U.S. facing record budget deficit
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New estimates from the White House predict the United States budget deficit will reach a record US$1.47 trillion this year. The government is borrowing 41 cents of every dollar it spends.
The new estimates paint a grim unemployment picture as the economy experiences a relatively jobless recovery.
The Office of Management and Budget report has ominous news for President Barack Obama should he seek re-election in 2012, a still-high unemployment rate of 8.1 percent. That would be well above normal, which is closer to a rate of 5.5 percent to 6 percent. Private economists don't think the unemployment rate will drop to those levels until well into this decade.
"The US economy still faces strong headwinds," the OMB report said. They include tight credit markets, a high inventory of unsold housing and retrenchment by state governments bound by balanced budget mandates. The European debt crisis has also had an impact.
"Despite these headwinds, the administration expects economic growth and job creation to continue for the rest of 2010 and to rise in 2011 and beyond," the report said.
The budget deficit is of increasing concern to voters. But Obama and Democrats controlling Congress are mostly taking a pass on deficit reduction this year as they await possible recommendations from Obama's deficit commission.
While there's a slight improvement in the deficit for the current year compared to the administration's February forecast, next year's predicted US$1.42 trillion worth of red ink -- that's 37 cents of borrowing for every dollar spent -- is looking worse. It's about US$150 billion more than previously predicted, because of still-slumping tax revenues.
The current record holder is the US$1.41 trillion deficit for 2009.
Economists agree that the most important measure of the deficit is against the size of the economy. Opinions vary, but many economists say a deficit of 3 percent of gross domestic product is sustainable.
The report puts the deficit at 10 percent of GDP this year and 9.2 percent next year.
