Temporary Debt Limit Deal Reached (9-2017)

As mentioned in the last post, a deal to increase the debt limit (technically suspend until December 8) was reached…supposedly between Trump and the Democrats, but that story seems a little silly to me, not that it matters.

So, last Friday, Treasury pulled all of the “Extraordinary Measures” (EM) IOU’s out of the coffee can and made them official, pushing the total debt outstanding up by $317B. Again, nothing shocking at all.

As I have complained mightily about in the past, these shenanigans nuke my simple cash deficit calculations, but I am able estimate them. Now that EM is over and the debt is once again properly accounted for, and I can now calculate it to the penny again. Over nearly six months of EM, my estimates were only off by $5.5B….or $1B per month, which was better than previous EM periods, though honestly nothing about my process has changed. What that means is that just last week I had the August YTD deficit at $460B….these revisions push it up to $465B….so no real material change….The 2017 deficit is pretty much in line with the 2016 deficit which was $476B through 8 months.

My thoughts on the debt limit….it is still just a really bad joke. I get the principle….but am still forced to see that it has failed completely so many times for so many years. And then of course…can we really even call it a debt limit if Treasury can then circumvent it using laws/rules passed by congress for six full months, and $317B? I’m in favor of scrapping the whole silly thing, but perhaps we should at least stop calling it a “debt limit”….maybe we should call it a “Red Line”…LOL (too soon??).

Here is the deal…the US government has a baseline deficit at the moment of about $600-$700B….same as last year. As it stands, this budget is “un-balancable” (probably a made up word 🙂 ), and therefore the debt is unpayable. Sure, we can roll it for a while, maybe a long while, but we can never pay it off.

In order to change the baseline above…. something drastic must change, probably on the spending side of the deficit equation. Nearly half of the annual spending can be attributed to just 3 things…Social Security, Medicare, and Medicaid at nearly $2T/Y. You simply can’t plug that $700B hole, or even make a dent in it with out materially changing these programs, and yet, not a peep. That’s why it pisses me off to hear the Republicans in particular pretend like they care about this issue….then come up with some crazy optimistic proposals about how they are going to “save” $500B….over 10 years. That’s not even worth talking about….if you care about the debt/deficit…come up with a plan to save $10T over 10 years…or don’t even bother trying.

 

One final thought….now that the EM cannon has been reloaded with a fresh ~$350B, don’t be surprised if the debt limit has in actuality been pushed out not just a few months, but possibly all the way out to next summer. The timing isn’t as good for Treasury this time around….last year EM went into effect just after the heavy tax refunds had gone out in February and just before the heavy tax payments of April. This probably would have got them well into October if the hurricanes Harvey/Irma hadn’t given them the cover they needed to extend it sooner. This time around, it will be much tighter. They may not make it through tax refund season without running out of cash, but if they somehow can make it to April when cash starts flowing back in they can probably make it through the summer again…I hope it doesn’t…watching this stupid game year after year is kind of a downer!!

August 2017 Cash Deficit: $158B

The estimated US Cash Deficit for August 2017 came in at $158B, $7B higher than last August as revenue faltered and outlays were up a smidge. Looking at the YTD revenues are running 3.3% higher while outlays are running 2.1% higher, and at $460B, the deficit through 8 months is 16B under last year’s $476B.

No real surprises here, though I did expect revenue to come in a bit higher than last year even with unfavorable timing of the days this month.

Looking to September, revenues will pick up on the quarter end and lead us to post a solid surplus starting around the 15th when corporate taxes are due. We should end with a $25B-$50B surplus without any surprises.

Debt Limit Update:

On the heavy $158B deficit, cash balances fell from $189B to $55B in August with press releases indicating that cash could run dry by mid October if not sooner unless the debt limit is raised. As I write this 9/7/2017, I see some reports that Trump may be close to making a deal with Democrats to either raise or maybe even permanently get rid of the debt limit. Nothings official, and details are fuzzy and contradictory, but I for one hope they just git rid of the debt limit, which has been a complete and total failure for so long, it’s simply time to eliminate the silly thing. Also… as I have discussed in detail in the past, the Extraordinary Measures (EM) treasury employs to circumvent (legally??) the debt limit nukes my direct cash deficit calculation by hiding debt off the balance sheet, which drives the accountant in me batty.

Stay tuned…if some kind of debt limit deal is reached and EM is reversed, we should see ~350B of debt get pulled back onto the balance sheet, and I should be able to go back and recalculate the cash deficits for March-August with real, rather than estimated numbers. Don’t expect any huge changes, but this has been an odd EM session so who knows……I’ll let you know as soon as I do.

July 2017 Cash Deficit: $33B

Not a bad looking month….Some of the revenue beat was timing, but the YTD is now at +4%. All of the outlay beat was timing, and the YTD oulays are up 2.5%. So far, through 7 months the revenue increase is just edging out the increase in expenses and as a result the deficit is down $24B….

Down is good, but it’s not a spectacular number….and since Treasury is now hiding hundreds of billions of debt via extraordinary measures(EM) to circumvent the debt limit…there’s a good chance some of this is illusory, but we won’t know for sure until the debt limit is increased, probably in the September-October time frame. Don’t get me wrong, it shouldn’t be a huge revision, but it could make +$24B disappear in the blink of an eye….or not, who knows 🙂

Looking forward…August will not be kind to Treasuries cash balance, currently at $189B, look for a ~$125B+ deficit, and a cash draw in that ballpark depending on how much EM they have left in the secret book of tricks.

June 2017 Cash Deficit: $23B

The US Cash Deficit for June 2017 came in at $23B compared to last Junes $19B surplus primarily due to timing. With July 1 on a Saturday, about $40B of cost that was due in early July was paid 6/30, creating an increase in June outlays that will be offset by a decrease in July.

If you put it adjust for that, 2016 and 2017 are pretty much running equal as 2017’s ~+3% growth in outlays has been offset by a ~+3.5% increase in revenue.

So far, no evidence of any real change being terribly likely in 2017…. no tax cuts, no infrastructure spending, no huge economic growth…just more of the same, not that I am complaining :)….it makes the forecasting a whole lot easier!! The second half of the year generally has much higher deficits than the first, so unless we start seeing some major changes, we are looking at another ~$700B deficit.

 

May 2017 Cash Deficit: $107B

The May 2017 Cash Deficit came in at $107B.

That may not look great YOY, but the big expense spike was timing related, and expected. On the revenue side, we got a $20B bump from the FCC…I’m assuming spectrum auction revenues, and otherwise solid revenues with an additional business day as well…

Put it together and the YOY deficit through 5 months is actually down $3B as revenues are at +3.7% while outlays are up about 3%. I wouldn’t count on the +3.7% sticking…+2.0% looks a bit more realistic once you pull out the one offs, but regardless, here we are with a very slightly improved deficit. It’s still not great, but we’ll take it!!