October 10, 2008
The global financial crisis is turning into a bigger drain on the U.S. federal budget than experts estimated two weeks ago, ballooning the deficit toward $2 trillion.
- A d v e r t i s e m e n t
Bailouts of American International Group, Fannie Mae and Freddie Mac likely will be more expensive than expected. States are turning to Washington for fiscal help. The Federal Reserve said this week it will begin buying commercial paper, the short- term loans companies used to conduct day-to-day business, further increasing costs. And analysts now say the $700 billion bank- rescue plan passed by Congress last week may have to be significantly larger.
“I always assumed they would be asking for more money along the way if it was necessary, and it looks like it’s going to be necessary,” said Stan Collender, a former analyst for the House and Senate budget committees, now at Qorvis Communications in Washington. “At the moment, there’s nothing happening here that’s positive for the budget. Nothing.”
The 2009 budget deficit could be close to $2 trillion, or 12.5 percent of gross domestic product, more than twice the record of 6 percent set in 1983, according to David Greenlaw, Morgan Stanley’s chief economist. Two weeks ago, budget analysts said the measures might push deficit to as much as $1.5 trillion.
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