U.S. posts record $180.7 billion budget deficit in July

The United States set another record for public debt in July, but don't look for the total to discourage investors: They're focusing on the economic recovery.

The federal budget deficit increased to $180.7 billion in July, the U.S. Treasury announced Wednesday. Outlays increased 26 percent from a year ago to $332.2 billion, while receipts fell six percent to $151.5 billion, Bloomberg News reported.

Economists surveyed by Bloomberg News had expected the July deficit to total $180 billion. The U.S. posted a $94.3 billion deficit in June.

The July deficit brings the fiscal year deficit to about $1.27 trillion, largely ballooned by the $787 billion stimulus package to jump-start the U.S. economy and the $700 billion bank sector bail-out. The Obama administration forecasts a record $1.84 trillion deficit for this year and a $1.26 trillion for next year, fiscal year 2010, which begins October 1, 2009. Last year, fiscal year 2008, the U.S. government posted a then-record $454.8 billion deficit.

The U.S. government last ran a surplus during the 2001 fiscal year, posting a $128 billion surplus in the last year of the Clinton administration.

Further, major U.S. think tanks had decidedly different interpretations of the nation's fiscal condition. The Economic Policy Institute, a liberal think tank, argues that Congress should not be thinking in terms of deficit reduction right now, but toward efforts to further stimulate the U.S. economy. Conversely, The Heritage Foundation, a conservative think tank, said Congress should take steps to decrease the deficit, primarily spending cuts, arguing that the high debt levels will both increase interest rates and quintuple net interest costs over the the next decade.

Fiscal/Economic Analysis: Another in-line, monthly budget deficit - and one that U.S. stock and bond markets will ignore, for the most part.

The market's blasé attitude may seem odd, given a triple-digit monthly deficit, but the markets had already factored-in, or discounted, the total.

Second, the narrative or prevailing psychology driving the stock market now is the approaching recovery. Institutional investors are receiving at least a data point a week on housing, manufacturing, job layoffs, and auto sales that points to not only a bottoming recession, but also an approaching recovery. Those are the major reasons investors have bid-up stock prices in the past four to five months.

Further, so long as the economic fundamentals point to economic growth, the markets will look past the budget deficit data: Investors know that a growing economy will do its part to increase federal revenue and decrease outlays, cutting the deficit even before likely, targeted Congressional action next year.

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