Washington -– The federal government registered a record budget deficit for the month of November, reflecting the impact of a recession on tax receipts and the mounting costs of the $700 billion financial rescue program.
The country remains on track to hit a record deficit of $1 trillion or more for the entire year, which would be more than double the previous all-time high set last year.
The Treasury Department said Wednesday that the gap between the government's revenue collections and what it paid out last month totaled $164.4 billion, the largest deficit ever recorded for the month of November.
In just the first two months of this budget year, the deficit now totals $401.6 billion. A deficit of $1 trillion for the year would not only be the largest in dollar terms but also as a percentage of the overall economy.
A deficit that large would equal 6.7 percent of the gross domestic product, the economy's total output in a single year. That would surpass the previous record in GDP terms of 6 percent sent in 1983 when Ronald Reagan was president.
And some economists think this year's deficit will exceed $1 trillion. David Rosenberg, North American economist at Merrill Lynch, projected that it could reach $1.5 trillion, depending on how large an economic stimulus package is approved next year.
While the November deficit was slightly lower than the $172.5 billion that economists had been expecting, the total for the past two months is well above the red ink ever recorded in a similar two-month period.
The deficit is being driven higher by the $700 billion rescue package Congress passed on Oct. 3 in an effort to deal with the most serious financial crisis to hit the country since the 1930s.
The Treasury Department plans to use $250 billion of the $700 billion program to make direct purchases of bank stock, providing the nation's financial institutions with an infusion of cash in the hopes that they will resume more normal lending practices.
The new report showed that the government spent $76.5 billion from the rescue program in November and $191.5 billion over the past two months.
Besides the $700 billion rescue package, the Treasury also is making purchases of mortgage-backed securities in an effort to bolster demand for these assets. Those purchases totaled $23.2 billion in November and $44.7 billion over the past two months.
Treasury Secretary Henry Paulson is contemplating asking Congress for approval to tap the second $350 billion in the bailout package before the Bush administration leaves office on Jan. 20, but he has said he will only make such a move after consulting President-elect Barack Obama.
Still, even budget hawks acknowledge that now is a good time for the government to step up its borrowing. With the Treasury Department paying the lowest rates on government debt in years, taxpayers will pay less in interest on all the new debt.
In recent days, the Treasury has sold one-month bills at zero percent and three-month bills at rates near zero.
That's because the financial meltdown has caused large institutional investors to seek out the safety of T-bills, increasing demand and lowering the yield on government debt.
But Robert Bixby, executive director of the Concord Coalition, a nonpartisan budget watchdog group, warned that the low rates won't last forever and the U.S. government likely will have to pay higher rates in the future.
"This is like a teaser rate for the federal government," he said, referring to the low initial interest rates that many mortgage lenders offered to entice consumers to buy a home. Many homeowners have since struggled to pay higher rates that have kicked in after the teaser rate.
But Rosenberg thinks the U.S. can afford the extra spending, as total public debt is equal to about 40 percent of the U.S. economy, he said in a research note Tuesday.
That is "well below any level that would suggest a cause for concern about the credit rating on U.S. debt."
AP Economics Writer Christopher S. Rugaber contributed to this report.