US budget deficit widens, above $1 trillion for 3rd year

The US budget gap widened slightly in fiscal 2011, staying above USD 1 trillion for a third straight year, providing fodder for a political battle over taxes and spending ahead of next year's presidential election.

The Treasury Department on Friday report comes just over two months after an epic showdown over the nation's debt ceiling that pushed the United States close to a debt default and led to a downgrade of America's prized AAA credit rating.

The shortfall in September, the final month of the fiscal year, widened to USD 64.57 billion compared to the same month a year earlier, although it came in at a few billion dollars less than economists had projected. The annual deficit was USD 1.299 trillion, up from USD 1.294 trillion in fiscal 2010.

The US economy, the world's largest, has escaped the painful sovereign debt crisis the eurozone is now suffering, although the deterioration in its fiscal stance has roiled domestic politics.

Many experts argue anemic US growth and a dire job market call for near-term fiscal stimulus or, at the very least, restraint in implementing spending cuts.

President Barack Obama has proposed a USD 447 billion plan to create jobs, but it was rejected by the Senate this week and now lawmakers are trying to pick up the pieces.
Republicans in Congress have been pushing hard for deep spending cuts to address the budget gap.

While the budget deficit widened in dollar terms in the latest fiscal year, it narrowed to 8.7% of US gross domestic product from 9 percent in fiscal 2010. Economists say the GDP gauge is a more meaningful metric than the size of the budget shortfall measured in dollars.

U.S. GDP expanded under 1% in the first half of the year while unemployment has remained stuck above 9% for several months, raising fears of a new recession. Such concerns recently prompted Ben Bernanke, Chairman of the Federal Reserve, to warn lawmkers during testimony earlier this month that sharp reductions in government spending at a time of fragile recovery could be dangerous.

"(A) factor likely to weigh on the U.S. recovery is the increasing drag being exerted by the government sector," Bernanke told the Joint Economic Committee of Congress.
Even as he called for steps to bring the long-term deficit under control, the Fed chief urged legislators to "avoid fiscal actions that could impede the ongoing economic recovery."

After the debt ceiling fiasco in August, Congress created a special deficit panel charged with reaching a deal to cut USD 1.2 trillion over the next decade by Nov. 23. If they fail, automatic budget cuts will be triggered starting in 2013 that would cut funding to selected agencies and programs across the board and hit defense spending hard.

Source: www.moneycontrol.com

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