Treasury Stockpiling Cash in Preparation for Debt Limit Showdown Round X??

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.

Daily US Deficit For 1/24/2013

2013-01-24 USDD

The US Daily Deficit for 1/24/2013 was $2.4B bringing the January total through 24 days to $29B. There are five more business days left, and nothing out of the ordinary left on the calendar, so I am comfortable with somewhere around a $25B deficit for the month. Still no word on the Debt Limit hike making it through the senate and getting signed by the President, but I did read an article that said no opposition was expected. In any case, Treasury still has $70B cash in hand, so they should have enough to make it past 2/1 fairly comfortably even if the “No Budget No Pay”  isn’t signed next week.

No Budget No Pay Act 1/22/2013

Looks like the house has officially approved the debt limit increase, but instead of putting an actual number on it, they gave treasury whatever it takes to get them through May 18. By my math, that’s somewhere between $400 and $500B. However….I think it would be hilarious if treasury just issued like $6T of debt on May 17….pulling in enough cash to get Obama through his second term without needing to think about this again. There are probably some limitations to prevent that, but who knows. I suspect this is all just a slow retreat by the Republicans, who realized a bit too late that they were walking into a minefield with the debt limit and that Obama was ready to call their bluff. They are hoping that between now and May, something else will have caught the publics eye so they can surrender privately. Of course, they did get a couple headlines with their No Budget/No Pay idea, which Democrats rightly called a “gimmick” and a “joke”. But this is politics….and that’s what we vote for, so no surprises really. In the long run, nothing has changed…the US will default on both on and off balance sheet obligations at some point in the future. When it does…it’s not going to be pretty.