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It's one of those statistics, or 'numbers' as they are called in Wall Street circles, that's likely to be etched in the memory of those who were around during the United States' difficult decade - - its decade of descent. The U.S. Government's budget deficit soared to a record $237.2 billion in one month -- October -- as the federal government invested more than $136 billion in bank and related rescue programs, the U.S. Treasury Department announced.
Bank rescue: one-time charges (hopefully)
Of course, the federal government isn't expected to borrow and invest an additional $136 billion every month -- a large amount of borrowing was expected at the start of the U.S. Government's effort to end the financial crisis -- but this past October's total is four times the size of the $56.8 billion in borrowing required in October 2007.
In July, the Bush Administration estimated that this year's budget deficit, fiscal 2009, would total $482 billion, but that projection was formulated before Congress passed the $700 billion rescue program on October 3.
As a result of the latter, many economists and budget analysts now expect the budget deficit this year to exceed $1 trillion and perhaps reach as high as $1.2 trillion. In comparison, last year, fiscal 2008, the federal budget deficit was $455 billion, or about 3.2% of U.S. GDP.
While it's admittedly difficult for investors and others to grasp the staggering levels of debt and outlay totals the United States is recording as it grapples with its most serious financial crisis since the Great Depression, economist Peter Dawson said the fiscal appropriations will prove to be the correct tactic, if the funds end the crisis and get both lending and the U.S. economy moving again.
"If it takes $1.5 trillion in deficit spending each of the next two years to get the U.S. economy moving again, then that's what the United States should do," Dawson said. "There is always the danger of rising inflation and interest rates down the road, but right now the greater danger and risk is deflation and a prolonged recession. The GDP reduction and damage to the economy from a prolonged recession would far exceed the costs of a short-term, large budget deficit, so the correct tactic is to fiscally stimulate, invest in infrastructure, and get economic growth to levels it needs to be at."
Fiscal Policy / Economic Analysis: By almost any think tank's estimate, U.S. borrowing costs will be unprecedented, both this year and next, but there's little doubt that the fiscal spending is needed to correct the multitude of private and public policy errors this decade that contributed to the financial crisis.
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