It looks like 2009 could be a real doozy on the unbalanced budget front. While the federal budget deficit shouldcome in around $389 billion this year — down from an earlier forecast of $410 billion — it is set to explode to arecord $482 billion next year. That’s according to a new Bush administration forecastreleased today.
Next year’s deficit was previously estimated at $409 billion. But war expenses and the slower economy have combined todrive the expected number much higher. The previous record deficit (in dollar terms, rather than as a percentage ofGDP), was $413 billion in 2004.
Will it be necessary to sell boatloads of U.S. Treasuries to fund that deficit, driving interest rates higher over thelong term? We’ll see. In the here and now, bond traders are clearly more concerned about falling stock prices andongoing credit tremors. The long bond futures were recently up 1 5/32 in price, while2-year Treasury Note yields were down 12 basis points to 2.59%.
