Wednesday, December 07, 2005

U.S. Budget Deficit Increases Again

The latest report from the Congressional Budget Office shows that the U.S. budget deficit have again started to increase. During the first two months ( October and November ) of fiscal year 2006, the budget deficit increased to $130 billion from $115 billion the same two months in fiscal year 2005.

This is both because revenue growth have slowed significantly, from 14.6% for fiscal year 2005 as a whole to "only" 6.1%, while spending growth have soared, from 7.3% to 11.4% (Adjusted for calendar effects).

To some extent the increase is due to temporary factors. Katrina have meant the payments of a few (not specified in the report) billions of dollars in disaster relief, while revenue growth would have been $5 billion more hadn't last years numbers been artificially boosted by the fact that corporations normally due for September 2004 to October 2004. But even adjusting for those factors, the budget deficit increased.

It remains to be seen whether this trend will continue. That depends largely on the outlook for the economy and asset prices. Assuming they slow, which I think they will, the trend will continue. The current high rate of inflation have boosted nominal revenue growth, but on the other hand it have boosted the cost of government purchases and the cost of interest payments to holders of inflation-protected securities. And next year it will also increase the cost of social security payments, which are indexed for inflation.


Blogger Edie said...

Congress approved $62.3 billion in Katrina aid. As of late October, only a quarter of that had actually been dispersed. Apparently, not much more has been done since then for rebuilding or emergency housing efforts, although exact figures are scarce. The Mississippi governor testified before a congressional committee today about the complete standstill for want of promised federal funds. In other words, Katrina reconstruction is fingered for the cause of many economic problems, but is not as significant as the Bush administration would have everyone believe. What else is new?

8:33 PM  

Post a Comment

<< Home