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Talk about a large amount of funding in a quarter.The U.S. Treasury Department, weighed down by unprecedented obligations for the bank rescue and a slowing economy, is expected to borrow a record $550 billion this quarter, compared to the pre-financial crisis estimate of $142 billion, the department announced.
Further, the $550 billion bond issuance follows a record $530 billion in borrowing in Q4 of fiscal 2008, which ended September 30.
In addition to the bank rescue and related programs, the slowing U.S. economy has also increased Treasury borrowing by reducing federal receipts and increasing outlays.
The U.S. Government closed fiscal 2008 with a $407 billion deficit, according to the Congressional Budget Office (pdf). The CBO projects a $438 billion deficit for fiscal year 2009, but economist Richard Felson said the total is likely to approach $1 trillion if the bank recapitalization and toxic asset repurchases proceed along outlined timetables.
"These are staggering sums of debt and it's hard to envision the dollar holding up long-term, given such borrowing," Felson said.
Dollar holding its own, so far
So far, the dollar has held its own against the world's other major currencies, actually rising about 10% versus the euro and about 15% versus the British pound since the approval of bank rescue legislation by Congress in September. The dollar has risen, economists say, on the projection that European economies are 'later in the economic cycle' than the U.S., will have to cut interest rates further, and will emerge from the recession after the U.S. economy does.
The dollar has also benefited, like Japan's yen, from a flight to safety in which institutional investors, unable to find productive places to deploy capital, park their money in strong currencies and await an improvement in economic and investment conditions.
Fiscal Analysis: The U.S. Treasury's large borrowing and the strong dollar are incongruent in the long term. Once the global economy begins to recover, capital will flow to areas of higher return, putting downward pressure on the dollar and upward pressure on interest rates. That's why it's imperative that the new Congress and presidential administration take measures to reduce budget deficit, including both tax increases and spending cuts.
The key is not balancing the budget in some unreasonably short timetable, but getting the U.S. on a deficit reduction track gradually over time.
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Reader Comments (Page 1 of 1)
11-04-2008 @ 4:57PM
Virgil Bierschwale said...
Folks, we don't need to borrow this money to straighten out our economy here in America and the same solution that will work here will work for all of the other countries.
If you don't believe me, get out your calculator and you do the math.
1. There are an estimated 3.4 million foreclosures right now.
2. There also are an estimated 3.4 million jobs that have been sent offshore with an average salary of 75,000 per year.
2A. Multimple 3.4 million times 75,000
2B. Now take 30 percent of that as an average amount of taxable revenue that these jobs paid in order to keep America running.
2C. That is approximately 56 BILLION dollars (I'm doing the typing and reciting the figures from memory so bear with me)
2D. In 2007 it cost us 2.568 TRILLION dollars to run our country.
2E. 56 BILLION is approximately 25 % of what it cost to run our country and we've now gotten rid of that which means we HAVE to raise taxes to compensate for the difference.
3. Now take the remaining 70% of the 3.4 million times 75,000 and that is the money that we are taking away from our retailers and manufacturers.
Folks, we are doing this to ourselves and we have to stop it now, not tomorrow, but today and our economy will start booming again.
And no, this is not a protectionist talking as I'm all for selling our goods overseas and us being able to buy their goods from overseas.
I'm against any of our countries being able to send our friends and neighbors jobs to another country because that is killing each of our countries and when you also factor in the fact that 70% of the oil that we purchase to run our country and to keep it running is controlled by nations that don't necessarily have our best interests at heart, then we're setting ourselves up for failure when the unthinkable happens.
Think it won't happen ?
Thats what greenspan said about why our economy is going to hell. He said that he didnt make that calculation because it has never happened before.
Well, he needs to take it one step further and realize that it all ties back to each of our countries allowing our companies to send their work overseas so that their books look better to investors and to hell with what it does to each of our countries in the long term.
Virgil
http://www.KeepAmericaAtWork.com
11-04-2008 @ 11:52PM
Vladimir said...
Virgil
Please correct your calculation. 56 billion from cost to run this country is not 25%.Please note,2.568 trillion is exactly-2568 billion dollars. I know it sounds huge,but this is really huge amount of the money what is in the game.
Vladimir