Wednesday, January 9, 2013
Bipartisan Policy Center Presentation on Debt Limit Analysis
Below is a presentation from the Bipartisan Policy Center who earlier this week put out a release claiming that any "extraordinary measures" that the US Treasury can take to continue to operate while at the "debt ceiling" may expire by mid February rather than the end of that month as previously indicated by the Treasury Secretary:
Debt Limit Analysis
The way I interpret it, it seems that the Treasury is mostly planning on spending for general purposes the balances they receive from scheduled redemptions of the US Treasury securities that the government keeps in the Federal Employee retirement accounts, rather than use those balances to reinvest them in newly issued securities; for a while.
I assume that as the securities presently in the retirement account are redeemed, this will lower the amount of issued Treasury securities and free up some ceiling for Treasury to issue new securities thus providing new balances that can be used for general purposes. I guess they will maintain some sort of obligation to the retirement fund, but this obligation does not count against the debt ceiling because it is not in the form of an issued Treasury security.
So far this month, in 4 statement days, the Treasury has net spent $95B on net deposits of $70B. A $25B deficit, ie withdrawing $25B more than deposits; but this looks like it was accomplished by drawing down the Cash Account by about this same amount over those 4 days.
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15 comments:
Thanx Matt for posting this analysis which appears to be a pretty good road map of what to expect as the debt ceiling drama unfolds. I have to say that I disagree with their assessment of what would happen with Treasury having to "roll over" roughly $500 b in debt that matures during the Feb 15 -
Mar 15 period.
They cite two elements of market risk:
Treasury will have to pay higher interest rates to attract new buyers.
It is possible, if unlikely, that not enough bidders would appear.
Last time around in August 2011 just the opposite happened and the deflationary consequences of going into forced cold turkey balanced budget mode would likely see 10yr Tsy yield heading toward 1% before backing up to 2%.
Here's my take on it from July 2011
http://reut.rs/oauYJS
Ed,
Thanks for this... we've coined that bond rally the Bill Gross "whose going to buy them now rally" ;)
we've been looking at the time frame also as an example of what to expect over these next few weeks...
That year, in late July, if I look at the equity market, it looks like "something happened" and there was a SHARP sell off in the equity markets some days BEFORE August 2...
Then (fortunately just out of LUCK?) they got the ceiling raised on Aug 2 and then August went on to record a $160B deficit (large) thus providing the $NFA injection that ended the liquidation cold...
My concern is: what caused the equity sell off/liquidation? Is that same cause in place today? And could that same event happen in the next few weeks with NO HOPE for an immediate increase in the ceiling and we down with like you say "no bottom" for weeks (or more!) without a huge debt ceiling increase that can deliver the $NFA injection that would immediately stabilize markets....
"this sucker could go down..." type thing...
What is the potential that if we remain extremely liquidity constrained for weeks, this perhaps could cause some sort of liquidation eventually that may be "catastrophic"... even IF Treasury is taking "extraordinary measures" are these extraordinary measures going to be enough to maintain the required $NFA flows?
rsp,
Yes, Bill Gross was hoisted on a petard of his own making, having gone net short Treasuries in PIMCO's Total Return Fund during Winter/Spring of 2011. No doubt he reckoned on being able to scare bond holders into selling as QE2 was ending so he could buy Treasuries on the cheap but he instead he got caught in a massive short squeeze. At the time I referred to it as a "Gross Miscalculation". http://bit.ly/glYxgF
good info, Matt
I see reference to 100 million payments per month
That poses some challenges for the type of platinum proposals that envisage smaller denomination coins being used in the process of spending, as opposed to larger ones being used to pre-load the TGA account
Ed, I would tend to agree with that in that with the EZ, UK, and Japan fragile a lot depends on a US recovery. If Big Money starts to doubt that there will be increased demand for safe assets which will benefit tsys. So far no one seems think that the GOP House will be crazy enough to shoot themselves in the head, but that confidence could shift. What I gather is that consensus is building that this is going to result in a pause in recovery but not a recession. The longer the situation persists tho, the more opinion on this is likely to shift with the equity market sending a signal to politicians.
Obama is signaling to the GOP leadership that he knows that they are caught in a vice between their extreme wing and political expediency due to the threat of primary challenges and he is not going to help them out of it. If the Dems stick to their guns, knowing that they can always pull the plog on default at the last moment with TPC, then the ball is in the GOP court and Obama is giving them the rope to hang themselves. I'd love to be a fly on the wall in the GOP caucus.
JKH,
right...that would be a lot of 'jingle'....
based on what Diehl posted over at beowulfs, sounds like Diehl is also advocating for just loading up the TGA as perhaps you imply here....
rsp,
" the GOP leadership that he knows that they are caught in a vice between their extreme wing"
Tom, who are they?
I'm afraid there is no 'voice of reason' there in 2013 vice Bush/Cheney/Paulson being there in 2008...
It's like there is Boehner/Tea Party and who?
sounds like they are purging the ranks of non-morons ie "Freedom Works" gun episode and DeMint going to Heritage, etc... scary!
rsp,
Tom, who are they?
Most of the people with seniority in the House and Senate that are not allied with the TP and face primary challenges if they aren't perceived as right enough.
OK,
One thing Ive noticed about July 2011 is that Federal Tax Deposits collapsed late into that month.
There were days when there would only be 1 or 2 billion in Tax Deposits late in that month (no money?).... this correlates to the severe equity market plunge but of course correlation is not necessarily causation...
In this projection from the Bipartisan Policy Center, into next month, they are projecting deposits of AT MINIMUM 9B per day as we close in on the end of February... todays DTS indicates the Fed Tax Deposits were not even 3B for yesterday...
First 5 days of January Fed Tax Deposits:
25B
9B
10B
12B
3B
So Fed Tax Deposits really took a dive yesterday, could be an anomaly or perhaps not extraordinary... the Bipartisan Policy Center report is calling for monthly inflows (taxes) of about $275B to stay on Treasuries plan of "extraordinary measures" being able to let them hold out to the end of February...
January so far is running at 59B Tax Deposits in 5 statement days or about 12B per day average... based on 20 days looks A BIT short of the 275B/mo. Treasury is looking for but perhaps not major...
We'll see how this goes...
rsp,
Matt -- Tax deposits are mostly payroll taxes and withholding. They vary daily and weekly because big employers must make weekly or semi-weekly deposits and small employers make monthly deposits.
John yes Ive seen the variance... big depos around the 15th for instance (payroll taxes due)... that said if you look at BPC's model, they assume a MIMIMUM depo per day of 9B into Feb and perhaps that is critical...
Something imo happened at the end of July 2011 when we were in the same circumstances fiscally (debt ceiling) that caused a massive liquidation of equities... if the same thing were to happen today, as Ed Rombach indicates in his video and I have to agree with, there is no bottom in sight.... as only a massive $NFA injection will stop it and none of these people know what they are doing... scary!
rsp,
Matt, Tom, John, JKH - Pretty interesting stuff. Do you know of any formal equity forecasting models that are predicated on analysis of tax receipts?
Ed,
No, no formal models as probably 99.999% of those out there dont even know what the hell is going on... most probably think taxes are for funding govt spending...
I intend to watch this parameter and continue to analyze/monitor the situation...
rsp,
Matt - How often do you need to look at the tax data to update the model? Just to clarify my thinking, do the tax payments precede the movement in equities?
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