The deficit of $1.186 trillion for the fiscal year ending on 30 September would be the largest on record.

The projected deficit does not include the extra $800bn spending being planned by US President-elect Barack Obama.

But it highlights the deep economic difficulties facing Mr Obama when he is inaugurated on 20 January.

The CBO says that the slowing economy will lead to the US budget deficit more than doubling from last year's figure of $455bn.

And it says that, although the economy may recover by 2010, the deficit will still be more than $700bn, and it projects an accumulated deficit of nearly $2 trillion over the next five years.

As a percentage of total economic output, the deficit will be 8.3% of GDP. The previous record was 6% of GDP, set in 1983.

The major reason for the deficit is the sharp decline in tax revenues, projected to fall by 6.6%, as well as the increase in spending due to the cost of the recession and the bail-out.

The US government's debts have ballooned so badly the National Debt Clock in New York has run out of digits to record the spiralling figure.

The digital counter marks the national debt level, but when that passed the $10 trillion point last month, the sign could not display the full amount.

The board was erected to highlight the $2.7 trillion level of debt in 1989.

The clock's owners say two more zeros will be added, allowing the clock to record a quadrillion dollars of debt.

Douglas Durst, son of the late Seymour Durst - the clock's inventor - hopes to replace the Manhattan clock with its lengthier replacement early next year.

For the time being, the Times Square counter's electronic dollar sign has been replaced with the extra digit required.

For its part, the digital dollar symbol has been supplanted by a cheaper version - perhaps a sign of the times for the American economy.

It also warns the deficit could go higher as the figure does not take into account possible government costs for taking over Fannie Mae and Freddie Mac.

The CBO added the US government will run a deficit of $407bn this year.

During the next fiscal year - starting on 1 October - a "turbulent" economy would cut revenues, the CBO warned.

Its assessment of $438bn would breach the 2004 record of $413bn and far outstrip the $161bn budget shortfall last year.

"The significant expansion in the deficit is the result of a substantial increase in spending and a halt in revenue growth," the CBO report said.

At a news conference, CBO director Peter Orszag said it was too soon to say whether the US officially is in a recession.

But he said that the recent rise in unemployment and economic weakness "are consistent with the pattern seen in past recessions, the past few recessions to be precise".