U.S. Posts a Record $222.5 Billion Monthly Budget Shortfall

U.S. Had Record $222.5 Billion Monthly Budget Gap in Februar
A statue of Albert Gallatin, a long-serving U.S. secretary of the Treasury, stands in front of he U.S. Treasury Building in Washington, D.C. Photographer: David Rogowski/Bloomberg

The U.S. government, facing a record annual fiscal shortfall and a congressional impasse over financing, posted the largest monthly deficit ever in February, reflecting increased spending.

The gap totaled $222.5 billion last month compared with a $220.9 billion shortfall in February 2010, according to the Treasury Department’s monthly budget statement released today in Washington. Last February’s deficit was the previous monthly record, government data show.

The deficit threatens to eventually push borrowing costs higher and curb economic growth, Federal Reserve Chairman Ben S. Bernanke told lawmakers last week. Members of Congress are at odds over plans to reduce the shortfall, cut taxes and preserve entitlement programs, such as Medicare and the Obama administration’s health-care overhaul.

“People in Congress seem much more interested in yelling at each other instead of fixing the problem,” said David Wyss, chief economist at Standard & Poor’s in New York. “Bluntly, there is no way out of this unless you cut spending, raise taxes or some combination of the two.”

Congress approved a temporary budget March 2 to prevent a government shutdown while lawmakers negotiate Republican demands to further cut spending. The House last month approved a Republican plan to cut $61 billion from 2011 government spending, which would translate into mean reductions of 10 percent or more in hundreds of programs.

$1.5 Trillion

This year’s budget deficit is projected to reach $1.5 trillion, according to a Congressional Budget Office estimate released Jan. 26. The previous record, $1.4 trillion, was in fiscal 2009.

For the fiscal year to date, the deficit totaled $641.3 billion, compared with $651.6 billion the prior fiscal year to date, according to the Treasury’s data.

“The long-term unsustainability of our debt is a significant problem because it threatens higher interest rates, less confidence, and it could have impact on the current recovery,” Bernanke said in response to a question from the Senate Banking Committee on March 1.

So far, the growing deficit hasn’t dissuaded investors from buying U.S. government securities.

Treasuries extended gains after the government sold $13 billion of 30-year bonds, the final of three note and bond auctions this week totaling $66 billion. The 30-year bond yield dropped 10 basis points, or 0.10 percentage point, to 4.51 percent at 4:04 p.m. in New York.

Survey of Economists

Before today’s budget report, a survey of economists by Bloomberg News anticipated a deficit of $225.2 billion in February. The survey included 26 estimates, with forecasts ranging from $190 billion to $243.6 billion. The non-partisan CBO, in a forecast issued March 7, estimated the February budget deficit would total $223 billion.

The Treasury’s report today showed that government spending rose 1.4 percent in February to $333.2 billion and revenue and other fees increased 2.9 percent to $110.7 billion.

Individual income tax receipts rose 26.6 percent to $422.8 billion on a fiscal year-to-date basis. Corporate income tax receipts fell 15.9 percent on a fiscal year-to-date basis, according to the data.

Government debt has risen to 62.1 percent of gross domestic product over the past decade from 34.7 percent, according to a Bloomberg Government survey released March 7. The study projected debt will reach 84.9 percent of GDP by 2020 and forecasts the government will spend $44.5 trillion from 2011 through 2020, requiring $10.4 trillion in additional borrowing.

‘Painful Steps’

“Regretfully, I think that the politicians will only take the necessary, painful steps if forced to do so by a crisis,” said Ward McCarthy, chief financial economist at Jeffries & Co. Inc. in New York, before today’s report. “We got here because politicians have been willing to mortgage the future with unfunded liabilities for current political gain.”

The Treasury lowered its estimate for borrowing from January through March as it scales back on bill sales behalf of the Federal Reserve. Borrowing will total a net $237 billion in the current quarter, the Treasury announced Jan. 31. In the quarter ended Dec. 31, the Treasury borrowed $363 billion.

To grapple with the debt, a committee of Wall Street bond dealers and investors that advises the Treasury recommended the government expand its domestic demand and offer new securities, including “ultra-long” bonds of as much as 100 years, to reduce dependence on foreign holders. China is the largest foreign holder of U.S. government debt, followed by Japan.

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