A key advisory committee to the Treasury Department warned that the federal
government will have to issue record-level amounts of debt in the next two years in
order to fund the various economic recovery programs in place and make up the
shortfall due to falling tax revenues.
According to the minutes of a February 3 meeting of the Treasury Borrowing
Advisory Committee (TBAC), Acting Assistant Secretary of Treasury for Financial
Markets Karthik Ramanathan said estimates for marketable borrowing needs
range between $1.5 and $2.5 trillion in the current fiscal year, and that gross
Treasury issuances “will potentially reach $6.5 trillion dollars in FY 2009.”
“Ramanathan stated that the fiscal outlook remained challenging, and
potential measures to improve the economy portended sizeable borrowing
requirements for at least FY 2009 and FY 2010,” according to the minutes.
One participant added that “FY09 borrowing could be as high as 18 percent of
GDP while debt to GDP ratios were projected to rise above 50 percent,” the
Factors contributing to the increased borrowing needs are the costs of the
Troubled Assets Relief Program, but also declining federal tax revenues. One
participant said there have already been “significant declines” in tax receipts,
“stemming from sharp declines in both corporate and individual taxes.” The
minutes said receipts are down 10% in the last quarter, while outlays grew 45%
due to increased TARP spending.
One participant added that tax receipts are likely to fall further as
unemployment climbs, which means borrowing needs would be “sizable for
The TBAC’s formal report to Treasury said private forecasts for total funding
needs have increased to $2 trillion this year. “This is likely to stress the existing
auction schedule and consequently warrants tangible adjustments” to the
The report later added that total Treasury issuances in 2009 and 2010 “could
climb as high as $4 trillion,” and warned that “neither the CBO estimate nor the
private consensus reflect fully the funding needs associated with the Obama
Administration’s fiscal stimulus plans.”
Treasury today said it would issue $67 billion in new debt offerings in the
quarter, a record high quarterly addition. This decision was made on the
recommendation of the TBAC.
TBAC minutes also said participants are already recommending more debt
issuances of different maturities in order to cope with expanded debt levels.