It's hardly surprising, but, as always, it is something of a shock: The federal government spent some $111 billion more than it brought in last month, pushing its budget deficit for the fiscal year that ends on Sept. 30 to a record $1.38 trillion. That was less than economists expected, but still quite a huge sum.

It isn't cheap to fight wars in Iraq and Afghanistan, provide social services to millions of people hit hard by the recession and rescue the global financial system and the U.S. auto industry from the brink of collapse. But runaway spending isn't the federal government's biggest problem right now, according to figures from the Treasury Department (PDF).
Actually, spending fell 4.5 percent to $256.9 billion last month compared with August 2008. But the trouble is on the other side of the ledger.

Revenue, mostly in the form of taxes on individuals and corporations, has fallen precipitously, Treasury's data shows. It's down 7.3 percent to 145.5 billion.

Why? The answer is straightforward: Workers without jobs don't pay as much income taxes as those who are still employed. The growing number of jobless people who've exhausted their unemployment benefits may not pay any at all.

And companies without profits don't pay corporate taxes. In fact, businesses get a tax break for losing money.

To fill the gap between what the government spends and what it collects in taxes and fees, it must borrow. And to borrow it must sell Treasury bonds. More than a few economic observers are getting worried that the world's once seemingly insatiable appetite for U.S. government debt will eventually be sated, although there are reasons to believe that day isn't yet at hand.

That's not to say there's nothing but smooth sailing ahead. If the recession truly is over, as more economists are beginning to say, the Federal Reserve will have to raise interest rates sooner rather than later to stave off a bout of potentially debilitating inflation. That will, in turn, increase the interest the Treasury must pay to investors who buy bonds and fund our deficit.

And that could turn months like August into an increasingly expensive proposition.

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