U.S. Budget Deficit Hits Record High and Growing

U.S. Budget Deficit Hits Record in Feb 2006

Update - Wednesday, March 15, 2006

NEW YORK (MarketWatch) -- The dollar weakened against its major rivals Wednesday as growing concerns over the U.S.'s ability to finance its widening deficit outweighed a stronger-than-expected manufacturing report.

Capital flows into the U.S. rose to $66.0 billion in January as private investors increased their purchases of U.S. equities, the Treasury Department said. The trade deficit rose 5.3% to a new record of $68.5 billion in that month.

"The number is not good for the dollar," said Ashraf Laidi, chief currency analyst at MG Financial Group, noting that it is the second month that capital flows are lower than the deficit. "There is increased difficulty for the U.S. to finance its swelling trade deficit."

In New York trading, the euro rose to $1.2067, the highest level since March 7, before paring gains to trade at $1.2039, up 0.4% from late Tuesday. The dollar changed hands at 117.24 yen, down 0.4%. The dollar weakened 0.5% to 1.2964 Swiss francs.

Waning interest in Treasuries

The dollar sold off after the Treasury International Capital System (TICS) report showed diminished foreign demand for U.S. Treasuries.

Foreigners bought a net $4.4 billion in US Treasury bonds, down from $18.3 billion in December.

Private foreign investors sold $4 billion in Treasuries in January, after buying fewer Treasuries in December. See full story.

Michael Woolfolk, senior currency strategist at the Bank of New York, pointed out that for the second consecutive month, the shortfall in the January TICS was concentrated in US Treasuries.

"This can no longer be viewed as a one-off event associated with the year-end," he said.

Japanese holdings of U.S. Treasuries fell in January, while Chinese holdings rose.

Major Foreign Holders of Treasury Securities

http://www.treas.gov/tic/mfh.txt

(in billions of dollars)

HOLDINGS AT END OF PERIOD

2006 2005 2005 2005 2005 2005

Country Jan Dec Nov Oct Sept Aug

Japan 668.3 684.9 682.6 681.5 687.2 684.5

Mainland China 262.6 256.7 249.8 247.6 252.2 248.0

United Kingdom 244.8 234.4 223.0 187.7 183.0 174.8

Caribbean Banking 97.9 111.2 115.2 107.6 100.8 100.7

OPEC 77.6 66.5 67.6 63.7 54.4 53.6

Taiwan 71.6 71.1 71.2 71.8 71.8 71.6

Korea 68.3 65.4 65.3 60.2 60.6 58.9

Germany 65.2 67.0 65.7 64.4 63.5 65.0

Canada 54.9 53.1 53.8 51.6 47.7 48.3

Hong Kong 48.3 44.0 46.5 47.7 48.1 47.4

Norway 42.9 37.0 39.5 34.9 33.4 41.8

Luxembourg 39.5 39.9 40.9 40.9 41.3 42.3

Mexico 39.4 37.9 39.5 37.8 34.9 35.7

Switzerland 36.4 36.6 36.5 38.3 37.5 38.2

Brazil 28.5 27.4 27.4 25.7 26.2 23.7

France 27.7 26.6 27.0 25.7 24.2 24.2

Singapore 27.1 27.2 27.6 28.1 28.1 28.6

Sweden 20.0 18.8 19.7 19.3 19.3 19.3

Turkey 17.5 16.0 17.1 14.3 13.2 14.0

Belgium 17.3 17.5 16.2 16.0 16.2 16.3

Italy 16.0 17.1 17.8 16.4 15.5 16.1

Thailand 13.4 12.6 12.7 12.6 11.2 12.2

India 13.1 12.6 14.4 14.0 14.5 16.7

Ireland 12.7 11.3 14.5 13.6 10.6 10.6

Netherlands 11.3 11.4 12.6 14.7 13.9 14.4

Israel 11.2 11.1 9.4 10.6 10.5 10.1

Poland 10.4 12.7 12.5 12.2 11.9 11.1

All Other 143.7 145.7 145.3 140.6 131.9 134.2

Grand Total 2187.6 2173.7 2171.3 2099.5 2063.6 2062.3

Of which:

Foreign Official 1265.8 1248.8 1256.2 1237.4 1228.0 1240.2

Treasury Bills 210.5 201.9 214.9 199.8 195.4 205.4

Treasury Bonds & Notes 1055.3 1046.9 1041.3 1037.6 1032.7 1034.8

Excerpt from The Department of the Treasury/Federal Reserve Board

3/15/2006

1/ Estimated foreign holdings of U.S. Treasury marketable and non-marketable bills, bonds, and notes reported under the Treasury International Capital (TIC) reporting system are based on annual Surveys of Foreign Holdings of U.S. Securities and on monthly data.

2/ United Kingdom includes Channel Islands and Isle of Man.

3/ Caribbean Banking Centers include Bahamas, Bermuda, Cayman Islands, Netherlands Antilles and Panama.

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Friday March 10, 9:20 pm ET

By Martin Crutsinger, AP Economics Writer

Record Amount of Spending in February Pushes U.S. Budget Deficit to $119.2 Billion

WASHINGTON (AP) -- Record spending in February pushed the federal deficit to the highest level ever for a single month.The government had a budget deficit of $119.2 billion after having run a surplus in the two previous months, the Treasury Department said Friday.

That reflected a big jump in outlays, which totaled a record $232.1 billion last month, surpassing the old record for spending of $230.9 billion set in December. Spending normally increases sharply in February, a month when the government is mailing out tax refund checks to early filers.

"You have a lot of refunds going out at this point in the tax filing season," said Treasury spokeswoman Brookly McLaughlin. She said that taxpayers who owe money to the government tend to wait until closer to the April 15 deadline to file their returns.

Government revenue totaled $112.9 billion in February, up 11.8 percent from February 2005. The old monthly deficit record of $113.9 billion was set in February 2005.

For the first five months of the current budget year, revenues totaled $873.1 billion, an increase of 10.5 percent over revenue collections during the same period a year ago. Spending during this period totaled $1.09 trillion, an increase of 7.6 percent from the same period a year ago.

The Bush administration is forecasting that the budget deficit for the 2006 budget year, which will end Sept. 31, will hit a record $423 billion, surpassing the old mark, in dollar terms, of $413 billion set in 2004. However, private forecasters believe the actual deficit this year will be below the administration's February forecast.