Federal deficit surges to $1.38 trillion through August

WASHINGTON -- The federal deficit surged higher into record territory in August, hitting $1.38 trillion with one month left in the budget year.

The soaring deficits have raised worries about the willingness of foreigners to keep purchasing Treasury debt. The Chinese, now the largest foreign owners of U.S. Treasury securities, have expressed concerns about runaway deficits. Treasury Secretary Timothy Geithner and other administration officials have sought to address those concerns by insisting that once the recession is over and the financial system is stabilized, the administration will move forcefully to get the deficits under control.

Republican critics contend the administration does not have a credible plan to address future deficits.

"The $9 trillion question is when will the White House do more than just pay lip service to tackling these jaw-dropping deficits that threaten our economic stability," House Republican Leader John Boehner of Ohio said in a statement. "Piling more and more debt on future generations while massively increasing federal spending is not a response."

Private economists worry the country could face the grim prospect of seeing interest rates soar in future years and the dollar weaken as foreigners dump their U.S. holdings.

The Treasury Department said Friday that last month's deficit was $111.4 billion, below the $152 billion that economists expected. Still, the imbalance added to a flood of red ink already accumulated through the recession and massive spending needed to stabilize the banking system.

The Obama administration last month trimmed its forecast for this year's deficit to $1.58 trillion, from an earlier $1.84 trillion. The recovery of the banking system led to the reduced estimate as it meant the administration did not need to get an additional $250 billion in bailout support for banks.

The $1.58 trillion estimate for the full budget year signals that that administration expects the imbalance in September to be around $200 billion. That would be a sharp deterioration from September 2008 when the government closed out that budget year with a $45.7 billion surplus.