Gov't deficit probably too small to ensure system stability

Matt Franko has been posting updates from the Daily Treasury Statement that show Dec and the current month running well shy of the deficit levels needed to ensure sufficient $NFA's to keep the system stable. In December, Treasury ran a $20 bln surplus and so far this month Treasury is running a meager -$29 bln deficit. This is far below the historical average of the past year of -$90 bln deficit per month. A surge in bank credit likely reflects people and firms grasping for some liquidity. Banks may continue to provide this, it's hard to say, but the longer we go like this the greater the likelihood of some "liquidation event" that brings the system back into equilibrium. Remember, too, that higher tax demands as of Jan 1, mean that the historic -$90 bln deficit per month is probably low.

Trailing 5 month Fiscal Surplus/Deficit

Some data below on the fiscal surplus or deficit that the government sector has run over the last several months:

• September 2012:  $59B surplus
• October 2012:  $122B deficit
• November 2012:  $188B deficit
• December 2012:  $20B surplus
• January 2013 (mtd):  $38B deficit

So that is cumulative $269B deficit over this time.  Or, over approximately these 92 statement days, an average of $2.9B per day of $NFA injection.

For the 5 months ended July 2011, the culmination point for the last time we operated for a substantial time at the "debt ceiling", this total was $406B, or an average of approximately $4B per day of $NFA injection.

Those months breakdown as follows:

• March 2011:  $153B deficit
• April 2011:  $11B deficit
• May 2011:  $100B deficit
• June 2011:  $43B deficit
• July 2011:  $99B deficit

If we remove the high September 2012 surplus of $59B and just look at the present trailing 4 months ended January 2013, the $NFA flow rate is $4.55B per day over those 72 statement days.