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October surprise: Fiscal year opens with big deficit

November 14, 2008|Associated Press

WASHINGTON — The federal government began the new budget year with a record deficit of $237.2 billion, reflecting the billions of dollars the government has started to pay out to rescue the financial system.

The Treasury Department said Thursday that the deficit for the first month in the 2009 budget year was the highest monthly imbalance on record.

It was far bigger than analysts had expected, more than four times larger than the October 2007 deficit of $56.8 billion -- and more than half the total for all of last year.

The big surge reflected the government's spending $115 billion to buy stock in the nation's largest banks. Those were the first payments made from the $700-billion rescue program passed by Congress to deal with the most severe financial crisis to hit the country since the 1930s.

Economists are forecasting that the red ink for the entire budget year could well hit $1 trillion.

That reflects what many expect to be a severe recession, which will depress tax revenue, and the heavy costs of the financial system bailout.

President-elect Barack Obama has said that getting the economy back on track will be his top priority and has promised to work with Congress to pass a second stimulus program.

The $237.2-billion deficit for October included total government spending of $402 billion, a record amount of outlays.

The spending figure included $115 billion paid to some of the country's largest banks to buy stock, the beginning of a program in which the government will spend $250 billion before the end of the year to take ownership shares in hundreds and potentially thousands of banks.

The goal is to bolster banks' balance sheets so that they will resume more normal lending and keep the country from falling into a prolonged recession.

The deficit also was boosted by the government's move to purchase $21.5 billion in mortgage-backed securities, an effort the Bush administration announced when it took control of mortgage giants Fannie Mae and Freddie Mac in September because of rising losses in that market.

Government receipts in October totaled $164.8 billion, down 7.5% from October 2007.

For the 2008 budget year, which ended on Sept. 30, the deficit totaled a record $454.8 billion, reflecting the dip in revenue in a weak economy and a $168-billion stimulus program that sent checks to millions of Americans in the spring and early summer.

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