U.S. Budget Deficit Moves Over $1 Trillion, First Time Ever

Though there are always concerns over U.S. budget deficits, even in the wake of a Keynesian obsession with using deficit spending as a means to spur the economy, those who have been screaming into the wind about U.S. spending are going to be a bit more hoarse than usual today. It was announced yesterday that the U.S. budget deficit has topped $1 trillion for the first time in history. And while $1 trillion may not buy as much guns and butter as it did 40 years ago, the historic mark is still cause for concern. What worse, is that some economists are predicting that those deficit numbers could pale in comparison to what’s in store, and that the deficit may reach TWO trillion dollars by Fall.

The concern now, of course, is that the investors that snap up U.S. government debt in the form of treasury securities are going to be getting nervous about the state of the U.S. economy, and will all but demand a higher return for the higher perceived risk that the U.S. government now represents. Of course, if the government is forced to pay out higher rates to investors to fund its massive debt, interest rates will explode across the board. Perhaps most damning is the fact that 30-year mortgage rates, closely tied to the 10-year treasury bond, must fall in order to spell a rebound in the crushed U.S. housing market. But that literally CANNOT happen if U.S. budget deficits continue to grow.

Said Sung Won Sohn, an economist at California State University, "These are mind-boggling numbers. Our foreign investors from China and elsewhere are starting to have concerns about not only the value of the dollar but how safe their investments will be in the long run. The Treasury Department noted that the deficit in June was $94.3 billion and further forecasts that the 2009 deficit will reach $1.84 trillion by October.