Creditors nations fret on U.S. budget

The U.S. budget deficit is raising concerns among creditors, with Russian Finance Minister, Aleksey Kudrin, expecting the recession to last 18 months with no progress on cutting the budget deficit for at least 3 years.

The gap between the US government revenues and public spending is getting wider.

Government programs to rescue Wall Street and shrinking tax revenues due to the economic slump have resulted in an unprecedented $957 billion dollar budget deficit. Russian Finance Minister, Aleksey Kudrin, doubts Washington's ability to rein it in anytime soon.

“US revenues will fall by 14% this year with spending up by a third. It’s still unclear for us whether the United States will be able to cut this unprecedented budget deficit in the next three or four years as promised by President Obama.”

Washington has unveiled more than a trillion dollars worth of bank bailout and economic stimulus measures to get the economy back on track. Funding this requires massive inflows to purchase U.S Treasury Bills. Countries such as China, Japan and Russia, which have run massive current account surpluses, have recycled these into T-Bills – keeping the worlds most profligate consumers well funded, as their own economies boomed as a result.

But now the ability of the U.S. to continue servicing the debt is coming into question, leading to mounting concern about the U.S. dollar. China recently voiced concerns about the level of its American holdings. But Yaroslav Lissovolik, Chief Economist at Deutsche Bank Russia, notes that with more countries unveiling economic stimulus measures, and looking at budget deficits, there is less money available to be funding the U.S.

“If you take Russia, for example, all these huge resources – hundreds of billions of dollars in oil windfall that used to be invested into US treasuries, lent to US, are now spent within Russia. And that means there is less of a reserve that is available for investing in foreign assets including US treasuries.”

Russia itself is now considering its first overseas borrowing in a decade before its financial cushion starts to run out, and borrowing conditions become tougher. With the U.S Federal Reserve announcing in mid March that they would start buying Treasuries, its starting to look as though printing money is the only way to make sure there is enough to go around.