Stimulus Checks, Bank Failures Drive Up Federal Deficit

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

WASHINGTON — The federal budget deficit soared in July, pushed higher by economic stimulus payments and $15 billion in outlays to protect depositors at failed banks.

The Treasury Department reported that the deficit for July totaled $102.8 billion, nearly triple the $36.4 billion deficit recorded in July 2007.

The deficit outstripped the $97 billion gap that Wall Street economists had been expecting for July.

The Treasury said outlays were pushed up by $15 billion because of payments the Federal Deposit Insurance Corp. made to depositors at failed banks. The Treasury report did not identify the banks but federal regulators seized the assets of California-based IndyMac Bank, the largest regulated thrift to fail in American history.

The FDIC is expected to be successful in recovering much of its outlays for failed banks, in part by selling the assets of seized institutions. The FDIC has also raised the possibility that it will increase insurance premiums on healthy banks to cover the cost of what are expected to be rising bank failures as the current credit crisis unfolds.

Besides the payouts by the FDIC, government outlays were increased by the final bulk mailings of government stimulus payments in July. The July deficit also looked worse than the July 2007 deficit because last year’s figure was artificially deflated by timing issues that shifted about $19 billion in normal outlays into the prior month.

So far this year, the budget deficit totals $371.4 billion, more than double last year’s deficit through the same time period of $157.4 billion.

The Bush administration recently revised its forecast for this year’s deficit, lowering it from an estimate of $410 billion, down to $389 billion. However, the Congressional Budget Office is more pessimistic, projecting the deficit for this year will total $400 billion when the current budget year wraps up on September 30.

For the 2009 budget year, which begins October 1, the administration is now projecting a deficit of $482 billion, which would be the highest in dollar terms in history, surpassing the old mark of $413 billion set in 2004.

Through July, government revenues total $2.094 trillion, down 1% from the same period a year ago. Revenues have been weaker this year, reflecting the sharp slowdown in the overall economy.

Government spending so far this budget year totals $2.466 trillion, 8.5% higher than a year ago. That’s in part due to the $168 billion stimulus package Congress passed at the beginning of the year in an effort to keep the country out of a deep recession and because of increased spending for the wars in Iraq and Afghanistan.


The New York Sun

© 2024 The New York Sun Company, LLC. All rights reserved.

Use of this site constitutes acceptance of our Terms of Use and Privacy Policy. The material on this site is protected by copyright law and may not be reproduced, distributed, transmitted, cached or otherwise used.

The New York Sun

Sign in or  Create a free account

By continuing you agree to our Privacy Policy and Terms of Use