, a budget analyst with Fleishman-Hillard Inc.

The CBO estimates a total surplus of US$1.6 trillion for the 10 years running from fiscal 2002 to 2011. The surplus for 2003 through 2012 is US$2.3 trillion, the nonpartisan agency estimated.

Fiscal 2001 ended with a US$127 billion surplus, the fourth consecutive surplus.

Senate Majority Leader Tom Daschle, a South Dakota Democrat, said on Wednesday he'd schedule a vote on a scaled-back version of the US$100 billion economic stimulus bill Congress abandoned last year.

Bush said he'd ask for the stimulus measure in his new budget. Congressional leaders meeting with Bush said they agreed yesterday to pass what House Speaker Dennis Hastert called "some type of economic stimulus package."

That isn't good news to bond traders, who track how much the federal government borrows. An increase in government borrowing forces corporate bond sellers to offer higher yields.

"If the federal government is going to return to a profile of budget deficits for any period of time, this will mean the bond market will again have to absorb some fairly significant amounts of supply," said Ward McCarthy, an economist at Stone and McCarthy Research. "That could contribute to higher interest rates."

Higher budget deficits may mean higher borrowing costs for companies, individuals, and the government. The disappearing surplus means the government will likely have to sell more debt to meet its obligations, which will send prices down and yields up, traders said.
This story has been viewed 2247 times.