The Obama administration forecasts a $1.26 trillion deficit for next year, fiscal year 2010, which begins October 1, 2009. Last year, fiscal year 2008, the U.S. government posted a then-record $454.8 billion deficit.

In August, outlays decreased 4.5 percent from a year ago, to $256.9 billion, while receipts fell 7.3 percent to $145.5 billion. In August 2008, the federal government posted a $111.9 billion deficit.

The U.S. government last ran a surplus during fiscal year 2001, posting a surplus of $128 billion in the last year of the Clinton administration.

Deficit: Little impact on U.S. bond holder sentiment

Many economists and market analysts had forecast that the U.S.'s record budget deficit would test the resource limits and the nerves of institutional investors. But so far, that has not occurred. The U.S. Treasury's unprecedented, $70 billion auction in notes and bonds this week failed to curb investor demand, Bloomberg News reported Friday, with each of three, key securities sold yielding less than the average estimate of Bloomberg News surveys. In other words, so far the market is handling the excess borrowing needs of the U.S. government: demand exists for U.S. debt, lowering interest costs to service the national debt.

The non-partisan, independent Congressional Budget Office, in its most recent forecast, said it expects the 2009 deficit to be $1.6 trillion, roughly in-line with the Obama administration's estimate. CBO forecasts a $1.4 trillion deficit for next year.

Fiscal/Economic Analysis: More, qualified good news on the federal budget front, as August government spending came in lower than expected. The term 'qualified' is used because the lower spending probably reflects some fiscal stimulus money that wasn't spent as quickly as anticipated, and will likely be spent in the coming months.

Does the United States have its budget deficit under control? Given current economic conditions, the answer is no. That said, if one factors in slightly-above-expectations GDP growth as the recovery continues, with unemployment not rising above 10.5 percent, the deficit picture will begin to show considerable improvement. Obviously, the deficit picture will worsen if unemployment rises beyond 11 percent.

Also, Investors should also keep in mind that both the Obama administration's and CBO's deficit forecasts for this and next year assume zero budget impact from health care reform legislation. President Obama has said he will not sign health care reform legislation that increases the deficit, end of discussion.

Further, the deficit forecasts also assume no tax increases. Institutional investors are probably discounting at least a minor income tax increase next year, which is probably why the bond market has remained calm despite a record amount of debt issuance. To the typical investor, that may sound cynical or even defeatist, but as a wise bond trader frequently said, I'd rather be cynical and right, than an optimist and wrong. If he's right, and a modest tax increase occurs in 2010, that would further improve the nation's fiscal condition, and no doubt gladden the hearts of every U.S. debt holder, from here to China's Yalu River.