Thursday, February 3, 2011

YTD Fiscal Snapshot

Following is some data in regards to the posture of fiscal policy FYTD, through the end of January, 4 months into the FY, and a YoY comparison. (data from the US Treasury's DTS)

FY 2010 as of Jan 30:

Total Treasury Account Withdrawals: 3678
Minus Treasury Redemptions: 2314
Equals Net Treasury Withdrawals: 1364

Total Treasury Account Deposits: 3494
Minus Treasuries Issued: 2514
Equals Net Treasury Account Deposits: 980

FY 2010 YTD (Jan 30) Deficit: 384B

FY 2011 as of Jan 30:

Total Treasury Account Withdrawals: 3707
Minus Treasury Redemptions: 2357
Equals Net Treasury Account Withdrawals: 1350

Total Treasury Account Deposits: 3746
Minus Treasuries Issued: 2808
Equals Net Treasury Account Deposits: 938

FY 2011 YTD (Jan 30) Deficit: 412B

So you can see from this data that it looks like YoY ‘Tax receipts’ or net Treasury account deposits are down from 980B to 938B. The fiscal deficit has increased by 412-384=28B, or approximately $100 per capita, $25 per month per capita. Net Withdrawals have decreased by 1350-1364=-$14B or -$40 per capita, -$10 per month per capita. This means that now YoY, the government is "spending less", that is, the government has had less 'real' withdrawals from it's account at the Fed at this point in the fiscal year versus last fiscal year.

On the non-govt side, Bank credit (via the Fed's H.8) is flat to down (it is probably down 100's of $B) YoY if you factor in the $300B+ add to Total Loans & Leases in Bank Credit due to CIT Financial bankruptcy on-balance sheet adjustment last April. Crude is up, net imports are up.

This is not a lot of support for the economy or growth; and the worse news is that the government policymakers believe that they are spending too much.

Throughout this fiscal year the country has been operating on a "continuing resolution" instead of actually passing a FY 2011 budget. The CR seeks to mimic the discretionary spending levels of the previous year so perhaps it should not be surprising that these YoY comparisons do not indicate much change in expenditures. This could change going forward if a budget is passed, with perhaps some YoY increase in expenditure rates, but the new Congress keeps insisting on YoY discretionary spending CUTS so this seems less likely.


mike norman said...

Great work, Matt!

mike norman said...

You could also point out that personal savings dropped by $100bln in the past six months, precisely because net government spending has decreased. Luckily the savings rate is still high enough to support consumption and investment, but at this rate, it will be at levels equivalent to those seen in Q1-Q2 2007, just prior to the crash.

Matt Franko said...


You heard it on Mike Norman Economics first ! ;) ie Fiscal (defined as net Treasury withdrawals) is down YoY at this point.

To your point wrt to savings: so the citizens are dipping into savings to maintain consumption levels?

Flow of funds probably going from the household to domestic corporate sector and external sector. (Good for stocks for now?)

"Stimulus" spending is running off.

Seems like the only way S&P earnings can grow (without any growth in Treasury withdrawals and bank credit that we are witnessing) is through more productivity growth and increases in outsourcing... can the S&P topline grow in this environment?

Are we headed to an unforeseen negative quarter GDP print just like happened in the UK last quarter?

mike norman said...

Without question, if private credit does not begin to flow. With regard to the savings rate, it got down to 1.7% in 2007 before everything started to hit the fan. We're still currently around 5%, so there's plenty more ammunition here.

mike norman said...

But if the government "savings" rate starts to rise quickly enough (i.e. deep spending cuts), then the personal savings rate will fall just as quickly. (And so will corporate profits and cash on hand.)

macrosam said...

Please correct me but doesn't this imply a fiscal deficit around $1.236bn which would be around 8.25% of GDP? I think 2011 will actually see more around 9% GDP. Isn't this sufficient at least nominally?

I realize I may be misinterpreting, but from what I see, this should reasonably supportive. 2012 I'm not so optimistic about.

macrosam said...

$1.236trn, not $1.236bn, sorry.

Matt Franko said...

Yes the deficit is still going to be set where the non-govt sector wants it. I believe MMT states that the deficit is not discretionary, it is dictated by the savings desires of the non-govt sector. Else equal, if the govt sector cuts back on withdrawals, the non-govt sector will cut back on consumption in order to maintain the same savings levels, this causes deposits (tax revenues) to decrease and perhaps more layoffs and voila, the deficit (a 'flow') remains the same as it would have been if the govt had not implemented the cuts, but we may take a hit to GDP.

I was trying to follow "G" here which is the component in the GDP equation:

GDP= C + I + G + (X -I)

Government Spending.

It looks like Fiscal YoY at least thru end of Jan. that G has fallen.

So if we dont get an increase in "I" (Investment) or "C" (consumption) or net imports fall (X-I is "less negative"), US may print a negative GDP coming up in a quarter or two. (This is what may have happened in the UK 4th qtr 2010)....

Another thing that is happening this year is that on the withdrawal side, Treasury is paying more interest to the Fed as the Fed has been buying over 110B per month of Treasury securities since November (QE2)... so all of that interest (which is showing up as a withdrawal on the DTS) is actually going to the Fed (which is a part of the govt sector and will ultimately be paid back to the Treasury) so the withdrawals I have here thru the end of Jan are really not that high effectively(probably a few $B but will get progressively worse as the year rolls on).


macrosam said...


Please bear with me as I am gradually but slowly coming along. Isn't the (G - T) still sufficient enough at around 8.25% of GDP (I think it will be around 9%) to support the private sector's saving desires when looking at this via (G - T) = (S - I) - (X - M)? It seems that (G - T) in FY2011 will be greater than in FY2010 and we have seen signs of recovery in 2010.

And some of the reduction in spending (maybe around $195bn) also going to be due to the scaling down of the SFP program, which really is the elimination of a reserve drain via the Treasury on behalf of the Fed, likely putting downward pressure on overnight rates via excess reserves along with those still being created via QE. So I see the downside of this is as providing less interest income in the economy, if I am correct.

Also, another aspect that has always confused me is that the Fed, via QE, is still crediting accounts for the market value of those Treasuries, the PV of which accounts for the interest payments that would come over the life of the security. Why would this not be seen as an acceleration of deferred income via realization from the sale to the Fed, along the lines of acceleration of tax deferrals for corporations (bonus deprecation among others)?

Thanks in advance, I want to understand this better and appreciate your responses.

Matt Franko said...

Just a quick note for now.

I try to look at these things in terms of a "flow". Measured in an amount per unit time.

So the non-govt seeks to net save a certain amount per month (flow) of NFAs (Net Financial Assets) currently, and the only place that non-govt sector can net get NFAs is from the govt sector. These savings desires are reflected in the deficit (also a flow) levels.

I sort of look at it as though the non-govt will get it (their part of the deficit) by either the govt (Treasury) increasing withdrawals or by the non-govt surrendering less to deposit in the Treasury account.

The non-govt WILL get it either way. With the austerity, withdrawals are less than otherwise so Consumption or Investment takes a hit (AD takes a hit) and GDP may fall, so the non-govt can maintain its savings desires.

I dont understand the SFP so I will look into that. But it may be that whatever the effect of the SFP it will be reflected in the DTS...


Matt Franko said...

For this part:

"another aspect that has always confused me is that the Fed, via QE, is still crediting accounts for the market value of those Treasuries, the PV of which accounts for the interest payments that would come over the life of the security. Why would this not be seen as an acceleration of deferred income via realization from the sale to the Fed, "

Consider No NFAs are created.... QE being an "asset swap" Fed providing non-interest bearing reserves in exchange for interest bearing T- securities from the non-govt... no NFAs being provided to the non-govt per unit time.

PS Check out Billyblog today's post goes into these variables.



Matt Franko said...

Also Sam,

Saw your exchange w/ JKH over at TCOTU....There may be some technicals at play here.

I posted this a while back from a book by Steve Briese, on the concept of scale down buying in markets:

Steve writes:
"“Although it is true that commercial traders typically buy at bargain levels, and sell at premium prices, you may not be able to afford every bargain, especially as they become bigger bargains. Commercials are negative-feedback traders; they typically buy on a scale down, and sell on a scale up. But they have double protection from the losses that can mount from holding a position through an adverse move. With the belt and suspender security of deep pockets and offsetting cash positions, commercials can add to a long position on a scale down(or a short position on the way up) with near impunity while margin calls are doing in lesser traders. Speculative traders enjoy other trading edges, but regardless of size, speculators have finite leverage limits. (Think LTCM, Tiger Funds, Amaranth Advisors..) For most of us, better results will accrue from buying the moment the commercials quit buying. It is rare to see commercials stop buying before prices hit a bottom.”

I'm looking at the Fed as a "commerical" here. It may even be worse than normal in a real commodity market. Because of the Feds fixed/unlimited budget for purchases, the more the specs drive down the price the happier it makes the Fed becasue they can buy MORE BONDS FOR THE SAME FIXED AMOUNT, and 'get a better deal for the taxpayers' which they are so politcally concerned about. If it were General Mills buying wheat, General Mills at least DOES have fixed needs for their feedstocks, eventually General Mills will buy all it needs.... the Fed is insatiable...

This gets back to the idiocy of the Fed here. At least General Mills has a quantity in mind where they would stop (they have a finite need to produce Cheerios or whatever), and prices in mind that they would take advantage of, and they participate in the markets accordingly, rationally... the Fed is ignoring price and only is focusing on quantity.... This is very strange market participation, perhaps unprecedented. In a normal marketplace, it may be considered 'irrational'.

You commented over there: "I’m not arguing that QE drove higher rates. But rates did rise during QE, more likely influenced by signs of recovery though EMs have not caught a bid in 2011 so not sure what the risk appetite has been heading towards. TIPS have not been indicating that investors have growing inflation fears. ..."

Mike made a post a while back here that the Fed is surrendering to a speculative attack, I think perhaps via the markets mechanism of 'scale down buying' the Fed has been complicit in raising rates via QE2.