Signs of hard times getting harder in the U.S. are appearing every day. Home construction has dropped to its lowest level in roughly 60 years. Industrial production has fallen by rates unseen since the early 1970s. Consumer spending continues to decline month after month, even as the holiday season approaches.
But there is little evidence of belt-tightening in Washington. While the rest of the country switches into austerity mode, there's almost a boomtown feel in the capital, where a federal spending spree is rapidly driving the federal deficit to the largest deficit since the end of World War II.
And the red ink will continue to rise, thanks to panicky raids of federal coffers by policymakers trying to stem the financial crisis. When other bailouts, including the recently passed $700 billion financial rescue plan, are counted, Washington is set to shell out some $1.5 trillion in the near term.
Projections for the next fiscal year's deficit start at roughly $550 billion and go as high as $1 trillion, depending on the government's current obligations, expected further spending measures and falling tax revenues related to the slowing economy.
At some point, most economists argue, the U.S. will have to balance its budget and repay what it has borrowed to fund the spending spree. Neither presidential candidate can convincingly argue that a balanced budget is possible in the next few years. Both are advocating economic programs that will probably increase the deficit even more. Republican candidate John McCain is calling for some $52 billion in economic recovery spending, while Democratic candidate Barack Obama's plan would cost roughly $175 billion. Both McCain and Obama have vowed to cut taxes, which is likely to drive the deficit higher.