Budget deficit tops $1 trillion for first time

WASHINGTON -- Nine months into the fiscal year, the federal deficit has topped $1 trillion for the first time.

The imbalance is intensifying fears about higher interest rates and inflation, and already pressuring the value of the dollar. There's also concern about trying to reverse the deficit -- by reducing government spending or raising taxes -- in the midst of a harsh recession.

The Treasury Department said Monday the deficit in June totaled $94.3 billion, pushing the total since the budget year started in October to nearly $1.1 trillion.

The deficit has been propelled by the huge sum the government has spent to combat the recession and financial crisis, combined with a sharp decline in tax revenues. Paying for wars in Iraq and Afghanistan also is a major factor.

The country's soaring deficits are making Chinese and other foreign buyers of U.S. debt nervous, which could make them reluctant lenders down the road. It could force the Treasury Department to pay higher interest rates to make U.S. debt attractive longer-term.

Government spending is on the rise to address the worst financial crisis since the Great Depression and an unemployment rate that has climbed to 9.5 percent.

Congress already approved a $700 billion financial bailout and a $787 billion economic stimulus package to try and jump-start a recovery.

This has many Republicans and deficit hawks worried the U.S. could be setting itself up for more financial pain down the road if interest rates and inflation surge. They also are raising alarms about additional spending the administration is proposing, including its plan to reform health care.

President Obama and other administration officials, including Treasury Secretary Timothy Geithner, have said the U.S. is committed to bringing down the deficits once the country has emerged from the current recession and financial crisis.