Federal Deficit Spinning out of Control

The federal deficit reached a record high point for fiscal year 2008, and all signs say that fiscal 2009 will be even worse.

Our fearless leaders in Washington may be good candidates for credit counseling. A spend-and-bailout mindset has taken hold on Capitol Hill, and it threatens to send the federal deficit spinning wildly out of control.

The clock is ticking

In Times Square, there's an enormous digital clock that tracks the U.S. national debt. Several weeks ago, that clock reached the troubling milestone of $10 trillion-an unbelievable figure that doesn't even fit on the 14-digit clock when you account for the dollar sign.  

The company that owns the clock has plans to install a new one with more digits next year. Perhaps, in light of the government's recent, free-wheeling bailout actions, a national deficit clock might also be a nice addition. The national deficit is the amount by which government spending exceeds tax revenue in any given fiscal year; the accumulation of these annual deficits over time is what drives the national debt balance higher and higher.

Records broken, more to come

The government's fiscal year runs from October 1 through September 30. A few weeks after the close of fiscal year 2008, budget officials announced that the deficit had skyrocketed to the record level of $455 billion. That's more than double the deficit recorded for the prior year, and 10 percent higher than the previous record set in 2004.

On top of 2008's record shortfall, experts are predicting an even bigger number for the current fiscal year. A slowing economy, and an abundance of federal stimulus spending, may produce a deficit of nearly $1 trillion. That's a staggering figure that would add nearly 10 percent to the balance shown on the Times Square deficit clock.

A cash-heals-all philosophy

Lawmakers blame the country's economic woes. For the government, economic slowdowns generally translate into the undesirable combination of lower tax revenues and higher costs. Businesses and consumers pay less in taxes because they're not making as much money, and costs increase as more people find themselves in need of government services. That's certainly the case this time around. But lawmakers have exacerbated the cost pressures by authorizing a series of enormously expensive bailout actions.

Since February, Congress and the Bush administration have committed more than $1 trillion to the effort of shoring up the economy. These include mortgages for at-risk homeowners, credit facilities for struggling financial services firms, money to stabilize the capital structures of Fannie Mae and Freddie Mac, funding to purchase illiquid securities, tax breaks to win votes for the financial rescue plan...and the list goes on.

Many politicians stand by these actions, arguing that making the investments now allows the economy to recover and realize growth. But when the deficit threatens to break into the trillions, one has to wonder whether this seemingly compulsive spending spree will cause more problems than it solves.