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(WASHINGTON) US President Barack Obama yesterday projected a stunning US$1.75 trillion deficit this year, followed by US$1.17 trillion in 2010 and warned that tough choices were needed to get US finances back in order.
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| Mr Obama: 'There are times when you can afford to redecorate your house, and there are times when you have to focus on rebuilding its foundation.' |
The Budget is equal to 12.3 per cent of US gross domestic product - the largest share since 1945 when the country ran a shortfall of 21.5 per cent of GDP.
In 2010, the deficit would dip to a still-huge US$1.17 trillion, but Mr Obama promised to get the red ink under control within a few years through a combination of tax increases and spending cuts.
'While we must add to our deficits in the short term to provide immediate relief to families and get our economy moving, it is only by restoring fiscal discipline that we can produce sustained growth and shared prosperity,' Mr Obama said at the White House.
'There are times when you can afford to redecorate your house,' Mr Obama said, 'and there are times when you have to focus on rebuilding its foundation.'
The proposed US$3.55 trillion spending plan for the 2010 fiscal year that begins on Oct 1 provides the broad outlines of a more detailed one to be released in April.
The soaring deficit figure sent US Treasury bond prices lower and yields up to three week highs yesterday.
Gold prices slid to their lowest level in more than a week, after testing all time highs over US$1,000 an ounce earlier this month. Stock prices rose.
The Budget requires passage by Congress to take effect.
While Mr Obama, a Democrat, has broad support with both chambers in Congress controlled by his party, he could face a fight as the sticker shock of huge deficits lead to wariness about more spending for goals such as the healthcare overhaul.
Federal spending is skyrocketing as officials try to jolt the recession-hit economy with public-works spending and tax cuts and bail out the troubled financial industry.
The deficit number reinforced concerns the government will need to sell record amounts of debt to pay for programmes aimed at pulling the economy out of a deep recession.
'The Budget issue is definitely one for Treasuries because it means greater funding going forward, it means that there is going to be a lot of supply that has to be taken on board by the market,' said Orlando Green, fixed income strategist at Calyon in London.
Mr Obama, who took office on Jan 20, has pledged to slash the deficit he inherited from former Republican president George W Bush in coming years, bringing it down to US$533 billion, or 3 per cent of GDP by 2013, then increasing again to US$712 billion by 2019.
Mr Obama takes credit for US$2 trillion in deficit reduction over 10 years, three quarters of which comes from lower expenses in Iraq and Afghanistan and most of the rest to tax increases on the wealthy and revenues from a market-based cap on greenhouse gas emissions.
Mr Obama is seeking an additional US$75.5 billion for wars in Iraq and Afghanistan for the rest of the current fiscal year.
He is requesting US$130 billion for military operations in the two wars for 2010, which would be down from the roughly US$140 billion he expects will be needed this year. Washington spent about US$190 billion on the wars in 2008.
Mr Obama's Budget proposal lays out spending cuts in farm subsidies and other areas to meet the deficit-reduction goal.
But spending would increase to meet key objectives.
The Budget sets aside US$250 billion as a 'placeholder' if Mr Obama decides to ask Congress for more money in the current 2009 fiscal year to help the ailing US financial system. No such decision has been made yet, officials said in a briefing with reporters on Wednesday.
The officials said that if the government were to spend US$250 billion to inject money into the banking system, that would finance about US$750 billion in asset purchases.
Signalling he has no intention of delaying his campaign promise of expanding healthcare to the 46 million people who are uninsured in the United States, the Budget includes a 10-year, US$634 billion reserve fund to help pay for the president's proposed healthcare reforms. -- Reuters, NYT
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