US Daily Cash Deficit 4/8/2015

The US Daily Cash Deficit for Wednesday 4/8/2015 was $11.3B bringing the April 2015 deficit through 8 days to $65B.

2015-04-08 USDD

2015 and 2014 are still roughly aligned…nothing so far to suggest a revenue surprise is on the way in either direction.

I have barely heard a peep on the debt limit issue over the last few weeks, but thought it was worth noting that through 24 days of “Extrordinary Measures” (EM), the apparent value of the “missing” debt is about $51B. I don’t know exactly how much cash they can generate in this fashion, but I’d guess ~350B total. The current cash balance is $44B, so add to that another $300B of EM, and $200B for the surplus we are likely to run over the remainder of the month, and we have nearly a $550B cushion remaining before Uncle Sam for real runs out of cash. Assuming current run rates….I think that gets us to next February…which is probably when this will get resolved .

Clean Debt Limit Passed

It appears there will be no debt ceiling drama later this month….the house passed a “Clean” debt limit increase last night, and while I suppose it still needs to get through the senate, that seems likely. Rather than set an amount, it looks like again they have set a date…removing the debt limit until March 15/2015…at which point the debt outstanding would become the new limit.

Honestly…I think the republicans did the right thing. They get a week or so worth of “surrender” and “caved” headlines….then it’s all over with. They were never going to win anything material anyway….and they won’t until they get the Senate and the presidency (and even then…don’t hold your breath).

I find it curious how it only took a few years for 500B+ deficits to become normal to the country. Can you imagine…a family with $50k of income…that spent $60-70k per year….would within a few years find itself ruined. This is common sense…we all accept it. Yet when it comes to the nation…the economists and the bankers have nearly al of us convinced that it is quite fine….and that in fact we can do this indefinitely.

I doubt it, but we’ll see:)

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.

Debt Limit Raised…Now What?

As most expected, it appears the debt limit was raised and the government has reopened…at least for now. I’m not sure how they got to these dates, but apparently the government will reopen and be funded through for 3 more months expiring 1/15/2014. The debt limit will be raised, being frozen at wherever it ends up on 2/07/2014. I’ll have a better guess at that after they true up the missing “extraordinary measures” ,  but I’m thinking it will pencil out to somewhere between a $400B-$500B increase ending up between $17.1T and $17.2T.

At that point, they will once again be able to employ EM…effectively adding $200-$300B to the debt limit. Now, I’m not sure why they chose 2/7, but if you are trying to maximize the time you get out of EM….this is about the worst date you could ever choose. The reason is that tax refunds pick up in early February and stay strong through March/April before petering out in May. So while last time we were able to hit the debt limit in mid May and squeeze an additional 5 months out of EM….this time, it might be a challenge to make it into early March. Of course, this assumes they don’t take the approach I would if I were Obama…which would be to issue about $3T of debt on 2/6, banking the cash, and making it all the way to 2016 without ever having to talk about this subject again. (not saying that’s what’s right for the country).

So…here we are, the day after a supposedly epic battle. Gotta say, not much has changed. Ok…maybe nothing has changed. I’m still not entirely sure what it was all about. At first it was about delaying Obamacare…which was never going to happen, and then, it was supposedly about balancing the budget…but the thing is, neither party really wants a balanced budget. Balancing the budget means cutting $800B of spending, which means cutting social security right here right now….which is politically impossible for either party. So either this was all about something they were never going to get, or it was about something nobody really wants….

Honestly, the end of this story has been pretty clear for a few years now. The US will default on it’s $17T (and growing) debt sooner or later, it’s just a matter of time. Furthermore, the US will default on the $100T+ of political promises…including SS, Medicare, Medicaid, Obamacare, Food Stamps ect… The math on this is extremely simple folks…it’s just a matter of time before the game is over. It is more apparent than ever that the political will to do the right thing simply does not exist within our democracy.

Default on Debt vs. Default of “Obligations”

If you listen to the news or read any article, there is a lot of hype around this 10/17 “default” date. “The US has never defaulted….this would be catastrophic”…they all claim.

So first we need to discuss what we mean by default. As discussed in The Debt Limit Will Be Raised, looking at the first full month…November, the government will still have about $200B of revenues coming in, but about $330B of scheduled cash outflows. So we really aren’t talking about the federal government grinding to a stop…just being forced to live within it’s means. Most (but not all) of the commentators are being careful with their words…saying we would default on out “obligations”…which I suppose means all currently planned government spending (is it a default if I decide to eat in instead of taking the family out to dinner tomorrow night?).

We should be very clear however, that the federal government will have more than enough cash inflows to cover all interest payments and continue to roll current debt as it expires. Over the past 12 months, the government had $3.058T of cash revenues….and only $225B of cash interest payments…a coverage ratio of over 13X.

So…this is extremely clear… any technical default on bona fide on the books debt…will be a completely voluntary event. I have read some articles saying the treasury system simply is not set up to prioritize payments….basically first in, first out. To that I say…BS.

But on the other hand…default on “obligations”…is definitely imminent. In November, there will be a ~$130B cash shortfall if treasury isn’t allowed to issue debt….more than 1/3 of scheduled cash outflows. The only think that even comes close to that is cancelling Social Security, Medicare, and Medicaid….not exactly a solid 2014 election platform….which is why I still expect the debt limit to be raised, probably before it comes an issue, but if not, by early November.

I’ve been saying for nearly a year now that the US will ultimately default on both on and off balance sheet debt. We have reached a point where the promises made for debt and social programs are simply impossible to ever make good on. I still think it is unlikely that October 2013 is the date of that default. (not that it will be one date…probably a long drawn string of broken promises) So to wrap it up…default will happen and default needs to happen…..but what is going on now is just political gamesmanship, so sit back and enjoy the show. Odds are, they will raise the limit, and agree to shave a few billion off the 10 year deficit at some date to be determined….ensuring an even bigger and “badder” default at some point in the future.  Note to self…”don’t lend Uncle Sam any money”