Wednesday, November 25, 2009

Treasury Approaches the "Debt Ceiling"

The Treasury Department is is fast approaching the "debt ceiling" last approved by the Congress at $12.1T earlier this year.

Treasury Direct has a running total of the public debt at the website here. As of this latest accounting, it seems that they are within $100B or so of the last ceiling authorized which has been reported at $12.1T. This is very close as for many individual months in FY 2009, Treasury added more than $100B to the deficit.

Look for Federal discretionary spending to ramp down over the next several weeks or months if the Obama administration determines that a request and authorization to increase the debt ceiling is less politically desirable than the economic benefit additional deficit spending would provide.

The Congress will have to complete the vote to increase this limit soon as OMB is projecting a $1.5T deficit for FY 2010. Expect a lot of political fireworks and demagoguery around this issue while the country continues to suffer.


googleheim said...

Does anyone know about the following ?

The amendment, the Bair-Miller-Moore Haircut ... which would cut off secured lenders or bondholders to 80% instead of 100% if a bank goes into receivership ...

I especially wondering if those who were protected by the government at the 100% level were Chinese "lenders" ( who really are not lenders as proved by Norman in earlier posts since they opened up their t-accounts in dollars earned by exports here - not yuan/renmibi xchanges of any kind as perpetuated by mythmakers )

Anyone know if the chinese were protected along with others as bank creditors as bondholders at the 100% level ?

Matt Franko said...

This amendment seems like another attempt to "save the taxpayers money" by cutting out some senior bond holders so that there are more assets left for the FDIC to use for depositors in a failed bank. This way the FDIC doesnt have to go to Congress to get as much funds as otherwise. These haircuts in the legislation probably apply to non FDIC backed debt that a bank may have issued. I think the Bair haircuts would only apply to bonds issued after the passage of the law.

As far as the Chinese I think they are virtually 100% in Govt bonds so they take no credit risk there.

Mike Norman said...

Yes, the Administration is probably loathe to ask for an increase in the debt ceiling. That's why they are giving Geithner even though they must know he is losing credibility by the day. So if it doesn't happen they have their whipping boy and it could set up his departure.