The U.S. budget deficit soared to a record $485.2 billion in the federal government's fiscal first quarter, (October-December 2008), the U.S. Treasury Department announced, as the government implemented its financial system stabilization plan.
The December 2008 budget also increased to $83.6 billion from $48.3 billion a year ago.
Further, the deficit is on-track to total more than $1 trillion this year, fiscal 2009. The Congressional Budget Office (pdf) is projecting a $1.2 trillion deficit for the current fiscal year.
In addition, the $485.2 budget record for fiscal Q1 already exceeds last year's budget deficit for the full year of $454.8 billion.
Economist David H. Wang said that, admittedly, it's hard for investors and economists alike to wrap their minds around such large sums of money, but investors -- and taxpayers -- must keep the ultimate goal in sight.
"We must act decisively to both stabilize the financial system and stimulate the U.S. economy, to offset a decrease in consumer and business demand," Wang said. "While the TARP program warrants revisions, investors should keep in mind that the financial system has not collapsed. Also, the need for fiscal stimulus is almost unanimous."
The CBO said with a large fiscal stimulus the U.S. economy will recover in 2010 and grow at a 2.5% rate, after contracting 0.4% in 2009. Wang said if both the stabilization and the fiscal stimulus measures lead to GDP growth by 2010, each will be a success.
"We are not dealing with your typical recession. Therefore, we have to use a-typical tactics to get out of it," Wang said.
Fiscal Policy / Economic Analysis: The only other comparable deficit periods would by the initial stage of New Deal fiscal stimulus in 1932-37 and deficit spending for World War II. The Roosevelt Administration's New Deal spending helped the U.S. economy recover from the Great Depression; later, a (misguided) balanced budget effort in mid-decade temporarily interrupted the recovery. U.S. government spending for World War II, 1941-45, then completed the recovery.










