Monthly Archives: September 2013

The Debt Limit Will Be Raised

The news of the day is that Treasury Secretary Lew has announced 10/17 as his latest greatest estimate of when we will “for real” become unable to cover outlays with incoming cash. Remember….hitting the debt limit isn’t the problem(that happened back in May and was a completely voluntary event)…running out of cash to pay bills is the problem.

Looking at a partial month is problematic, so for simplicity, let’s just assume we run out of cash at the end of October. What would November look like?

Over the full month, per my current forecast, November should see about $202B of cash revenues, offset by about $331B of outlays, good for a $129B deficit. But the good news is….we can still pay for $202B of those expenditures. But how to decide what to pay…and what not to pay?(Normally…they would issue $129B of debt in exchange for cash…that will cease to be possible) That is the problem. $35B or so of interest is due…probably want to pay that. Rolling expiring debt isn’t a problem…..If I pay off $1B of expiring notes….then replace it with a new $1B issue…debt outstanding remains constant. Not paying Social Security, Medicaid or Medicare would save $133B, which is enough, but that probably wouldn’t end well. Active duty military pay??? Nope. below is my forecasted outlays….what would you cut?

09-20-2013 November 2013 Expenditures

And this is the dilemma our poor…poor politicians find themselves in…both Republicans and Democrats. The government spends about $3.8T per year, but only manages to bring in $3.0T of revenues. The plug is debt…..$800B. So now here we are….right at the debt limit. If it isn’t raised, all else equal…..we have to cut $800B of spending. But unfortunately…all else is not equal. If you cut $800B of spending….by definition that cuts GDP by $800B directly, and who knows how much indirectly. This in turn, cuts revenues, which cuts spending….it’s either a terrible or wonderful circle, depending on who you are. Just for reference $800B is equal to about 16M 50k per year jobs….perhaps 8M (or less)government jobs I suppose :)

That’s what it would take to balance the budget. Is that what you really want? Look folks…it’s simply not politically possible….therefore it will not be done. Oh sure….they may reach the limit for a few days or even a week….maybe “slow paying” some bills (trust me…the checks in the mail) but not for long and I doubt it even gets that far. The debt limit will be raised…not because it’s the right thing to do…but because it is the easiest thing to do.

Don’t get me wrong…I’m not endorsing this….it’s not what I think should happen, rather, it’s what I think will happen. Honestly, it’s almost certainly too late….this cycle will continue until it collapses on itself and all of this debt (on and off balance sheet) is simply defaulted on, probably by inflating it away.

Not that anyone has asked, but my solution would be over say a 10 year period (wish we could have started 10 years ago)  simply cut all non-essential and unconstitutional expenditures (including social security, Medicaid and medicare) 10% per year until they are zero….reducing taxes along the way. I would also default immediately on all $16.7T of debt outstanding….if you were dumb enough to lend money to Uncle Sam…..aka our congress with a single digit approval rating…. well…you deserve to lose your $16.7T.

Finally, when it was all said and done I would cut taxes to put them in line with the new expenditure requirements…probably somewhere between $500B and $1T per year. Yes…there are a lot of details to work out, and it would never actually happen, but the short term pain would be made up by long term prosperity…which is why it will never happen….it’s been a long time since anybody told the American people no, and I see no indication anybody is going to start now. The majority has found it’s way into the nation’s pocket book demanding pensions, schools, food stamps and infinite government paid medical care far beyond the nation’s willingness, or even ability to pay. No…there is no political solution here…the game will continue until it all crashes and burns. That day will come soon enough, but I doubt it is 10/17/2013.

Stay tuned….we look to be in for an interesting month.

US Daily Cash Deficit 9/23/2013

The US Daily Cash Surplus for 9/23/2013 was $13.7B as revenues from “Taxes not Withheld” defied the historical trend for the second day in a row, posting $9.1B of cash revenue compared to the comparable year ago (9/24/2012) cash revenue of $5.7B. Last year, these revenues dried up before the end of the week, ending at only $300M on 9/28/2012. If we don’t see a similar crash over the next few days, it wouldn’t take much to handily beat the year ago revenue $ from this source.

09-23-2013 USDD

So on that strength, revenues show strong YOY gains for the second day in a row, and are now at $+7B….a 3% YOY increase with additional gains looking likely. The Monthly Surplus is now sitting at $52B with 5 business days remaining in the month. There is still plenty of upside left with the likelihood of topping $70B growing by the day(for now).

US Daily Cash Deficit 9/20/2013

The US Daily Cash Surplus for 9/20/2013 was $4.9B pushing the September 2013 surplus through 20 days to $39B.

09-20-2013 USDD

Friday was actually a pretty good day, with Revenues gaining about $4B YOY and finally catching up with last year, ending at $+1B…good for a 0.5% YOY improvement. “Taxes not Withheld led the charge with nearly a $2B improvement, actually increasing from the prior day, where we typically expect these to start tapering off pretty heavily as all of those checks that were “in the mail” are received and cashed.

With six days left before the end of the FY, there is a bit more uncertainty left than I expected. First there are the Freddie/Fannie Dividends…which look to be about $10B higher than last year. Second is the extra day…a Monday (typically strongest weekly revenues), and finally, it is impossible to predict how “tax deposits not withheld” are going to finish the month. Were it not for these things, I’d probably guess we would see very little deficit action  over the rest of the month, ending right about a $40B surplus. However….given these outstanding items…. a $70B surplus (my initial forecast) still seems like a possibility if the stars align. If not… a bit lower.

US Daily Cash Deficit 9/19/2013

The US Daily Cash Deficit for 9/19/2013 was $1.7B bringing the September 2013 Surplus through 19 days to $34B with seven business days remaining. We are still seeing strong cash inflows from “taxes not withheld” at $5.7B, but they do appear to be tapering down, which is what we would normally expect….ending under $1B per day by late next week. As it stands today, YOY, corporate taxes are up 1%, excise taxes are up 5%, taxes not withheld are up 7%, and taxes withheld from paychecks are up 12% :(.

09-19-2013 USDD

All together, revenues made up another $1B of ground yesterday but are still $2B under  September 2012 thanks to the decrease in TARP repayments. Another day…no surprises.

House Republicans Propose Cuts To Food I-Phone Stamps

From money.com the bill would cut $40B from the program over 10 years. For the math impaired…that’s $4B per year….yawn… But that’s not really the point I want to make. A while back I posted Hungry Kid = Irresponsible Parents detailing the actual cost to provide calories from different staples.

It turned out that providing 2500 calories a day for a month ranged from a low of $12.88 for vegetable oil (probably not a good idea, but a good reference point nonetheless) to a high of $475.26 for T-Bone Steak. More realistic perhaps was rice at $16.31, beans at $38.22, bread at $49.38, and chicken at $77.04.

Now…before someone goes off on how unhealthy all of these things are….since they aren’t organic and have a lot of carbs ect….that’s not what we are talking about. We aren’t comparing healthy diets to unhealthy diets….we are comparing not eating at all (decidedly unhealthy)…kids going to bed with nothing in their bellies….to how much it would cost to get something…anything even…onto that kids dinner plate.

And the answer is not very much at all. Using store brand bread, peanut butter, and jelly, you would be hard pressed to spend more than a $0.25…and that’s with a ridiculous amount of PB.

So here is my hypothesis….Food stamps aren’t really about food at all…they are about I- Phones, $100 a month cell phone plans, and countless other crap that the poor couldn’t afford….were it not for food stamps. It’s welfare…not just for the poor, but for the corporations who peddle them crap they don’t really need. There are 47.6 million people on food stamps per the article…..I’d be surprised if more than a million of them really need food stamps to ensure they have the $2 it would take to cook up a pot of beans and rice to avoid going to bed hungry.

What actually happens is this….any family that has at least one person working has enough money to at least feed themselves and put a crappy roof over their head. How do I know?….because I’ve done it. Not so long ago, while still in college, my wife and I had a monthly budget of $1200, which was about what we made from our two part time jobs. I don’t remember exactly, but we probably made about $7 an hour. That got us a 1 room apartment, food, bills, insurance and gas for two craptacular cars. Hell…we even had cable. It wasn’t the good life, but I surely never went to bed hungry. For the record, this was in back in 2001….not the 1950’s :)

So…while tight, the truth is…the simple life doesn’t really cost that much. Now take a family of four on a tight budget, and say they qualify for food stamps…$133 per person, so lets just say $500 per month. What happens now? Assuming they were spending $500 per month on food (doubtful)….now, all of a sudden, this frees up $500 of cash to spend on other things….like maybe a few I-Phone 5S’s and a couple hundred $ per month for an unlimited family plan.

Now…if we called them I-Phone stamps…. it would be hard to justify…but if instead we pretend like the money is only being used to buy food….for people who would otherwise literally be starving to death…well, it’s hard to argue against that. But…the facts just don’t support that story at all. Rather, as I explained in Hungry Kid = Irresponsible Parent, the truth is…99% of the time, if somebody (kid or adult) goes to bed hungry it isn’t because there wasn’t enough money to purchase nourishment, it’s because they (or their caregiver) decided to spend that money on something else instead.

Using the numbers in the article, 47.6M people x $133 per month pencils out to $75B per year….compared to the proposed $4B cut. I have a better idea. Cut the entire program and offset it by cutting taxes by exactly the same amount….a $225 per person credit ought to do it. In it’s place, take $1B to set up a private charity with the mission to feed the truly hungry. Have the president promote it and introduce it to the country, but after the initial $1B…cut it loose to be funded entirely by private donations. For the those truly at risk for being hungry….and not just at risk for making a late payment to AT&T, this organization would provide a monthly allotment of staples like rice and beans, ensuring that nobody in this country goes hungry. For the 46M or so that get dropped off of food stamps(assuming 1.6M are truly in need), well, they will be forced to make better financial decisions, which might just suck for Apple and hundreds of other corporations, but tough cookies….it needs to happen anyway.