U.S. to borrow record $177B

By Brendan Murray and Simon Kennedy
Bloomberg News

The U.S. plans to borrow a net $177 billion from January through March, a record for any quarter and more than the Treasury Department forecast three months ago, to help finance an unprecedented budget deficit.

The borrowing will help the U.S. finance a shortfall that the White House today said will swell this fiscal year to $521 billion, the biggest ever in dollar terms. The government also expects to borrow $75 billion from April through June, the Treasury Department said in Washington.

The budget gap, which must be bridged with Treasury debt sales, is widening in part because the economy has been slow to create jobs. Critics say the need for more Treasuries might lead to higher market interest rates and hurt growth.

"There's no doubt the sluggish economy has been one of the reasons the deficits have gotten as big as they are now," said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut.

The federal deficit would amount to 4.5 percent of U.S. gross domestic product, less than the record 5.9 percent in fiscal 1983 under President Ronald Reagan. During his State of the Union speech Jan. 20, Bush said that spending restraint will help cut that percentage in half during the next five years.

Today's number is bigger than the $160 billion in sales of all notes and bills that the Treasury on Nov. 3 projected would be needed during the second quarter of the government's 2004 fiscal year. The budget year began Oct. 1.

The Treasury projected a cash balance of $20 billion on March 31. The administration cited lower receipts, primarily because of larger tax refunds, and more spending, as reasons for the larger-than-expected borrowing need in the current quarter.

Bush is seeking a 3.5 percent increase in the budget to $2.4 trillion next year, focusing spending on guarding the U.S. from terrorism. Bush wants spending outside those priorities to grow less than 1 percent, lower than the inflation rate.