“Treasury Wants To Hold More Cash” 8/7/2014

This article over at Yahoo caught my attention…apparently Treasury is interested in increasing its cash balance in order to:

“help Washington pay its bills during a crisis”

-according to a senior “official”

They are looking to build the cash balance up to about $500B. So what does that mean? Well…Over the last 12 months, the average cash balance was about $65B. The high was $162B and the low was $17B….so this would certainly be a departure from the status quo.

2014-08-05 Cash Balance

Looking back a bit further…the above chart shows daily cash balances going back to 2005. Notice anything interesting? Back in early September 2008, the balance was low as ~$10B…before spiking to over $700B by mid October….before being siphoned off by TARP and other spending. But ultimately, the balance came back down and has averages about $75B since 1/2011…though it clearly fluctuates with the day to day/monthly, and annual cycles.

Going back to $500B would be a huge departure, and I’m not sure it makes much sense. At 2% average interest..adding $500B of debt comes at a cost of $10B annually…not much in the big scheme of things….but why?? The whole thing sounds a bit shady to me, but what do I know…

US Cash Deficit May 2014

The US Daily Cash Deficit for Friday 5/30/2014 was $35.0B bringing the May 2014 deficit to $145B for the full month, a $14B improvement over May 2013’s $159B deficit, but $12B over my $133B forecast.

2014-05-30 USDD

Revenues end the month flat….a mere $336M $663M over last May and good for a 0.3% gain. It is worth noting that we were down a business day, which probably knocked off $5-10B off the total haul….but we’ll get that business day back in June….and the extra day hurts outlays so it’s not going exactly to save us. This makes 2 months in a row of sub 2% revenue growth….if we book a few more it’s going to be impossible to ignore.

Outlays ended up down $14B with defense vendors down $5B and a $6B timing issue on interest payments (shifted to June) being the largest variances….and the one less business day probably helped a bit too. Also of interest, Medicaid outlays continue to trend up hitting $25.345B, up about $1B over last month and the highest since June 2011…which looks like it was  a timing related spike….unlike the current month which looks like the real deal. Through 5 months, Medicaid costs are up about 12%…from averaging $21.6B in 2013 to $24.1B in 2014. Clearly this is being driven by the Medicaid expansion, and while not huge, it’s a definite cost driver in a period where revenues look like they may be flattening out.

I’ll try to put together a  more detailed summary later this week, but at first glance… May 2014 is definitely not a good month with a $145B deficit and more signs that revenue has flat lined just as outlays are likely to start picking  back up. Looking ahead, June is all but assured to book a surplus, but is unlikely to match last year’s Fannie Mae driven $116B surplus, even with an extra business day :).


US Daily Cash Deficit 2/10/2014

The US Daily Cash Deficit for Monday 2/10/2014 was $12.8B pushing the February 2014 cash deficit to $37B through 10 days.

2014-02-10 USDD

Of note…Treasury seems to have remembered how to pay tax refunds…pushing out nearly $19B, and bringing the YOY shortfall down to only $4B.

Also interesting…we can clearly see “extraordinary measures” at work on the DTS. New public debt issues of $885M, offset by public debt redemptions of $926. So…simple math, one would probably expect public debt outstanding to decrease about $41M right???

Nope…somehow, magically, public debt outstanding plunged $3.73B….from $12.280T to $12.276T. Where did it go?? Essentially…it was taken off of the balance sheet and put in a jar with the rest of the off balance sheet IOU’s…so Treasury could pretend it didn’t exist….and therefore not go over the debt limit when they booked the also fake IOU’s to the SS trust fund (intragovernmental debt rose $3.7B). Of course, when the debt limit is raised… these liabilities come out of the jar, and back on the balance sheet.

Summary: In one fell swoop refunds are more or less back in line with last year and net revenues are looking flat, but with a lot of time left to reach that +10% mark…. Outlays look weak at -$45B, but should make up a lot of this by month end as timing is the key driver here. All eyes on revenue and refunds for the rest of the month.


When Will Interest Payments Exceed $1T??

MISH asks:

“When Will Interest on US National Debt Exceed $1 Trillion?”. It’s worth the read…and I suspect we are on the same page with this one…yes…we’re screwed. But…. while the charts he presents interest could hit $1T by as soon as 2018 in a worst case scenario. I find this quite infeasible…in fact, my model…and I’m not exactly an optimist, has the TTM interest passing the $1T mark in May of 2036….a full 18 years later.

There are a handful of differences in our assumptions that result in the large divergence.

1) I only count interest on external debt…the model they use includes internal debt. I have discussed this in detail before, but basically….paying pretend interest on the debt we pretend to owe to ourselves is an exercise in nonsense I’d rather not participate in. Hence…We currently have about $12.4T of external debt, on which we have paid about $218B of cash interest payments over the last 12 months. The rates on that range from almost nothing on the short term bills to 11.25% for the 30 year bonds issued in Feb-1985. So rough math…that gets us an average rate of about 1.8%.It’s not perfect, but it’s close enough. So…if $218B is our baseline….you can see that we have a long way to go to get to $1T.

2) The outstanding debt is all locked in at rates over terms from 1 month to 30 years. Thus, if interest rates doubled tomorrow, it would still take a very long time for that to show up in interest payments. The only debt immediately affected would be new issues, followed by the rolling of expiring debt. However…rates are currently historically low. Say the 30 year doubled from %3.75 to 7.5%… next year, when that 30 year at 11.25% needs to be rolled… the effect would still be to lower the average rate… blunting the impact somewhat. Finally…. Interest rates are unlikely to double overnight, or anytime soon, if ever. If they do…it means the Fed has lost control, and we will likely have bigger problems than when interest payments will hit $1T

3) The Federal reserve currently owns over $2T of the outstanding $12.4T of debt…and is adding $400-$500B per year under it’s QE3 program….so a substantial % of all new debt issued. (they don’t purchase direct, so they likely have a diverse portfolio…not only new issues). So, say the Fed owns $1B of those 11.25% 1985 bonds. In February, Treasury sends the fed their semi annual interest payment of $5.625M. However…all of the Fed’s “profits” are turned around and remitted back to Treasury….so the next day (actually Wednesday)…the fed sends the $5.625M, less maybe some overhead cost right back to treasury. In 2004, total Federal reserve earnings remitted to treasury totaled $18B…or $1.5B per month. In 2013, they were 4X higher at $76B…more than $6B per month. Now, while some of this is MBS and other QE3 holdings, the net effect is that a substantial and growing amount of the interest we pay is turned right back around and sent back to Treasury coffers…lowering the effective interest rate even more. Now…anyone with a brain can see this for the circle jerk that it is….unfortunately, brains seem to be in short supply.

And that gets us to what the article hints at and what I have been saying for about as long as I’ve been blogging….that low interest rate policy has absolutely nothing to do with “stimulating the economy” and everything to do with minimizing the governments interest expense. The Fed simply can’t let interest rates go up because it would ultimately blow up the deficit…just not nearly as soon as 2018. Same is true with QE….they can’t stop because there is nobody else to buy the debt…at least not at 1.8%, when anyone with a ruler and a piece of paper can clearly deduce that one way or another….all of this debt will ultimately be defaulted on….if not outright, then it will at least be inflated away. Still…for now, this is an extremely slow motion trainwreck. Cost pressures from Social Security, Medicare/Medicaid/Obamacare, and interest, while increasing…do so at a glacial pace compared to the financial world use to going at the speed of light. For now, these increases are being offset by healthy revenue gains and help from the Federal Reserve….who are desperately trying to delay the inevitable explosion.

To wrap it all up and answer the question “when will interest hit $1T?”… my best guess is actually never. I seriously doubt we make it long enough to run up a $1T per year tab. Not sure if that’s good or bad.

US Budget Deal!!! Yawn….

No real news here…apparently they agreed to increase a bit of current year funding but keep it deficit neutral by pushing offsetting cuts to 2023…Hah!!! Now that’s a great little trick….it’s almost like they’ve given up being sneaky. I haven’t (and don’t plan to) read the bill, but most of the news stories I’ve read note deficit reduction of maybe $5-10B….in what will likely be a $600-700B 2014 deficit…essentially a rounding error….and we can be certain the number was overestimated to begin with. Geez…I don’t even know why I’m writing about it.

I would like to note…to those complaining the “cuts” aren’t big enough…seriously…shut up!!….whatever pennies they claim they are willing to cut were immaterial too….as is nearly everything either party…even the “extremists” are proposing.

This problem does not get fixed by cutting billions, or even tens of billions from small inconsequential programs. Here in 2013..a year with actual cost reductions and nearly 14% surge in revenues…we have a $700B per year problem….on top of $17T in accumulated debt. We need to start talking about cutting Trillions…per year…not over a decade. Just remember that….until I hear some of these outraged Tea Party republicans talk about cutting Social Security, Medicaid, and Medicare…say by 50% or more….I will know that they are either just as mathematically challenged as the democrats, or more likely… just as full of crap.

They won’t, and that’s why this whole game is nearly 100% certain to end in spectacular failure, with the only question left being when…