Washington – Like a person packing on pounds, the United States keeps adding to its flabby budget deficits, endangering the nation’s economic health and the pocketbooks of ordinary Americans.
Here’s the worry: Persistent deficits will lead to higher borrowing costs for consumers and companies, slowing economic activity.
As Uncle Sam seeks to borrow ever more to finance those deficits, rates on Treasury securities would rise to entice investors. That would push up other interest rates, such as home mortgages, many auto loans, some home equity lines of credit and some credit cards.
“That’s the pocketbook risk to the American consumer,” said Greg McBride, a senior financial analyst at Bankrate.com, an online financial service.
For businesses, rates on corporate bonds would climb. It would become more expensive to borrow to pay for new plants and equipment and other capital investments.
With a succession of budget deficits, “you do expect to see higher interest rates,” said James Feyrer, assistant economics professor at Dartmouth College in New Hampshire. “Where we fight about this is over how big the effects are. But they are definitely there.”
The government’s budget deficit last year was $319 billion. While smaller than the record $413 billion in 2004, it still was the third-highest ever.
A White House budget official predicts that the deficit in the current budget year will top $400 billion, pushed up by the costs of the Gulf Coast hurricanes. The red ink is expected to keep flowing for years.
The Congressional Budget Office forecasts deficits every year through 2015; that is as far out as the office projects.
