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:
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.
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.
I touched on this a bit back in January when the “No Budget No Pay” act was passed…effectively lifting the debt limit to infinity until 5/19/2013. Though I haven’t read the fine print (and have no plans too)…there seems to be a glaring loophole…What is stopping Obama from issuing enough debt 5/18 to make it through the rest of his term…say $4T or so.
The accounting is simple….debit cash $4T…credit liabilities $4T. Rather than hitting 5/19 with a $16.9T debt limit…it would be$20.9T…problem solved right? Well, honestly, I never expected them to be that brazen, and it wouldn’t surprise me if there isn’t some fine print in the law prohibiting such malarkey. However….surely there must be some wiggle room.
So I wasn’t so surprised when I glanced at the 4/30 DTS and saw that despite having a cash balance of $152B as of 4/29, and running a $117B Surplus throughout the month of April (the highest in 72 months)…Treasury issued an additional $60B of public debt on 4/30, bringing cash in hand to nearly $214B….the highest since February 2011.
As I discussed in the run up to the last debt limit battle…it’s not when you hit the debt limit that matters…it’s when you run out of cash. Obviously…the more cash in the bank come 5/19, the longer we will make it before hitting that point.
Now the timing of the January debt fight was precocious for all involved given its proximity to the tax refund season…tax refunds literally would not have gone out in February…along with a lot of other things…. revolution would have quickly ensued. No…if you are going to have a prolonged debt fight…summer is by far the best time to do it. While July and August are likely to post substantial deficits, June and September might very well post surpluses, so a $200B+ cash stash aided by “extraordinary measures” could very well get you into October before the coffers start to run dry.
Gentlemen…the game is afoot!! Stock up on popcorn.