U.S. looks to cut deficit with unused TARP funds: report

Thu Nov 12, 2009 12:48am EST

(Reuters) - The White House is looking to cut its budget deficit by using some unspent funds from the U.S. government's Troubled Asset Relief Program (TARP), the Wall Street Journal said, citing people familiar with the matter.

Members of the Obama administration are still debating the idea, the paper said, adding that the administration would still like to keep some of the unspent money in case of emergencies.

A U.S. Treasury source told Reuters that it was shifting the focus of the TARP program toward helping small business and the housing sector rather than large banks.

"As that focus shifts, we expect to use significantly less TARP funding than authorized," the source said. "We will maintain the flexibility to deal with a future crisis, and uninvested TARP money is dedicated to reducing the debt."

The U.S. budget deficit soared to a record $1.4 trillion in the fiscal year that ended on September 30 and is expected to be about the same this fiscal year as the economic slump caused tax revenues to plunge and spending soared.

Budget experts project deficits will remain stubbornly high over the next 10 years even as the economy improves, which could lead to increased borrowing costs, further weakness in the U.S. dollar and runaway inflation.

The Journal added that the projected long-term cost of TARP will likely be lowered from $341 billion to as little as $200 billion.

(Reporting by Ajay Kamalakaran in Bangalore and Glenn Somerville in Singapore; Editing by Kim Coghill)

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