Deficit breathes new life into Treasury market But United States interest rates will be under pressure if the budget gap continues to linger as the economy strengthens.

(From South China Morning Post)

Two years ago, Federal Reserve chairman Alan Greenspan said the United States was in danger of building up such big budget surpluses that the Treasury market could dry up. The government might have no choice, he warned, but to put its extra money into stocks and bonds.

Never mind. With the Bush administration now forecasting deficits into the foreseeable future, there is no need to invent a life-support system for the US$3 trillion Treasury market. The new budget released on Monday projects a record deficit, in nominal terms, of about $304 billion in the present fiscal year, followed by a $307 billion gap for fiscal year 2004, which begins on October 1.

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