Federal deficits: $9 trillion and counting

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NEW YORK (CNNMoney.com) -- In just over a month, the federal government's fiscal year will draw to a close, leaving in its wake one of the biggest annual deficits in U.S. history -- and a forecast of more record debt to come.

Just how much more will be the question on Tuesday.

The Congressional Budget Office and the White House Office of Management and Budget are set to release separate updates of their 10-year deficit estimates, along with updates on their economic outlooks.

The agencies' previous estimates -- based on the president's proposed 2010 budget -- were about $2 trillion apart.

The CBO, which serves as Congress' official scorekeeper, had the higher estimate: $9.14 trillion over 10 years or 5.2% of gross domestic product.

By comparison, the Obama administration's budget office forecast a $7.11 trillion deficit or 4% of GDP.

The White House's economic estimates were seen by many as too optimistic. For instance, the administration estimated that unemployment would hit a peak of 8.1% this year. Actual unemployment numbers have already surpassed that level -- hitting 9.4% in July. And many economists expect the number to reach 10% before too long.

Last week, White House officials said their new 10-year deficit forecast will be in the neighborhood of $9 trillion, in part because Uncle Sam is pulling down less tax revenue than expected. That would bring it more in line with the CBO's previous forecast.

Analysts say the best-case scenario on Tuesday would be if the CBO's updated deficit forecast stays very much in line with its earlier $9 trillion estimate.

That's because foreign investors who buy U.S. debt have already factored in that amount.

"If [the CBO] numbers come in higher, that would be cause for concern," said Sean West, U.S. policy analyst at the Eurasia Group, a political risk research firm.

The concern, of course, is that foreign governments and other foreign investors could demand higher interest rates or stop buying as much U.S. debt.

One mitigating factor -- in the near-term anyway -- is the rapid rise in the U.S. savings rate over the past year. That's because banks can make money by investing savers' deposits in U.S. Treasurys, which pay more than what the banks have to pay customers on deposits.

"Rising U.S. savings will offset the need to find foreign investors," said Ross Schaap, Eurasia's director of comparative analytics.

But even domestically financed deficits come at a cost if they grow too large for too long.

"Deficits will gradually divert capital from productive domestic uses, through a rise in interest rates. This diversion reduces the amount of capital available to U.S. workers, lowering their wages and hence their living standards," deficit experts Alan J. Auerbach and William G. Gale wrote in a CNNMoney.com commentary. "If our deficits are financed from abroad, interest rates may not rise as much, but interest payments on these deficits will flow back abroad."

The deficit forecasts on Tuesday will underline the pressures facing President Obama in a weak economy.

It may make political sense to declare that the majority of Americans will not see their taxes go up, as Obama has done repeatedly, West said. But the administration eventually will have to come up with a sufficient exit strategy from the ballooning levels of federal debt, he noted.

That's not to say the administration has been silent on the issue. To the contrary, the White House has pushed for pay-as-you-go rules that would require Congress to pay for spending increases or new tax cuts. It has also proposed $17 billion worth of spending cuts.

Most notably, Obama has been pushing for health care reform to help bring the deficit in line since runaway health care costs are a major problem.

At the same time, the White House has said it would exempt from pay-go policies some of its priciest proposals, such as extending the 2001 and 2003 tax cuts for most households. And the course of health care reform is anything but a straight line to lower costs, no matter whose proposal takes top spot at the end of the day.

- CNN's Ed Henry and Rebecca Sinderbrand contributed to this report