Ahead of the Bell: Government borrowing plans

WASHINGTON - The government on Wednesday is scheduled to detail its plans to borrow a record $550 billion in the final three months of the year as a down payment for the various financial rescue packages put into effect in response to the global crisis.

A Treasury Department official on Monday projected the government would need to borrow an additional $368 billion in the first quarter of 2009 — putting a sea of red ink in front of the incoming president, Barack Obama.

Treasury is expected to bring back its three-year notes to help cover the increased borrowing needs. Department officials are scheduled to detail the borrowing plans on Wednesday morning.

In May 2007, shrinking deficits and smaller borrowing needs led the government to cease sales of the three-year notes.

Now, in a starkly different economic climate, the financial rescue programs will force the government to borrow an unprecedented amount of money as the budget deficit climbs to record heights.

The Bush administration in July forecast that the deficit for the current budget year, which began Oct. 1, would hit a record $482 billion. But that forecast didn't include all the government's efforts since then to deal with the worst financial crisis since the 1930s.

Officials say the borrowing is needed to pay for the array of government initiatives: The $700 billion rescue program enacted in early October; efforts by the Federal Reserve to bolster banks' balance sheets which have required it to utilize Treasury's borrowing resources; and the need of the Federal Deposit Insurance Corp. for funds to deal with a rising number of bank failures.

The nonpartisan Committee for a Responsible Budget estimates all the government economic and rescue initiatives, starting with the $168 billion in stimulus checks issued earlier this year, total even more — an eye-popping $2.6 trillion.

Supporters of the government rescue packages argue that the ultimate cost to taxpayers should end up being a lot smaller, partly because the Federal Reserve is extending loans to banks that should be paid back.

And in the case of the $700 billion rescue package, the government is buying assets — either bank stock or distressed mortgage-backed assets — that it hopes will rebound in value once the crisis has passed.

But the government still needs to borrow massive amounts to buy the assets, an effort that has driven up borrowing costs to levels never before contemplated.

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