In Case Of Government Shut Down, Close IRS... But Keep POMO Open

Tyler Durden's picture

In order to make the biggest strawman so far in 2011 really scary and nasty, the administration just announced that as part of a government shut down, the IRS would end up being closed. While according to some this is the ulterior motive all along to avoid the premature outflow of tens of billions in cash due to federal tax refunds hitting the IRS next week, which without a debt ceiling hike would push the country into technical default possibly as soon as next week (debt subject to the limit was $14.2 trillion two days ago, just $94 billion under the ceiling and with about $74 billion in debt to be issued next week a $20 billion tax refund withdrawal would push the Treasury over the limit), what is far more amusing is that as the WSJ reminds us, the Fed would still be able to monetize debt regardless if the government was operating or not. Ergo nothing can end POMO ahead of time, not even a complete US government shutdown.

"Since it doesn’t rely on Congressional funds, the U.S. central bank would remain open for business as usual, with normal staffing levels. The Fed would therefore be able to continue with its day-to-day operations, such as buying some $7.0 billion U.S. Treasurys on Monday, April 11. The government bond purchases, due to run until June, are part of the Fed’s latest effort to stimulate the economy."

Well, that and about $400 billion for the next 3 months. So in the absence of new Treasury auctions, the Fed would essentially start canibalizing existing debt in circulation even more as no incremental gross debt will be monetized. Luckily for the Fed, the 35% SOMA holdings top is no longer in existence so should the government not issue one bond in the next 3 months, the Fed will still hit $2.9 trillion in total "assets" by the end of June.

Amusingly the WSJ is concerned that the Fed would not have economic data during the span of a long-term shutdown:

One potential danger for the Fed is that the data it needs to take policy decisions to steer the economy in the right direction may be delayed. That would only be a problem if the shutdown lasts a long time, an unlikely scenario.

Still, during a three-week partial shutdown caused by the budget impasse at the end of 1995 and start of 1996, some key indicators on jobs, prices and spending released by the Labor and Commerce Departments were delayed, creating some headaches at the central bank. Then Vice-Chairman Alan Blinder complained it made it harder for the Fed to set interest rates.

Alas, it appears that the WSJ has not yet gotten the memo that the only "economic" indicator the Fed watches for is the Russell 2000. Everything else is goalseeked smoke and mirrors.

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The Axe's picture

Please just shoot me...much

traderjoe's picture

Yes, the Fed can stay open - because it is a private corporation.

malusDiaz's picture

MFers still have MY F*ING Money!


How can I cancel any and all paycheck -> governemnt, yeah I'll send them a big check at the end of the year, and no more holding my cash hostage.


The Government is broken and holding my cash hostage!

ghostfaceinvestah's picture

Exactly, the private central bank does not operate within the confines of government.

As for the IRS, at this point we might as well just shut it down, stop collecting all income taxes, and just print money to pay our bills.  That is effectively what we are doing for 70% of our deficit financing anyway - why not go all the way and cover all expenses that way?

nkktwotwozero's picture

"Would that be stimulative enough?" I hear Paul Krugman asking.


Brought to you by Carl's Junior.

slaughterer's picture

I can now throw out my ES charts from the last government shutdown.  With POMO running, it will be just the same old same old.

covert's picture

the best will close first. I love it when the police department closes :D


konputa's picture

Cool, can I delay sending my check to the IRS then?

TruthInSunshine's picture


The IRS's 'mail out' offices will be closed.

Their 'mail in' offices will be open via an emergency line of credit compliments of The Bernank.


Thank you.

tmosley's picture

Seriously, this is exactly what I was thinking.  I owe a lot of money this year.  The longer I can delay it, the better off I will be.

AZSovreign's picture

Just file an extension, buy yourself some time until August, maybe we will implode by then and it won't matter.


Sadly my friend you don't "owe" anything in reality you are only forced to capitulate through fear of the sytem. If you release yourself from the fear you will see there are many ways to get out of the "IRS" system.

MarketTruth's picture

Agree, file an extension and 'kick the can down the road'.

ASK YOURSELF: Why pay your taxes now with dollars now when you can pay later with further devalued dollars?

konputa's picture

Good points AzSovereign & MarketTruth. Good points.

tmosley's picture

There is an economic calculation to be made.  If I file, and don't pay, then the penalty is only 0.5% of what is owed per month, plus 4% interest per year.  From a google search on the subject:

So yeah.  Cheap "loans" from the government, bitches.

Antarctico's picture

I am in your boat, owing this year, is there any difference in the coin you ultimately pay between filing an extension and paying later vs. filing your return by 4/15 but not including your check, assuming either way the check gets mailed by the same date?

cosmictrainwreck's picture

close to a precise wash, as they will calculate penalties on same time period, no matter. IMO, advantage to extension is it doesn't tip the bastards off quite as soon... totally illogical, I grant, but it makes me feeeeel better HA

StychoKiller's picture

Umm, you STILL have to pay on time when you file an extension.

cossack55's picture

Oh, yeah, sure. That would be like Hitler shutting down the Gestapo for Octoberfest.

Archimedes's picture

This is just unreal. I feel like I have said this before but there is no way they can keep this charade up for much longer. 3-6 months before I get my popcorn and watch the fireworks and I am not talking about the 4th of July!

Careless Whisper's picture

Shut Down is just the name of the latest dog and pony show brought to you by almost everyone in washington. The defecit is 1,600 billion and they're arguing over cutting 33 billion or 40 billion.  They think ur stupid.

SheepDog-One's picture

Yes they think everyone is stupid, but theyre quite wrong as many of us have been calling BS on them all along. Watching them play 3 card monty, they think sooner or later we'll believe it but calling the hole card every time.

sundarb's picture

So much for Congressional Oversight. Nothing can stop the Fed continuing to print and smoke the dollar!

MIT Brain research shows that money has the same effect as cocaine on the brain...very

hedgeless_horseman's picture

If the Ministry of Truth is releasing this today, then there must be a very good chance the .gov will shut down.

No problem.  The legislature in Texas only meets every other year for about five months. 

SheepDog-One's picture

How fragile and imaginary it all really is, LOL fest here reading this.

downrodeo's picture

+1 you said it man.

Take that a step further and start thinking about energy and matter. We are the dreamers of the dreams, yo.

slow_roast's picture

This is bullish for psychics as the Fed will have to consult the next line of statisticians after government nincompoops for reference on whether to end QE2 never, or a little later than never.

SheepDog-One's picture

Soon the FED's will be hiring wizards and Mage's, if they havent already a while back.

StychoKiller's picture

They'll fit right in with the Economic Witch Doctors/Fortune Tellers! :>D

Things that go bump's picture

How convenient that this comes right at tax time.  Even when they open back up I can envision them delaying refunds for quite some time.  

unclebigs's picture

I hate to burst your bubble, but the IRS will be collecting $10's of Billions next week not paying it out in refunds.  Those who owe taxes wait until the last minute.  Those with refunds have already filed.





SheepDog-One's picture

Collecting 10's of billions from whom? Bankrupt unemployed food stamp ghost middle class americans? HA!

Note to self's picture

Yeah really.  I'm payin' big . . . think I'll get an extension and hang out until that comet thing settles itself in the fall.

Sudden Debt's picture

HA! Good find TD!

And there are many more tricks in that box.

In my country, the government still needs to pay refunds from 5 years ago but because the government isn't in place they can't because there are some glitches in the calculation of the refunds.

And by 5 years ago I mean: Last years, the year before that one and before that one and before that one and that one.

It's about 6000 euro's per working person.

For govenrment workers that ammount goes up to about 11.000 euros because it also contains unpaid overtime.



Note to self's picture

You still fixin' taxis, Latke?

WALLST8MY8BALL's picture

They steer the economy like Rodney drove the car in the movie "The Juror"

tahoebumsmith's picture

California's answer was IOU'S, I wonder how the global reserve currency will hold up with the same approach? Ha Ha, Ha..NOT... Nothing like getting to the counter and having the clerk tell you your card has been declined TIMMAY... Maybe you should go out to your car and start digging through the ash tray for spare change...

Rogerwilco's picture

What a difference a decade makes. The world was a sunny beach in April 2001.

sun tzu's picture

The US was heading into a massive recession which started with the bursting of the dotcom bubble in March 2000. 

It was better than it is now, but we were headed into this direction due to Fed policies set into place by Alan Greengas and his cronies.

Josh Randall's picture

Roger that - I'm living proof of that sunny beach lifestyle in April 2001. But when I look back, to be an unknowingly asleep happy sheep like I was then vs. being awake now, I would take the rude awakening heartache again to be awake, aware, and ready for action like now. Knowledge is Freedom - Freedom is power  

Sokhmate's picture

The beaches are still getting sun today. They're actually is more enjoyable with the awakening. I see clearerer now.

bob_dabolina's picture

I think I figured out what that hole in the roof of that one building is and I don't think anything fell in it. I think something (fuel assembly?) skipped off it.

Look in the water, 5th photo down.

look in the water.

Would also explain radiation levels being 10,000,000 x's higher than normal in the sea water.

gordengeko's picture

Sweet!  Does that now mean I ain't gotta pay in??:)

Raynja's picture

But what will POMO buy if there is no new debt. Everyone knows old debt is no good, someone besides PDs might reap the benefits.

EvlTheCat's picture

Hasn't stopped the Chinese.

dwdollar's picture

This political maneuver is a "no brainer" really.  Keep extra liquidity in the government and put pressure on the RINOs to make concessions.  The RINOs wouldn't want their credit card maxed out mid-westerners, who dutifully file every year, to feel the pinch or anything.

dogismyth's picture

its their job to keep the corporation going.  That'd be the USA, Inc.  So it looks to me like a smart choice.

Commander Cody's picture

The Fed is a government agency?