UPDATE 12/23: Politico is reporting that the Senate vote is still scheduled for tomorrow, with a 60 vote majority required to pass. I hope no one is ill tomorrow.
UPDATE 12/22: Reuters is reporting this evening that the Senate will schedule the vote on increasing the debt limit on Thursday 12/24 by an additional $290B. Keep your fingers crossed.
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This table from yesterday's Daily Treasury Statement shows that Treasury is virtually sitting right at the debt limit.
At this point it is going to be very hard for Treasury to spend much more than what they take in on a daily basis (the $20B TARP refund from Citigroup has not shown up yet). The House of Representatives has voted to increase the debt ceiling earlier this week, but I am having trouble discerning when the Senate will address this issue. It looks like the Senate cannot take up this issue until after the Health Care Reform is fully debated, and it looks like that will take all next week with Republican threats to extend debate into the Christmas Holiday. So Treasury may be in this spending constrained condition until at least the last week of this month.
Yeah, and technically we're over the limit already because there is $12,129,073 of debt outstanding, which is about $30 billion over the $12.1 trillion limit, however, they just say that that extra amount is "not subject to the limit," which shows you how ridiculous this whole thing is. And the ratings agencies are complete idiots because if there was ever a time to downgrade, they should be doing it now when Congress is openly posturing toward being UNWILLING to go on making payments. The willingness to pay is one of the criteria (or should be) of any credit rating, yet the agencies focus on inapplicable nominal debt levels that are completely meaningless when a country can merely credit bank accounts with its own, non-convertible, floating money. Good job, Matt.
ReplyDeleteMike,
ReplyDeleteCan you clarify something for me. If govt spending is not constrained and spending is just a data entry on a banks or Fed's balance sheet, why do they have a debt ceiling and doesn't this imply that they issue bonds first that are then "monetized" by the Fed, as opposed to govt spending adding reserves which are then drained via bond sales?
Thanks,
Leo
Congress spends the money.
ReplyDeleteCongress sets tax rates.
Congress sets debt limits.
Congress required money must be borrowed or taxed before it can be spent.
The debt ceiling is just another political stump like abortion that lets politicians slice and dice support from the electorate because everyone has a moral position on the issue.
Leo,
ReplyDeleteGood questions. The debt ceiling is a self-imposed constraint that Congress can change anytime it wants.
What is also a self-imposed constraint is the rule that the Treasury cannot run a negative balance in its account at the Fed.
The sale of securities by the Treasury to keep its account at the Fed in the positive but reduces the level of reserves in the banking system. Without offsetting factors this would push the overnight Fed funds rate up.
Since this would upset the Fed's interest rate target it does repos (buys securities) and adds reserves to counter the effect of the Treasury's sales. So, if you want to call it "monetization" I guess you can, however, it only happens because we have this arbitrary and self-imposed constraint that precludes the Treasury from running a negative balance. That's a political thing and can be changed at any time.
Mike, I wonder what Congress' "FICO Score" would be with this kind of behavior :)
ReplyDelete@Leo,
I look at the "debt limit" Congressioanal vote as a separate issue from the actual Treasury operations of selling bonds. It seems like Congress wants the final say-so as far as how much in T-Bonds are issued, this may just be a vestige from the time before we went off a gold standard and Congress didnt want to give up this specific authority when we went off gold.
I dont necessarily have a problem with this as Congress is supposed to "control the purse strings". But they mistakenly continue to think of and portray US Treasury issuance as "borrowing" (which it basically was under the old gold std.) instead of "creating" (as it is now), they also need to do a better job with their vote scheduling to assure the authorization is granted in a timely fashion. They need to get on with it here as Govt is 30% of our GDP, and has critical functions it needs to fund/perform.
FICO score? Well, since you asked... :D
ReplyDeleteUnder the most recent FICO module, exceeding your credit limit could actually improve your FICO score! How's that for a mind bender?
Say your Visa has a $5000 limit, your balance is $4200 then you buy something for $1100. FICO 08 sees this much like a credit limit increase. After all, the bank approved the purchase knowing what the resulting account balance would be.
FICO 08 trickled in slowly the latter part of this year - just ahead of FNMA 8.0 in fact.
FICO goes to. Fannie goes fro.
Angel,
ReplyDeleteGeithner may be so desperate he is probably depending on such things!
Do you know what the FNMA MBS are doing this week? Can you report here? Resp,
My pleasure!
ReplyDeleteFNMA 4.5% 30 year chart for 3 months thru Dec 21 - http://twitpic.com/ukwps/full
Same-same for 30 days thru today, Dec 22 http://twitpic.com/upokd/full
Matt,
ReplyDeleteHere's a stupid question I've been wanting to ask: What's your take on Geithner, really? We all agree he walks and talks like an idiot but all kidding aside, how likely is it that a layperson like me who could possibly know more than he does?
Not likely at all! Right? Please confirm it's just not possible for an out of paradigm-er to be Treasury Secretary. Same goes for Bernanke.
lol. I know it's silly but I'm serious. What do you believe?
Sincerest,
Jill
Jill,
ReplyDeleteThanks for the charts! Very similar to Treasuries.
I dont know if you qualify as a layperson if you are certified for mortgages in Cali. In your state I believe you have to have your mortgage and Real Estate, perhaps other certifications (very stringent). This means you have the ability to quantatively assess financial transactions, compare deals, review and understand a settlement sheet, etc..these talents and skills you posses (you may take them for granted) perhaps put YOU in a better position to understand the Modern Money framework than Sec. Geithner or Chairman Bennanke who come from different (non-quantitative/non-financial) backgrounds. They dont work with these issues like you do on a daily basis. Ive seen many folks over at Warren Mosler's site suggest that an accounting/quantitative background would be better suited for understanding the current framework and that's right where you work.
We're sometimes hard on them both here, I'm sure they are both honorable public servants, good men, and only want the best for our Country. But Geithner (his inablilty to understand the 1040 is truly troubling to me, Id like to know his SAT math score) I believe has a degree in Government and Bernanke is from an economic background and seems to have studied economic history rather than quantitative analysis. In their current roles they are more politicians with LARGE administrative staffs than financial analysts. They have to depend on staff, and current staff and most of the economics profession seems unfortunately out of paradigm.
Mike has talked about Cognitive Dissonance on his show and here and I think this applies. It takes someone who is VERY secure personally and in their intellect to be able to admit that they have been looking at things incorrectly (for perhaps the majority of their carreer!) and just, boom, change their minds. I think few possess this ability. I think it virtually impossible for someone already at the high (very public) levels that Geithner and Bernanke currently occupy.
So yes, I think we have (more than) these two folks at the highest level of economic policy setting in our Country who dont have the "nuts and bolts" intuitive insight into the true operational aspects of our monetary system and fiscal policy that you do.
I'm really hoping Warren M. can break thru via his Presidential campaign and at least get an objective dialog going in the political realm. I'd just take that if it's all we could get in 2010.
Resp,
Mike / Matt:
ReplyDeleteGiven that Goldman Sachs is not going to be accelerating any market loss by simultaneously selling to their customers things GS is shorting, then we need to consider that the market will not spiral out of control.
There is no way it can slide so rapidly.
So if the leaders that be are in-paradigm or out of their minds, it does not matter.
If they spend and support growth there will be growth commensurate
If they do not spend and budget terrorize the nation, there will be a putter out effect.
Even if they release all the bad debt which they are hiding, they will still use it to profit like they did with the Resolution Trust Corporation after the savings and loan dereg fiascos.
Looks like boring sailig from here.
Thanks for sharing all of that Matt. :)
ReplyDeleteIt's a classic case of cognitive dissonance. We know it and I think they know it too. Like premeditating an insanity plea. Nobody screws up this bad by accident.
That Brittany Spears song "Oops I did it again." comes to mind.
I share your sediment regarding Warren M. completely! I hope to see his proposal for swearing in become the foundation for his campaign.
"Don't vote for anyone that won't swear to tell the truth."