The U.S. Treasury Department plans to borrow a record $550 billion in the current quarter, and another $368 billion in the first three months of the New Year – money needed to fund the $700 billion bailout plan the government is using to battle the worst financial crisis since the Great Depression.

Wall Street bond traders estimate that the U.S. government will have to borrow a record $1.4 trillion during the current fiscal year – an unprecedented amount of debt that’s nevertheless needed to cover a federal budget deficit that’s expected to approach $1 trillion for the fiscal year, CNNMoney.com reported.

(The government’s fiscal year differs from the calendar year, and actually began Oct. 1. The $700 billion bailout plan was approved by the U.S. House of Representatives on Oct. 3, and was signed into law the same day by President George W. Bush.)

Experts predict that the government’s budget deficit will reach $988 billion for the current fiscal year – more than double the $482 billion estimate that the Bush Administration made in July. However, that estimate was made before the U.S. credit crisis worsened to the point that government leaders felt they had to take action. The controversial bailout plan was form that initiative has taken.

A deficit of $988 billion would be more than twice the record deficit of $454.8 billion, which was achieved during the budget year that ended Sept. 30.

Bolstering Banks

The main element of the bailout package – labeled a “rescue package” by the Bush Administration – was devised to bolster the balance sheets of banks, enabling them to resume lending. To that end, the Treasury Department is investing $250 billion into U.S. banks, a recapitalization strategy that U.S. Treasury Secretary Henry M. “Hank” Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke have billed as being the best way to jump-start lending.

So far, the federal government already has used about $125 billion to buy stock in the largest U.S. financial institutions, including Citigroup Inc. (C) JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc.