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Easing U.S. budget deficit pace can't overcome worries ahead
Date: 2010/10/19 Click: 1816

Although the United States registered a smaller government deficit in the 2010 fiscal year, the financial sustainability of the world's largest economy once again got into the limelight and under new scrutiny.

The U.S. Treasury Department announced in a statement on Friday that the nation reports a 1.294 trillion-U.S.-dollar budget deficit in the just-completed fiscal year.

This figure is broadly in line with analysts' prediction. It is improving from 1.42 trillion dollars of the 2009 fiscal year, but still leaves this year's government deficit nearly three times as large as that in the 2008 fiscal year standing at 455 billion dollars.

Since the onset of financial crisis and economic downturn starting several years ago, the U.S. government deficit was spiking, due to decreasing revenue income and rising expenses on the Troubled Asset Relief Program (TARP), a massive economic stimulus package and rising entitlement programs partly due to the nearly double-digit unemployment rate.

The Treasury Department attributed the receipts turnaround trailing two years of decline to higher corporation income tax receipts and receipts from the Federal Reserve. But the government revenue gain was partially offset by a decline in individual income and payroll tax receipts.

Data revealed that outlays in the 2010 fiscal year topped 3.456 trillion dollars, 64 billion dollars less than the previous fiscal year, a decrease of 1.8 percent.

Spending for three large programs related to the financial crisis declined by 242 billion dollars, year over year, from 272 billion dollars in the 2009 fiscal year to 30 billion dollars in the 2010 fiscal year.

"This played a large part in reducing the deficit, which as a percentage of gross domestic product (GDP) fell to 8.9 percent, down from 10 percent of GDP in the 2009 fiscal year," said the statement.

However, spending rose for major entitlement programs in the nation such as Social Security, Medicare and Medicaid, and unemployment benefits in the 2010 fiscal year.

"We still have a long way to go to repair the damage to the economy and address the long-term deficits caused by the crisis," Geithner noted.

Many economists cite 3 percent of a country's GDP as a benchmark of budget sustainability, as rocketing deficits would reduce confidence in the government's creditworthiness, push interest rates higher, crowd out private investment and ultimately erode living standards and a faltering economic recovery.

U.S. Federal Reserve Chairman Ben Bernanke warned earlier this month that the United States should endeavor to improve its fiscal sustainability, as "history makes clear that countries that continually spend beyond their means suffer slower growth in incomes and living standards and are prone to greater economic and financial instability."

"Expectations of large and increasing deficits in the future could inhibit current household and business spending. Failing to address our unsustainable fiscal situation exposes our country to serious economic costs and risks," said the U.S. central bank chief.

Debt consolidation is one of the key challenges facing advanced economies, the International Monetary Fund's Managing Director Dominique Straus-Kahn said last week.

"Creditors would never be willing to lend to a country in which the fiscal debt relative to the national income is rising without limit," Bernanke contended.

Some economists held that although the United States is facing a slackening economic recovery and stubbornly high unemployment rate in the near term, the government should take tough decisions to bring the country back to a sustainable trajectory.

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