US deficit in excess of $1 tn for 2011-12

The US government posted its third consecutive annual budget deficit in excess of $1 trillion in the fiscal year ended September 30.

The shortfall registered $1.3 trillion in fiscal 2011, up from $1.29 trillion in 2010 and the second-highest on record, according to Treasury Department data issued on Saturday in Washington. It reached $1.42 trillion in 2009, the highest ever. The September gap widened to $64.6 billion from $34.6 billion in the same month last year.

"This report confirms that we cannot waste any time in jump-starting economic growth and job creation to lay the foundation for a stronger economy and lower future deficits," Jacob Lew, director of the White House Office of Management and Budget, said in a statement.

The budget deficit for fiscal 2011 was 8.7 per cent of gross domestic product, down from 9 per cent in 2010, according to the Treasury data. The gap reached 10 per cent of GDP in 2009, the highest since 1945, according to the Congressional Budget Office.

"There is a lot of red ink on the government's balance sheet and Congress appears clueless on how to make it disappear," Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before on Saturday's report.

Automatic Cuts
A special 12-member congressional committee has been ordered to find $1.5 trillion in savings over the next decade under the terms of the debt-ceiling deal reached in August. If Congress fails to act on the group’s recommendations by December 23, the compromise will trigger automatic cuts.

The panel's closed-door meetings for the past month have focused on spending cuts in areas accounting for 12 per cent of the federal budget — the same areas lawmakers discussed in previous unsuccessful talks led by Vice President Joe Biden, according to one Republican and one Democratic aide who weren't authorised to speak publicly.

On Saturday is the deadline for congressional committee leaders to submit recommendations to help identify the savings. The bipartisan committee is assigned to propose a plan by Nov. 23, and if Congress doesn't pass it by the December deadline, spending cuts of $1.2 trillion would begin in fiscal 2013.

Ongoing Negotiations
House Democrats made their recommendations yesterday, focusing more on job creation than debt reduction. After a series of standoffs over spending cuts sought by House Republicans that almost shut down the government, Republican leaders of House committees overseeing taxes and entitlements aren't offering formal proposals on how they would cut the government.

"It is going to be a long and painful process as the economy has slowed to the stall speed, and while you can't grow your way out of your debts, it obviously helps speed up the timetable," Rupkey said.

Spending rose 4.2 per cent in fiscal 2011 from a year earlier to $3.6 trillion, according to the Treasury. Revenue climbed 6.5 per cent to $2.3 trillion.

Before the release of the annual statistics, the OMB and the non-partisan CBO both estimated a fiscal 2011 budget of $1.3 trillion.