Amazing find by Matt Franko (blog contributor here) that shows we are in for another debt ceiling train wreck, perhaps worse than the last.
A clause in the Aug 2 agreement stipulates how the remaining $900 bln (of the initial, $1.3 trillion increase) would be applied:
Sec. 3101A. Presidential modification of the debt ceiling (a) In General- (1) $900 BILLION- (A) CERTIFICATION- If, not later than December 31, 2011, the President submits a written certification to Congress that the President has determined that the debt subject to limit is within $100,000,000,000 of the limit in section 3101(b) and that further borrowing is required to meet existing commitments, the Secretary of the Treasury may exercise authority to borrow an additional $900,000,000,000, subject to the enactment of a joint resolution of disapproval enacted pursuant to this section. Upon submission of such certification, the limit on debt provided in section 3101(b) (referred to in this section as the ‘debt limit’) is increased by $400,000,000,000. |
We are already up against the hard ceiling right now. So the Treasury is already operating by prioritizing payments like it did during the mid-May thru July period.
In order to get the next tranche of the $900 bln the president MUST SUBMIT A LETTER TO CONGRESS ASKING THAT IT BE DONE.
He hasn't done that yet.
Will he do it? Probably not right away. He'll let Geithner make payments as he can and keep this whole issue under the radar. What this will likely mean is another sharp contraction in economic activity as some accounts don't get paid or, get paid more slowly.
The economic data is going to look TERRIBLE by October, November.
33 comments:
maybe a santa clause rally would help in q4?
"In order to get the next tranche of the $900 bln the president MUST SUBMIT A LETTER TO CONGRESS ASKING THAT IT BE DONE."
And then wait 50 calendar days, only then can Tsy borrow an additional $500B.
‘(1) IN GENERAL- Except for the $400,000,000,000 increase in the debt limit provided by subsection (a)(1)(A), the debt limit may not be raised under this section if, within 50 calendar days after the date on which Congress receives a certification described in subsection (a)(1)...
Missed that part, Beo. Thanks!!
Thinking this through, if the first $400B tranche has already been paid out, presumably the President has already sent the letter to Congress.
Once the 50 calendar days runs out (any time now) without a joint resolution of disapproval, then the second, $500B tranche is authorized.
B,
I usually can plow thru this kind of writing but I am almost saying uncle here.... really convoluted imo...
B, suggest dont rely on my excerpts, can you look at the whole bill here:
http://www.govtrack.us/congress/billtext.xpd?bill=s112-365
So going with B's conclusions so far:
1: Treasury got $400B on day one; ceiling went from 14,294 to 14,694.
2: Once Treasury came within $100B of $14,694 (or breached $14,594) then a 50 day clock started, that if we hit 50 days past that point, then Treasury automatically gets another $500B
I'm not sure if I read the bill, that is what I get out of it...
but going with that for now, Treasury breached 14,594 on August 23, 2011 so 50 days later is approx October 13th... if this is how it really works...
Matt,
That would seem to be how it works.
PS how does Obama let himself get into these things???
If so, hopefully somebody at Treasury sent the notification on August 23rd to start the 50 day clock....
"If so, hopefully somebody at Treasury sent the notification on August 23rd to start the 50 day clock."
I read it that the notification letter was required to authorize even the first $400B. When did Obama sign the bill? I imagine notification was sent the same day. So 50 calendar days from when $400B was authorized, an additional $500B is also authorized.
One hopes that $500B isn't eaten up by the FDIC using its Tsy credit line (coincidentally enough, for $500B) to cover bank failures. Actually, the FDIC has an out-- FDIC can float unlimited amount of its own Agency bonds up to the amount of cash on hand in Deposit Insurance Fund. Tsy is authorized to deposit public moneys with FDIC. Letsgetitdone's $60T platinum coin (hubcap size, one hopes) wouldn't be out of order here. :o)
B,
"I read it that the notification letter was required to authorize even the first $400B. "
That is another possibility, I sort of saw that too... Obama I think signed it August 3rd, so plus 50 days would be about Sept 23rd...any day now..
But why would they write it up that way and make Treasury send that notice when they were certainly right at the limit since May 15th and the bill was submitted in August? They were within 100B of the old limit probably back in April? So that doesnt make sense...
Remember when they would raise it when the GOP was in the WH they would just strike the old number and put in the new higher number and that was that.... Obama is getting rolled here as usual, his staff is terrible with these things.....
Great analysis guys, seriously, great! Nobody has parsed through this, I can assure you, but it is extremely important if you are a trader and short stocks. This tells you whether to stay short and when to cover. Brilliant!!
What happens if submission of the letter slipped? Then we're back to juggling. Anybody think Obama's wonderful staff has been studying PPCS. Someone must have heard of it by now; since Balkin's piece hit CNN and other more mainstream folks picked it up as an alternative for getting around the debt ceiling. Who knows, maybe Obama's getting sick and tired of getting kicked around by the tea party and Boehner, and will take the plunge on the magic coin.
There was a good short diary on the politics of this at DailyKos by one Truth Merchant: http://www.dailykos.com/story/2011/09/18/1018041/-The-Pres-and-the-Coin-Trick
But why would they write it up that way and make Treasury send that notice when they were certainly right at the limit since May 15th and the bill was submitted in August?
To create a precedent for the next time. It makes perfect sense if the public policy goal is to maximize investor uncertainty and minimize business confidence, at least through 2012. I don't see any interpretation other than the notification went out when bill was signed, otherwise there would be three tranches-- $400B, $400B and $500B--- the math doesn't add up.
If September 23 is the 50 day mark for the $500B, then tomorrow is Christmas morning.
After that, once Tsy burns through all but $100B, the President issues another notification letter. This one has a 15 day shot clock, after which the hopefully final $1.2T of the deal comes through.
I say hopefully because there's an extra $300B available-- if an approved balanced budget amendment goes out for state ratification-- on the principle that cyanide goes down easier with applesauce, I guess.
I sent an inquiry into Treasury's automated email question system this am I'll post any repsonse I get...
Also, I will try to find a phone # and call down there today to see what date treasury is tracking towards raising the limit by the next 500B
So what does this in general handwaiving mechanics ?
i.e. what kind of reaction from banks, wall street, and big corps ?
Matt,
Let us know as soon as you hear something.
-Mike
Also, I will try to find a phone # and call down there today to see what date treasury is tracking towards raising the limit by the next 500B
Matt,
I suppose Richard Gregg's office is the place to start (always begin with the highest level that will know what you're talking about). And tell his office they should be monitoring Mike Norman Economics daily if not hourly. :o)
Gregg has served as the top official at the Treasury's Bureau of the Public Debt and at the Financial Management Service (FMS). Now he oversees both agencies simultaneously as the Treasury Department’s acting-assistant secretary for fiscal service.
Mr. Richard Gregg
Fiscal Assistant Secretary
1500 Pennsylvania Avenue, NW
Office Phone: 202-622-0560
"Bureau of the Public Debt"
called them and they are all out till next week, will try the Asst secretary's office...
Great lead, Beo. Knowing Matt, I'm sure he's on it. Thanks!!
They at Treasury are not being very helpful...
B,
" if the public policy goal is to maximize investor uncertainty and minimize business confidence, at least through 2012"
the sponsor of the Bill was Senator Tom Harkin (D-IA), S.365
So why would a Dem seek to undercut the economy?
Ive been calling around a bit today at Treasury and no one I talk to seems to know what I am talking about.... they keep taking my phone # and not calling back....
Matt/Beo:
Just checked DTS. Second tranche just hit. +$400 bln. $15.194T. It's Christmas day!!! Buy on Monday!!!
OK, Plan B:
Call your congressman. Tell them you're a constituent and a reporter for this blog. Ask them if they will inquire on your behalf (write out the exact question you want them to ask and read it to them). Don't forget to mention you won't forget to thank the congressman when you post it. Oh yeah and give them the number to call:
The Office of Legislative Affairs welcomes inquiries from Members of Congress and their staff....
Email: LegAffairs@do.treas.gov
To reach a Legislative Affairs representative, please call us at 202-622-1900
Sorry, misreported. That was an increase of $500 bln, not $400 bln.
Well if there are presents under the tree, I guess there's no point calling your Congressman to find out what day it is.
"the sponsor of the Bill was Senator Tom Harkin (D-IA), S.365"
Harkin was just the senator who introduced the pre-wired deal that the Boehner and the White House worked out. Just a clerical formality who actually sponsored it.
A formality but a not unimportant one, when White House released its American Jobs Act, it didn't have a House member sponsor it right away. So naturally, crazy Texas Republican Louis Gohmert introduced his OWN American Jobs Act first.
"Gohmert’s bill is a simple two-pager that does nothing but repeal the federal corporate income tax. The title “American Jobs Act” was available for Gohmert’s bill because no one has bothered to introduce the president’s bill"
http://dailycaller.com/2011/09/15/american-jobs-act-gohmert%e2%80%99s-inspired-act-of-plagiarism/
that's a lot of clear sailing!, over 4 months of "worry free" issuance....
Now we have to look into what has to happen to get the addl 1.2T ...
"to be continued....." ;)
"They at Treasury are not being very helpful..."
Matt, aren't you in Maryland? If you're ever free to go into DC during the day, you should try to get Tsy and Fed press passes.
One, reporter questions are taken more seriously than random callers.
Two, govt officials are little more forthright at the off-the-record press availiablities
Three, one fine day you could melt Bernanke's brain at a press conference. Probably easier for Mike to apply and bootstrap you in.
Treasury
Press Office 202-622-2960.
Federal Reserve
Public Affairs 202-452-3204
Beo,
Yes I am in MD and do on occasion get into DC...I will contact them and see what you need to be considered a member of "the press"... As long as the exam is not "essay" type I should be OK!
I have in the past talked to the press dept at the Fed and they are a lot more helpful than Treasury was today... but all is well that ends well, at least the UST can issue unconstrained for a few months and that should be good for the economy... Resp,
Beo,
Nice call! You had it nailed!!
Matt,
Great job finding that clause in the bill!!
Matt,
The first tranche of $400 bln only lasted 21 days until the $100 bln threshold was breached. How long will this last? 26 days?
"I will contact them and see what you need to be considered a member of "the press"... As long as the exam is not "essay" type I should be OK!"
(Mike can delete this post after you and he have a chance to read it).
Yeah there's some red tape involved, but once you have it you'll never know when it will come in handy in the future. Neither Tsy nor the Fed has their media credentialing procedure online anywhere. In my experience with govt offices, that's usually a tell that career bureaucrats have absolute discretion and (in this case) may want to see what other credentials you have before saying yay or nay. You might need to get a congressional and/or State Dept pass first and then apply. So when you call those number above, ask if they can email or fax over a copy of their press credentialing guidelines and application. Don't let them play 20 questions with you, just say you're doing research for your boss.
http://fpc.state.gov/7431.htm
The fastest way through the woods would probably be if Mike asked a foreign news network, let's call it USSR Yesterday, if they'd sponsor you and he for Tsy and Fed press credentials, in exchange they could claim the scoop on anything you guys post on here ("USSR Yesterday's own Matt Franko reported today..."). Costs them nothing, costs you nothing. There are a couple other ways to play it, but that's the simplest.
Only legal issue I'd flag is if an official slips up and tells you something market moving while you're at Tsy or the Fed on a press pass, post it before you trade it to avoid insider trading accusations. Yeah, the Fed leaks like the battleship Arizona, but if DOJ ever makes a show of cracking down on insider trading, they ain't gonna start with Bill Gross.
http://www.zerohedge.com/article/did-bill-gross-just-confirm-live-tv-he-has-advance-look-non-public-fed-data
Very impressive, guys! I love this blog! All of you are SO special! Thank you!!
Post a Comment