Barack Obama: US on course for record budget deficit

Barack Obama today predicted the US budget deficit would hit a record high this year, adding fuel to opposition claims that he is at heart a tax-and-spender.

The deficit will be $1.56 trillion (£982.2 billion) in 2010, equal to 10.6 per cent of the total American GDP — the biggest percentage deficit ever.

While still being enormous, the shortfall is not as big in percentage terms as that facing the UK, where the Government predicts a deficit of 12.8 per cent of GDP this year.

Philip Shaw, economist at Investec, said: "The figures point to exactly the same thing on both sides of the Atlantic — these deficits are unsustainable."

He described measures announced today by Mr Obama to cut spending as "window dressing" which would go nowhere near enough to deal with the huge problem of lower tax revenues, reduced economic output and rising welfare bills.

Others pointed out that the main difference between the debt crisis facing Mr Obama and Gordon Brown was that American government bonds are more attractive and liquid for investors. That means it should be possible for the US to continue easily funding the deficit by issuing new debt, unlike Britain, where there has been opinion that gilts should be avoided due to the risk of a default.

David Buik, market commentator at BGC Partners, said the deficit forecast was damaging for US Treasury bonds: "This is bad news for recovery. It means Treasury interest payments go up. The taxpayer suffers and growth will be damaged."

The latest rise in the deficit was partly due to increased spending linked to a package of emergency stimulus measures Mr Obama signed last year.

Mr Obama's plan also included more than $800 billion in higher taxes and fees on those earning more than $250,000, banks which benefited from the bailout and the oil and gas industries.