WASHINGTON - The federal government already has run up a record deficit of $485.2 billion in just the first three months of the current budget year. And economists said the imbalance for the full year could easily top $1 trillion, pushed to that eye-popping level by the spending the government is likely to do to combat the recession and the most severe financial crisis in generations.
The Treasury Department reported Tuesday that the deficit for December totaled $83.6 billion, a sharp deterioration from a year ago when the government managed a surplus of $48.3 billion.
All the red ink comes from the massive spending out of the financial rescue program - $247 billion out of $700 billion spent so far - and a prolonged recession that has depressed tax revenues.
The overall deficit from October through December is the highest on record for a first quarter and surpasses the mark for a full budget year of $454.8 billion set last year.
Slightly more encouraging was a Commerce Department report that the trade deficit declined sharply to $40.4 billion in November, the smallest imbalance in five years as the recession slashed demand for oil and imports from China. While an improving trade deficit can act to boost the economy, analysts said the problem is that the recession in the U.S. has spread globally. That has cut into U.S. export sales, meaning American manufacturers will now have to contend with slumping domestic and foreign demand.
The Congressional Budget Office last week projected that the budget deficit for this fiscal year will hit $1.2 trillion. Yet that projection does not include any of the costs from the economic stimulus program that President-elect Barack Obama is hoping Congress will pass in the next few weeks in an effort to keep the current recession from deepening. The cost of Obama's two-year program is expected to be around $800 billion.
David Wyss, chief economist at Standard & Poor's in New York, said he expects this year's deficit will hit $1.6 trillion and will remain above $1 trillion next year as well, reflecting the cost of the rescue program and the stimulus effort.
Deficits of this size would be records in dollar terms and the largest as a percentage of the overall economy since the government was spending massive amounts to fight World War II. Still, economists generally support the massive government effort.
'A lot of us are pretty nervous about the deficits, but the fact is that if you look at the state of the economy, the risks of not doing anything are greater than the risks of doing something,' Wyss said.