New York Times NEWS ANALYSIS
Deficits and Tax System Changes in Bush's Second-Term Economy
By EDMUND L. ANDREWS
Published: November 4, 2004
WASHINGTON, Nov. 3 - Even as President Bush was celebrating his election victory on Wednesday, his Treasury Department provided an ominous reminder about the economic challenges ahead.
After four years of rapidly rising budget deficits, the Treasury announced on Wednesday morning that the government will borrow $147 billion in the first three months of 2005 - a new quarterly record, but one that is likely to be eclipsed before that year is out.
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Foreign investors have thus far been willing to finance the United States' borrowing, but most of that has come from central banks of Asian nations rather than private investors. If foreign appetite for Treasury securities wanes, interest rates would have to rise to make such investments attractive enough to keep money flowing into this country.
"The U.S. bond markets are likely to react very badly,'' said Nariman Behravesh, chief economist at Global Insight, an economic forecasting company, "as investors begin to worry about the impact of these large deficits on U.S. interest rates, the U.S. current account deficit and the dollar."
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More ominiously, said Mr. Holtz-Eakin, who worked in the Bush White House before becoming head of the Congressional Budget Office, there is little room for error. Almost any unexpected shock - a new recession, or a new military crisis - could push budget shortages higher than the gloomiest forecasters are predicting now.
And even if Washington gets through the current uncertainties, only four years remain until the oldest baby boomers start to retire and the costs of Social Security and Medicare benefits gradually eclipse those of every other part of the federal government.
