Here We Go Again (Debt Limit 2017)

Will we never learn? Without a lot of fanfare, the debt limit was reinstated on 3/15/2017 at $19.809T and Treasury instituted the infamous “Extraordinary Measures” (EM) to circumvent the law and give our politicians more time to make fools of themselves.

Extraordinary Measures??

First off…what are Extraordinary Measures?  For me, they are a huge pain in the rear. You see, calculating the “cash” deficit is actually a very simple exercise…we look at the change in cash balance, and adjust it for the change in debt…and voila!! So for example on 3/3/2017 the cash balance dropped by $22.080B and the debt decreased by $235M. Add them together and we get a daily cash deficit of $21.845B. Of course you can add up all of the revenue line items and subtract out the outlays….and come up with the exact same answer. Of course…I actually do that as well, but you don’t need all of that complexity to calculate the cash deficit. In any case, EM nukes my process, and while I can back into a decent educated guess, unfortunately I won’t have an actual number until these shenanigans are over. The margin of error is ~$5B a month, which actually isn’t bad, but still enough to drive the accountant in me a little nuts.

The mechanism for EM is actually quite simple…they take some parts of the debt…I can’t remember specifically off of the top of my head but things like federal retirement funds…and simply pretend thy don’t exist(a little at a time). This simple move lowers the official debt outstanding, allowing them to continue to issue new debt. When the debt limit is ultimately increased, they just pull all of the EM debt they were pretending didn’t exist back onto the balance sheet resulting in a huge one day increase. Last time we played this game back in late 2015 the result was a $339B increase, so it seems reasonable to think they can squeeze about $350B of EM this time.

How Long Do We Have?

Last time around the timing of the debt limit was the same if I recall…debt limit reinstated 3/15/2015, and EM used to get us all the way to the resolution in early November…so over 7 months. As I stated back then…the middle of March is just about the best possible time for a debt limit standoff because the huge outflows of tax refunds are pretty much behind you, and you are just a month removed from a huge inflows in April which as of late have been running in the ballpark of a $200B surplus. With an April surplus and $350B of EM…and getting to October/November again seems like a pretty solid bet.

Cheney was right…Deficits Don’t Matter(Anymore)

Here is what I know…the US debt/deficit is a massive problem. It will blow up, and there will be a lot of pain….maybe worse. This will happen…I am 100% certain of it. The window to fix it has now closed….I’m not sure it was ever really open. Could be this year…could be 20 years from now…but it will happen.  But since it’s going to happen, I’ve stopped worrying about it. Why should republicans who don’t care about the deficit and democrats who don’t care about the deficit fight over some measily $15B here or there…when obviously the American people don’t care about the deficit either? Just hours ago….the republicans plan the shoot down the much hated and relatively new entitlement(ACA…AKA Obamacare) went down in flames despite Republicans having the presidency and majorities in congress. This is the system that is going to fix $20T in debt…growing at ~1T per year indefinitely? Hah!!

My thoughts on the matter have changed a lot over the last few years as I have accepted this reality. Rather than worrying about it…we should just enjoy it as long as we can. As long as there are still suckers around willing to buy “risk free” US debt…let them!!  So this is my advice to Trump and the Republicans….stop pretending to care about the debt…we don’t believe you…you aren’t impressing anyone, and honestly nobody even cares anymore.  So forget about it and go big on things people do care about. Tax cuts, jobs, infrastructure,trade, immigration….heck maybe break up the medical industry that seems more interested in financially screwing us over every time we walk into an office or hospital than actually improving health.

So pass the silly debt limit increase or better yet just get rid of it….then get to work!!


Lew Building Massive Cash Hoard For Next President-Costs Taxpayers $8B Per Year

I’ve been watching this develop for a while for a while…Here’s the deal…As of last Friday, Treasury had built up a cash balance of $428B. Now, that might not sound like a lot……Hah!!…just kidding… It’s huge and enormous and completely unnecessary. To put it in perspective, Treasury could stop borrowing today, and not borrow another penny for the next 8-10 months.

Here is the historical chart:

uscashbalance For the 10 years heading up to the “Great Recession” Treasury maintained an average balance of about $36B. They used this balance, and daily cash inflows to pay for daily expenditures and issued new debt as necessary to fund the deficit. Then, in the second half of 2008, borrowing soared, ending 10/2008 with over $600B cash in the bank as they prepared to…well, we all know what they did with the cash…no need to bring that up again here 🙂 Balances were kept high for a few years before leveling off at about 100B, but have been headed back up lately.

So…who cares you may wonder? Well, think of it as a this way. Our good stewards at treasury could take say $400B of “excess” cash, and pay down the debt by that much, assuming an average rate of 2%, and save a cool $8B a year…just by not having a really stupid cash management policy. I know…I know…chump change right?

Debt Limit Avoidance?

This is the most likely answer. After the last debt limit battle ended last November, the debt limit was suspended until 3/15/2017…meaning that they could issue as much debt as they wanted in the meantime. Now I haven’t waded through the specifics of the law, but my thought all along has been…ok…If I were in charge, and I didn’t want to deal with that nonsense again, on 3/14/2017, I would just issue maybe $3-$4T of debt, park the cash in my Federal Reserve bank account, and use that to squeak by the next 4 years.  Clearly they don’t think they can pull that off without consequences, but they do seem intent to make sure the next president (I am guessing they are pulling for Clinton) hits the ground running. Back of the envelope, if we hit the debt limit 3/15/2017 with $400B of cash in the bank, the government will likely be able to go a full year without raising the debt limit just by burning down the cash balance and re-deploying “Extraordinary Measures”

I’ll just leave it at that for now….I’ll leave the conspiracy theories to the experts!!


US Daily Cash Deficit 1/24/2014

The US Daily Cash Deficit for Friday 1/24/2014 was $0.6B bringing the January 2014 cash surplus to $9B with one week to go.

2014-01-24 USDD

Revenue takes a small $1B step back…outlays are flat. No news really…but never fear….we are just a few weeks away from another debt limit showdown.

While we are currently without a debt limit, wherever the debt lands at 2/7 will become the new debt limit….at which point Treasury will enact “extraordinary measures (EM)”….essentially pretending some of the debt does not exist by hiding the IOU post it’s in the basement. However….Right about 2/8…tax refund requests are going to start flooding in….leading to a ~$200B or so February deficit….and limiting the longevity of EM to just a few weeks according to Treasury….compared to about 5 months last time around.

I can’t see this getting drawn out that long…but just in case…I think I’ll be filing my taxes extra early this year.

Debt Limit Day After…. Debt Outstanding Increases $328B

So the numbers are in… and on the first day after the debt limit was removed, the debt outstanding increased by $328B…..which is the amount Treasury has been hiding for the last 5 months with “Extrordinary Measures”.

Here’s a snapshot of the DTS:

10-18-2013 Debt Spike

This really doesn’t count as a surprise….back in 8/2011 the day after yielded a $238B increase. I had guessed it would be similar…at around $250B, but this tops even the high end of what I would have expected….I guess Lew’s magic hat is a bit deeper than I expected. Well…if nothing else, if we ever get another debt limit, we know that we need to add $300B to get to the real number.

October 2013 Deficit Preview

While I suppose it’s all relative, October is kind of a dull month in regards to the deficit. It’s not a quarter, so no revenue surges to predict or Fannie/Freddie payday loans to analyze. We do have the backdrop of the government shutdown and the impending debt limit, but the shutdown probably won’t have a material affect on outlays…maybe a few Billion? The Debt Limit could get interesting, but I have to think it will be resolved by month end, and any federal worker back pay will have been paid in full.

I could be wrong about all of this, in which case so will be my forecast, but honestly, it’s going to be wrong anyway, so why add additional uncertainty? So, I’ll stick with the same ol’ playbook, guessing we see ~10% YOY revenue gains and moderate reductions in cost. For the record, let’s just say $225B of net cash revenues and $316B of outlays, good for a $91B deficit…which would be a material improvement over last year’s $123B October deficit.

Cash in hand as of 9/30 was $88B, so we would normally think there was enough cash on hand to get us to the end of the month, but I recall reading a CBO publication mentioning some intercompany cash true ups that happen in October that may increase intercompany debt by about $80B…which would require a paydown of $80B of external debt to stay under the limit. That would probably be offset by some additional “Extraordinary Measures”…according to the same publication, there were about $90B or so left in that tank. So…You have to believe that there is a good chance we make it to the end of the month, but getting past the heavy outflows of early November might be a challenge. Of course…a higher deficit over the month would pull forward the “default date”, while a lower deficit would push it out a few days. In the long run, it really doesn’t matter. I haven’t put out a FY 2014 forecast yet, but it will probably be in the $700-800B range regardless of whether we run out of cash on 10/17  or 11/3.