WASHINGTON – The financial rescue operation will force the federal government to borrow an unprecedented amount of money as the budget deficit climbs to record heights, a top Treasury Department official said Tuesday.
Anthony Ryan, Treasury's acting undersecretary for domestic finance, said the administration back in July was forecasting that the deficit for the current budget year, which began on Oct. 1, would hit a record $482 billion. He said that forecast did not include all the government's efforts since then to deal with the worst financial crisis since the 1930s.
"This year's financing needs will be unprecedented," with all the rescue programs now in place, Ryan said.
Ryan said those borrowing efforts will need the address numerous government initiatives: The $700 billion rescue program passed by Congress on Oct. 3; efforts by the Federal Reserve to bolster banks' balance sheets which have required it to utilize Treasury's borrowing resources; and the need of the Federal Deposit Insurance Corp. for resources deal with a rising number of bank failures.
Speaking to the annual meeting of the Securities Industry and Financial Markets Association in New York, Ryan said the rising borrowing was occurring against the backdrop of a slowing economy. Many private economists believe the economy has already slipped into a recession because of the huge upheavals on Wall Street which have shaken consumer and business confidence.
"The potential for deterioration in economic conditions given the contraction in credit may also affect budget conditions this year," Ryan said in his remarks.
The federal deficit for the just completed 2008 budget year hit an all-time high of $454.8 billion, reflecting in part the $168 billion economic stimulus bill that Congress passed at the beginning of the year to jump-start the economy.
The administration in July projected a deficit of $482 billion for the current budget year. Private forecasters believe the red ink could rise to $700 billion or more given a looming recession and all the government programs being used to battle the financial crisis.
In his speech, Ryan told the Wall Street executives that Treasury was considering reviving the three-year note starting in November to help raise the money that will be needed to fund the rising deficits. He pledged Treasury would keep the markets informed of other financing changes that will be undertaken.
Treasury announced on Monday that agreements had been reached with the largest banks in the country, who will be receiving $125 billion in government assistance to bolster their balance sheets. In return, the government is getting ownership stakes in the banks through the purchase of preferred shares and warrants to buy common stock.
Ryan said the first payments to the nine major banks would be made today and that Treasury would soon be announcing stock purchases made to other banks.