US Dollar under pressure - A new record Federal Budget Deficit of 1.417 Trillion US Dollar
Tripling the deficit from last budget year and it grew to the astonishing amount of US$ 1.417 trillion US Dollar.
The federal budget deficit tripled to a record US$1.417 trillion for the 2008-2009 fiscal year which ended at September 30th 2009.
The main causes outlined for the federal budget deficit is the big drop in the tax revenues due to the recession and that US$ 245 billion was used on the public economic stimulus packages for the Wall Street bailouts and the takeover of mortgage companies like Fannie Mae and Freddie Mac.
The Federal budget is now equivalent to 10 percent of the GDP of USA rising from 3 percent in the last budget year. The experts expected the US federal deficit to be larger than reported, however there is no information to why this was expected.
The economic stimulus bill initiated by President Barak Obama after the election runs to a cost of US$ 200 billion.
The previous record from the budget year of 2007-2008 was US$459 billion so this new record is a triple of this level.
Obama has attributed the nation's dismal fiscal situation to the financial and economic crises he inherited.
The future deficit prognosis is too large, and the President will together with the Congress have to find solutions to get the deficits down to a sustainable level again.
The previous administration led by Bush said the 2007-2008 deficits was being driven to an all-time high by the sagging economy and the stimulus payments being made to 130 million households in an effort to keep the country from falling into a deep recession.
So the sitting President inherited a debt of US$459 to start with, together with the worsening economic conditions in contrast to Bush administration prediction of a growth rate of over 2% in the US economy for 2009, contributed to this new record level of US$ 1.417 Trillion budget deficit.
This fuels the discussion of the US Dollar valuation compared to other key currencies like Euro, Yen, Yan and Ruble.
Expectations of inflations to start in 2010 would not make a positive contribution to strengthen the US Dollar.
This will mean that the US market will not be able to import as much products as before and there is a genuine scare in the market that this will fuel a second ripple in the recession starting in the 1st quarter of 2010.
The discussion of decouple the oil price from US Dollar will also get renewed attention and importance as the US Dollar will be under lots of pressure from other currencies. The discussion has already been initiated as some countries already see an opportunity to make the oil price coupled to a new international basket economy, less dependent upon US Dollar.
This again cold lead to the debate whether the gold standard has to be brought back into market mechanism and be a controlling factor together with other precious metals.
The market is on a hold, but the US$ is falling back to mid 2008 levels versus the Euro on a constant fall against this currency, as it keep stand against the Chinese currency at the moment. A slight upturn versus the Japanese currency was observed in the end of last trading week.
It remains to see what the US Government together with the Congress can and will do to correct this trend, if they want to.
Making the US$ weaker against trading partners could assist US economy to fight the inflation building up to start in 2010.
However, this effect is effectively counteracted by the running money press in Washington at the moment.