7/29/2013 Daily US Cash Deficit

The US Cash Surplus for 7/29/2013 was $8.1B on strong Monday revenues and typical outlays. With two business days left, the July 2013 deficit is sitting at $88B. Tuesday normally yields a moderate deficit, and Wednesday…well, anything goes on the last day of a month. I expect revenues to be elevated, but there will also be a $5B or so interest payment…I’m more or less expecting a wash. I believe my initial estimate for the month was $80B…later revised to $90B +/- $10B (somebody correct me if I’m lying here…no time to go back and check right now). That still sounds good to me…we’ll know for sure in 48 hours.

07-29-2013 USDD

Remember….I’ve attempted to synchronize the months based on business days…so we are actually comparing through Monday the 30th of last year. I think this gives us the most useful YOY comparison… we’ll catch the extra day this Wednesday…should be good for an extra $8B or so revenue…and cost:(

McDonald’s Pay Strike…Missing The Point

I saw some clips today from the McDonald’s employees protesting their low wages. I can sympathize with that..hell, I’d like a pay raise too. What I think everybody is missing here is that it’s not McDonalds who ultimately decides their employee wages…it is the end customer, and how much he is willing to pay for the product.

In that $0.99 value burger…McDonald’s has to pay for the direct cost of bread, the meat, and the secret sauce. Furthermore, they need enough left to cover the cost of the storefront, the equipment, the property taxes, the employee wages….and of course still have a few pennies left to make the whole thing worthwhile for the franchise owner. If the price of anything in that equation moves…either the owner can eat it…or he can raise prices.

So…let’s double the wages…from $8 to $16. Now the price of the value burger isn’t $0.99..it’s $1.50. And now…everybody’s happy right….except that the customer goes next door….to the place that didn’t raise their employees wages. Now…the entire restaurant goes out of business….and not only do they not make $16 an hour…they now are making $0. So…who do they have to blame for low wages? Ultimately…blame the customers…who just like everyone else, want to pay less for things…not more…including how much they ultimately pay you…to the extent your wages are part of the price of my burger.

That’s not just true for low wage fast food workers…it’s true for everybody…everywhere. You’re wages are a reflection of what the end customer is willing to pay you for your time. If you are an athlete, or an actor or musician ….maybe you are able to get paid a huge amount for your time…If you can sell out a 50k seat stadium at $100 per seat, well, you may be able to net a couple million bucks for a couple hour show….good for them right?

But let’s be honest here…you probably are not Paul McCartney. You take orders and cook hamburgers… something that anybody with a pulse can do…. Your job exists because…sometimes people (like me) are too lazy to cook their own hamburger…or maybe they just don’t feel like doing dishes tonight. Look…I don’t doubt that it sucks trying to live off of minimum wage…I’ve been there…but I just think the blame is misplaced. Unfortunately for our McDonald’s workers…nobody is ever going to be willing to pay a lot of money for a McDonald’s hamburger….or the employees who manufacture them.

McDonald’s simply fills a niche…they bring customers willing to pay a certain price for a certain quality of burger together with employees who have the skillset to deliver that burger, within that budget. If  wages go up…the price of the burger goes up, and if the price of the burger goes up….the balance is broken and there are no customers, and there is no job at all. If you think your time is worth more than they are willing to pay…well…go find someone willing to pay you more…and quit your job at McDonalds. Until then…you can protest all you want…but you will never be able to force customers to pay $2.00 for a $0.99 burger. Well…I’m off to lunch…Chinese anyone 🙂

7/26/2013 Daily US Cash Deficit

The US Daily Cash Surplus for 7/26/2013 was $0.8B dropping the June deficit through 26 days to $96B with 3 business days left. It seems likely that the deficit will fall a bit further on strong Monday and Wednesday revenues and no large payments looming…. I would normally guess $5B, but it could be a bit more depending on whether or not revenues from the state come through for unemployment. Last July, we saw over $8B from the state in this revenue category…this July, we have only seen $1.3B so far. $7B seems like a pretty steep drop, though admittedly, this series is a bit difficult to predict. So…I would not be shocked if we got a $5B or so bump in addition to the $5B I would have expected. If we don’t….well that would be interesting I suppose.

07-26-2013 USDD

Fannie Mae Payday Loan: Revenue Or Reduction In Cost??

Back in May, the CBO released an updated forecast of FY2013 that was a $200B improvement over the forecast they had released in February…basically on a $100B decrease in outlays and a $100B increase in revenues.

In my review here, the reduction in outlays was quite puzzling For a few years now, we have been running more or less flat costs as increases in Social Security and Medicare quickly gobbled up whatever tiny cuts were actually made. So…I thought it was very odd that with only 5 months remaining, they would predict…all of a sudden a $100B reduction, or $20B per month remaining in the FY.

After comparing the Monthly Treasury Statement (MTS) with the  Daily Treasury Statement (DTS) for June… I have a much better understanding now. It seems that rather than categorizing the Fannie Mae special dividend as revenue…like I have, they instead classified it as a reduction in outlays. From a deficit perspective…it really makes no difference. From an accounting perspective, well, I can see it going either way, so I don’t think there is anything shady afoot…. well, there is a lot shady about the payment, but I don’t have any vehement objections to this classification of outlay reduction instead of revenues 🙂

At the time, I suspected that the revenue increase was primarily the Fannie Mae payment and the cost reductions were somehow related to extraordinary measures pushing cost out of FY 2013 and into early FY 2014, so maybe I got that part all wrong….maybe:)

So, lets look at revenue…which I had just assumed was Fannie Mae. Since it wasn’t, they must have expected a bona fide $+100B in revenue. With 9 months of MTS data in the bank, we are $726B under the CBO’s may outlook of $2.813T. Looking at year ago numbers, we see that July to Sep netted $625B in revenues…so a 16% YOY improvement should get them there.  But…with July currently at 7%….and looking to end ~%10 without any surprises…we are going to need a very solid September to pick up the slack. unfortunately, we seem to be seeing a slowdown in revenue growth that could make this difficult. The Jan-April period saw 15.5% YOY increases….the May-July period looks to have slowed to right around 10%…more or less as predicted.

Now…a final note on the MTS…I don’t like it and I don’t trust it. You may be tempted to assume that the MTS is just a summary of the DTS…it’s not, in fact several attempts by me to reconcile the two reports have failed miserably. Treasury informed me a while ago that in fact, they are pulled from completely different source data. Furthermore. The MTS data is presented using a “modified cash basis…vs. the DTS, which is cash…period. Personally, I don’t really know what “modified cash basis” means, but I trust it just about as far as I can throw Chris Christie :). All that said…the MTS deficit numbers are the ones you are going to hear any time someone refers to the official deficit. keep that in mind in a few months when they start braying about how great a job the government has done at cutting cost….Once you back out the “cost reduction” associated with the Fannie Mae payday loan, it’s unlikely to be nearly as impressive.

Reply to “Has the U.S. Treasury Already Exceeded the Debt Limit?”

Perhaps I’m a bit jealous here….that this guy got a Drudge link and I didn’t…but I give him a swing and a miss for not paying attention. The headline refers to the Daily Treasury Statement table III, which I happen to know something about. The author notes correctly how the debt outstanding, at $16.738T is now $39B over the 16.699T official limit. Busted…right!! Well…not really. You see, there is a small subset(about $30-40B) of the debt that is exempt from the debt limit…this is not new or newsworthy, it has always been this way…not just for the past 68 days….always.
Most of this exempt debt is related to the unamortized discount…currently at $32B. So…you are probably wondering….”what the heck is the unamortized discount?” Let’s take a 3 month T-Bill for example. Rather than issuing at say $100, then paying interest plus face value three months later, they are issued at a discount, say $99, then paid in full when due. That 1$ is the discount. So…while I now have an additional $100 face value of debt on the books, your accountant will say that you technically only have $99 of debt, and will incur $1 of interest over the next 3 months. That difference…currently $32B, plus a handful of other items are specifically excluded from the debt limit calculation. Why??… I don’t know…I suppose it’s in some regulation or law somewhere, but that’s just how it is, and has always been. Pointing that out now well…it really isn’t news to anyone who has been paying attention.
Now, that’s not to say there are not shady things going on….there certainly are….Mr. DeLegge just looking under the wrong stone. The real travesty is the use of “extraordinary measures” to essentially hide debt off of the balance sheet…probably another $100B or so over the next month. Then, when the debt limit is raised, and we all know it will be…this debt will magically, and nearly instantly be parked back on the balance sheet. Ta Da!! That magic trick deserves further scrutiny….the unamortized discount….nah…that’s just good accounting (for a change). So the answer is…No…they haven’t…yet…but they fully intend to….just not as obviously as you think.
So…if you want a real debt limit primer, read Debt Limit Recap Summer 2013 written by your truly without all of the glamour associated with a Drudge Link, but guaranteed to have at least twice as much credibility 🙂