The collapse in tax revenues is far surpassing anyone's worst expectations.
Between the shrinking economy, the widespread asset deflation and the elimination of so many of the highest-paying jobs, there just isn't much of a tax base to support all the government spending that's planned.
It's not just the stimulus that's exploding the debt, but also all of the unemployment benefits that are kicking in for the same reason revenues are disappearing.
The upshot. Government borrowing has quadrupled:
Bloomberg: With spending on unemployment insurance and other safety- net programs rising, the deficit is already at a record $956.8 billion six months into the fiscal year. To help close that gap, the Treasury Department has more than quadrupled borrowing, pushing the government deeper into debt.
“Tax receipts are just collapsing,” said Chris Ahrens, head of interest-rate strategy at UBS Securities LLC in Stamford, Connecticut, one of 16 primary dealers required to bid at Treasury auctions. The need to sell more debt “is a big issue in the Treasury market and it is ongoing. The surging budget deficit is the primary cause.”
The government will have to sell $2.4 trillion in new bills, notes and bonds in fiscal 2009, according to UBS. From October through December, the Treasury sold a record $569 billion, up from $82 billion in the same period a year earlier, and auctioned another $493 billion in the last quarter, up from $156 billion. That helps to make up for the drop in tax receipts, pay for the rise in spending and refinance maturing debt. Along with the principal, the sales add additional interest costs to the deficit for years to come.
