Nervous observers watch last week's turmoil on global markets

Last week's global financial crisis is turning into a bigger drain on the US federal budget than previously thought, ballooning America's deficit toward $2 trillion.

Bailouts of AIG, Fannie Mae and Freddie Mac will be more expensive than expected. Meanwhile, states are turning to Washington for fiscal help. The Federal Reserve said last week it would begin buying commercial paper, the short-term loans companies use to conduct day-to-day business, further increasing costs.

The 2009 budget deficit could be close to $2 trillion, or 12.5 percent of GDP, more than twice the record of 6 percent set in 1983. That means a lot more borrowing by the US Treasury, which will push up interest rates, according to experts.

AIG, the giant insurance company that was taken over by the government in mid-September, said last week it may access $37.8 billion from the Federal Reserve Bank of New York, in addition to the $85 billion the government already loaned it to stave off bankruptcy.

"You're in for a dime, you're in for a dollar on this one," said David Havens, a credit analyst at UBS.