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Bail-outs send US deficit over $1trn

By Amaka Agwuegbo, with Agency report

The US budget deficit has topped $1trn (£616bn) for the first time ever and could almost double by autumn. The news has intensified fears about higher interest rates, inflation and the strength of the dollar.

The deficit has been widened by the huge sum the US government has spent to ease the recession, combined with a sharp decline in tax revenues.
The cost of wars in Iraq and Afghanistan have also been a major factor. There are also concerns that the soaring deficit will make Chinese and other foreign buyers of US debt nervous, which could make them reluctant to lend in the future.

It could also force the Treasury Department to pay higher interest rates to make US debt attractive in the long term.
“These are mind-boggling numbers,” said Sung Won Sohn, an economist at the Smith School of Business at California State University.
“Our foreign investors from China and elsewhere are starting to have concerns about not only the value of the dollar but how safe their investments will be in the long run.”

The Treasury Department said the deficit in June totalled $94.3bn (£58bn), pushing the total since the budget year started in October to $1.09trn.
President Barack Obama’s administration forecasts that the deficit for the entire year will hit $1.84trn in October.

Government spending is on the rise to address the worst financial crisis since the Great Depression and an unemployment rate that has climbed to 9.5%.
Congress already approved a $700bn financial bail-out for banks, carmakers and other sectors, and a $787bn economic stimulus package to try to jump-start a recovery.

There is growing talk among some Obama administration officials that a second round of stimulus may eventually be necessary.
Mr Obama and Treasury Secretary, Timothy Geithner, have said the U.S. is committed to bringing down the deficits once the economy and financial sector recover.
The Obama administration has set a goal of cutting the deficit in half by the end of his first term in office.


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