US Fed budget deficit in October hits record $237.2 bn

The federal government began the new budget year with a record deficit of USD 237.2 billion, reflecting the billions of dollars the government has started to pay out to rescue the financial system. The Treasury Department said Thursday that the deficit for the first month in the new budget year was the highest monthly imbalance on record. It was far bigger than analysts expected, over four times larger than the October 2007 deficit of USD 56.8 billion, and more than half the total for all of last year. The big surge reflected the government spending USD 115 billion to buy stock in the nation's largest banks. Those were the first payments made from the USD 700 billion government rescue program passed by Congress to deal with the most severe financial crisis to hit the country since the 1930s. The October deficit began a period in which economists are forecasting the red ink for the entire year could well hit USD 1 trillion, reflecting what many expect to be a severe recession, which will depress tax revenue, and the heavy costs of the financial system bailout. President-elect Barack Obama has said that getting the economy back on track will be his top priority and has promised to work with Congress to pass a second stimulus program. The USD 237.2 billion deficit for October included total government spending of USD 402 billion, a record in terms of outlays. The spending figure included USD 115 billion paid to some of the country's largest banks to buy stock, the beginning of a program in which the government will spend USD 250 billion before the end of the year to take ownership shares in hundreds and potentially thousands of banks. The goal is to bolster banks' balance sheets so that they will resume more normal lending and keep the country from falling into a prolonged recession. The deficit also was boosted by the government's move to purchase USD 21.5 billion in mortgage-backed securities, an effort the Bush administration announced when it took control of mortgage giants Fannie Mae and Freddie Mac in September because of rising losses in that market. Government receipts in October totalled USD 164.8 billion, down 7.5 percent from October 2007, reflecting the impact on revenues from the slumping economy. For the 2008 budget year, which ended on Sept 30, the deficit totalled a record USD 454.8 billion, reflecting the impact of the weak economy on revenues and a USD 168 billion stimulus program which sent stimulus payments to millions of Americans during the spring and early summer. The Bush administration in July estimated that the deficit for the current budget year could hit USD 482 billion, but that projection was made before the administration got Congress to pass a USD 700 billion rescue program on Oct 3.