As of 11/30/2012, the US was $63B away from hitting the debt limit of $16.394T and had a cash balance of $49B for a total “cushion” of $112B. Though November’s deficit was $188B, December, being a quarter end should have around $100B of additional revenue over November. December 2011 had a $59B deficit, so we will start this month assuming the same….it will likely be a few weeks before we have any indication of whether December 2012 will be higher or lower than December 2011. If we assume December 2012 and January 2013 will play out exactly like their prior year period did….we get to exactly Jan 31 2013 before hitting the end of our $112B “cushion”.
Note that this assumes no “extraordinary measure” funny business, and no fiscal cliff. At this point, predicting any of that accurately seems impossible, so I’ll stick with the prior estimate of 2/14 at this time. I am quite surprised that I have not heard it mentioned yet, but if the debt ceiling is not increased, tax refunds could very well be in jeopardy…I guess someone is saving this as a trump card, I just don’t know who. Just looking at the numbers….getting through the month of February, much less March, both heavy with tax refunds looks to be impossible without a deal. It will also be interesting to see how fast Treasury moves to increase cash by issuing debt….they have the power to force this issue…or at least get it back in the headlines at will by issuing the entire 63B of debt now.. hitting the debt limit immediately, yet increasing cash to $112B.
As of 11/28/2012, 4.8T of the 16.3T of debt outstanding was classified as “IntragovernmentalHoldings”…a full 30%. It is my opinion that this is pure silliness. In reality, the internal debt is just an up to date tab of money that has been stolen and spent….primarily related to Social Security and government/military retirement funds. Here is an example. Let’s say that in a given month, the government collects $100B in Social Security taxes deducted from paychecks. If in that same month they pay out only $50B for Social Security benefits, the $50B balance is used by the general fund, and they pencil in a $50B liability on the federal balance sheet. An I.O.U. if you will…to ourselves. So the question becomes….can you really owe yourself money? I think not….here is another example.
Let us suppose that a bright young 22 year old with a University of Phoenix degree (and $50k of student loan debt) decides to employ a similar retirement strategy. Out of each paycheck, he sets aside 10% for his retirement….but them promptly spends it on pizza and beer. But not to worry…this bright young graduate diligently records these liabilities on his personal ledger as both an asset, and a liability. 45 years later, he reaches retirement with well over $1M “saved” He then goes on to enjoying his dream retirement right??? Of course not….because the very notion of owing yourself money is slightly moronic…. And yet here we are. The answer is NO!!
So what does this mean? Should we all breath a sigh of relief and simply write off 30% of the debt on our books. No on the relief…yes on the write off. The truth is…the internal debt has never really mattered, so admitting to ourselves what it truly represents doesn’t really change anything. As it stands, we have a structural deficit in excess of $1T per year and no realistic plan to materially change this. The truth is, that sometime in the future, both on and off balance sheet liabilities will be defaulted on one way or another. The sooner we realize this…the better.