September 11, 2008 / 9:12 PM / 11 years ago

US debt burden may swell to $5.3 trillion -Goldman

NEW YORK, Sept 11 (Reuters) - The U.S. government’s debt burden could balloon to $5.3 trillion in the next decade, in part if it borrows more to finance another fiscal stimulus program and help ailing U.S. banks and carmakers, Goldman Sachs said.

This latest estimate is more than double the $2.3 trillion baseline forecast from the Congressional Budget Office and 50 percent higher than Goldman’s previous forecast of $3.6 trillion, according to Goldman Sachs economists in a research note released late Wednesday.

Even accounting for stimulus programs and financial rescues, the two biggest components of the national debt over the next 10-year span would come from a shortfall in tax receipts worth $3.2 trillion and military spending, estimated at about $1.2 trillion.

Goldman economists also upwardly revised their federal budget deficit outlook for the next two fiscal years by more than $100 billion each compared with their prior forecasts.

They now predict the U.S. budget gap will hit $565 billion in fiscal 2009 and $560 billion in fiscal 2010, adding that there are risks that could push those figures above $600 billion.

Goldman’s latest forecasts “entail a much greater degree of uncertainty than in recent years, with risks tilted heavily to the side of even larger budget gaps.”

The deterioration in the U.S. economy and turmoil in the financial markets have compounded the grim budget outlook for the next couple of years, the bank’s analysts said.

On Wednesday, the Congressional Budget Office raised its fiscal deficit forecast for fiscal 2008, which will end on Sept. 30, to $407 billion from its March estimate of $357 billion.

With Congress expected to consider a second fiscal stimulus package later this month, it could cost about $50 billion, with most of it recorded in fiscal 2009, Goldman analysts said. This would follow the $168 billion package enacted earlier this year.

Moreover, the government may be poised to rescue more failing financial institutions after it seized control of mortgage finance giants Fannie Mae FNM.N and Freddie Mac FRE.N this past weekend.

Goldman said the cost of the move to bail out the two government-sponsored enterprises was upward of $50 billion, twice the amount estimated by the Congressional Budget Office in July.

Moreover, the 11 bank closures so far this year have cost the Federal Deposit Insurance Corp $8.9 billion.

While aid to the financial sector has gotten the most attention, Congress is also considering whether to grant as much as $50 billion in loan and loan guarantees to the struggling auto industry, Goldman analysts said. (Reporting by Richard Leong; Editing by James Dalgleish)

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