US budget deficit hits peacetime high: $1.4trn

The US government borrowed more than ever in peacetime last year – some $1.4 trillion, said the Congressional Budget Office yesterday. Proportionately, the deficit is one of the largest among the advanced nations – 9.9 per cent of GDP. Loss of tax revenues during the recession, the costs of supporting the jobless and the extraordinary scale of public support for the financial sector have all driven the deficit higher. However, the latest news on unemployment suggests a slightly brighter outlook.

Federal tax revenue fell by $420bn, or 17 per cent, to hit its slowest level in more than half a century. As in the UK, the US government depended disproportionately on a buoyant property market and banking for its income in the boom. Income tax receipts dropped by 20 per cent, corporation tax by 54 per cent.

Federal spending rose by 18 per cent, and around half of the spending increase, $245bn, was accounted for by the rescues of the mortgage firms Fannie Mae and Freddie Mac, among others. However, much of the deficit is cyclical rather than structural, and the IMF has forecast a swift return to more normal conditions.

The number of Americans filing first-time unemployment claims has fallen to the lowest level since January, to a better-than-expected 521,000, from 554,000 the week before. Yesterday's figures are in contrast to a report released last week which shocked the market by suggesting unemployment was soaring more than expected.