Prepare For A Surge Of Treasury Issuance As Soon As The Debt Ceiling Is Lifted

Tyler Durden's picture

One of the side effects of the US hitting its debt ceiling in mid-May is that while the components of its total debt have been shifting, with total marketable debt slowly grinding higher, while intragovernmental holdings (i.e., government retirement pension accruals) declining, the total thing has been flat as a pancake at just $25 million below the mandated ceiling. Since May 16 (or 57 working days now), total US debt has been $14.345 billion and not a penny more. Yet the issue is that with the US expected to have a roughly $1.5 trillion budget deficit in the calendar 2011 year, the ongoing contraction in debt issuance is only temporary. Basically when and if the debt ceiling is lifted, the Treasury will not only have to issue as much debt as before, but it will have to issue massively more in the short term to catch up to the ongoing run rate, and also in order to prefund the same retirement accounts it has been plundering for the past 6 months. So here's the math. As the chart below shows, since May 16, the cumulative divergence between where total debt is and where it should be is now a whopping $265 billion. That's right: when the debt ceiling cap is finally lifted, and it will be lifted, with republicans "kicking and screaming", Geithner will suddenly find himself needing to plug a gap of over 2 months worth of accrued treasury issuance. Mathematically, this means the Treasury will have to sell not the $100 billion or so in net debt but well over double that in August and September. And this will happen at a time when there is no QE2 to soak up the excess slack.

Two other things to note: the primary reason for the collapse in total debt in addition to retirement fund "disinvestment" is that the Treasury has not been rolling its Bill maturities: after all every single Bond and Note weekly auction has so far gone down just as expected with no delays. Another thing: we are assuming a $1 trillion run rate increase in total debt which fits with the rateof debt issuance in the early part of the year. However, as noted above, the total debt in 2011 will likely have to be 2011, which means a dramatic pick up in total issuance in the second half as Geithner scrambles to fund operations.

And one last thing to note: as has been reported elsewhere, recent tax withholdings have dropped substantially in recent weeks, which simply means that even more debt will have to be funded through debt issuance.

In other words, as Treasury prepares to flood the market with Bills of all shapes and sizes, we could see one of the biggest curve flattening moves in recent history. After all, recall what the Fed did to the RMBS space after it decided to dump Maiden Lane II in the open market.

Prepare for a repeat of just that in the short-end as soon as the debt ceiling is finally hiked.

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66Sexy's picture

I love the smell of a conventional arms race in the morning...

Scottj88's picture

We are living through the dual reality where truth (love) and lies (corruption) meet. This is all just apart of the macro-illusion...

R.I.P. Federal Reserve Note - 1971-2012...

Libertarians for Prosperity's picture

We are living through the dual reality where truth and lies meet....

Yep.  You bet.  Here's a great example: One of the biggest lies being pumped by goofy silver fanatics is that physical silver and paper silver have disconnected from each other. The biggest silver goons on this website are still telling everyone not to worry about the collapse of silver prices. Supposedly, the collapse is merely a "paper" collapse, and that the "real" price of silver - the physical price at Wilber's Coin Store - is about to jump to the moon due to a physical shortage.    

Such bullshit.  

First, we had Eric Sprott admitting in May that he could buy physical silver at/near spot price, and yet all the silver goons still pumped their bullshit paper/physical story. 

And today, we have the retail public capable of buying silver for .99 over spot at Apmex:

So here's your physical silver, under $35/oz - no physical/paper disconnect whatsoever, except for normal retail/wholesale arbitrage.  

Will the paper/physical pumpers finally STFU?


cossack55's picture


I, for one, do not give a shit about paper/phys ratios.  Paper always, as in ALWAYS, involves counterparty risk.  Physical does not.  I don't care if silver is $35/oz or $3.50/oz. Irrelevent.  The lower it goes, the more phys I buy. End of fuckin' story.  Get over your paper obsession, brother.  Some of us will NEVER play that game.  If you wish to, more power to ya.  See ya on the other side.

tmosley's picture

We'll shut up as soon as you stop being a coward (which will never happen).  Symptoms of your cowardice include changing your user name every three weeks, and calling anyone who calls you out on it "paranoid".

Funny that you are still harping on your out of context quote by Sprott, considering he is on record numerous times saying he has trouble locating physical silver in quantity.  Hmmm...he can't find silver at spot in quantity...I wonder what THAT means?

Also funny that you think a 24 hour "flash sale" is indicative of the entire physical market.  You know less than nothing.

Libertarians for Prosperity's picture

And here we have the biggest carnival barker of them all: tmosley, the self-proclaimed "next oligarch."  How many times are you going to be discredited until you stop spreading lies?

Here you are telling everyone on the Ron Paul Forum in 2009 (before you joined ZH) that you started buying silver at $20/oz:

And here you are last month telling everyone at ZeroHedge that you are up 400% from when you first started buying silver:


So which is it tmosley?  How do you back peddle out of this lie? 

The Sprott comment is NOT out of context. Here's the Max Keiser interview. Pay attention at 3:19, and please tell me how it's out of context.

You may be able to trick the lemmings, but you can't trick those who know better.



LawsofPhysics's picture

This is the same Eric Sprott that believes that all this "reeks of someone manipulating the silver market" and who remains a "net buyer of silver".

Just curious.  In addition to the application of silver as true money, we also use silver to make things so I keep hoping the cost comes back down.  Does not sound like Eric Sprott thinks it will be coming down anytime soon.  

tmosley's picture

Uh yeah, so?  I always said that I made my first purchases at that level, but that I didn't start buying in volume until it was far lower.  Those first purchases were less than $1000 combined.

You ever going to tell us the reason that you keep switching names, you butthurt little baby?

But hey, you keep pursuing your vendetta with your protools that you use that enable you to see edits when they were made less than five seconds after the original comment was submitted.  Why do you have access to such technology?  What is your agenda?  As if it wasn't clear.

Edit:  Also, nice cyberstalking, BTW.  What is your malfunction?

Mr Lennon Hendrix's picture

You have the logic of a child and the wit to match.  The US Mint has been selling more silver this year and last than any other since its first.  Demand for silver is out of this world.  Comex inventory has never been lower.  And you know nothing about JPM's control over prices due to naked short selling.  It is you who should STFU.

MrBoompi's picture

Maybe I'll STFU, but I'll still be buying more physical metal.

Someone works real hard to suppress the prices of metals, prop up the dollar, and prop up the equity markets. This is unnatural market manipulation.

These kind of monetary schemes have never lasted forever. It's true I may not live long enough to see where this ends up, but I'll leave my gold and silver to my heirs in case they'll require it.

Ancona's picture

Bring it on Timmy boy!

I need some more feedstock for my fireplace.

Gold and silver bitchez.

CPL's picture

Did anyone pick up (just by scanning the chart from April 15th onwards) that collected tax revenues obviously didn't meet expectations.


The debt though doesn't reflect the direct withdrawls the US government has been doing from their own Social Security fund.  This isn't going to end well in September.

RobotTrader's picture

I seriously doubt that anyone is really worried about deficits and debt ceilings with 5-yr. and 10-yr. yields at 45-year lows.

And no matter how dire the Treasury's situation is, gold, oil, and stocks will be dumped in a panic during any and all financial crises and proceeds promptly stuffed into Uncle Gorilla paper.

SheepDog-One's picture

Youre pathetic Robo, youll never be a Pigman, just a Pigman cheerleader.

Greeny's picture

I'm not sure why you pissed, but in financial collapse, Commodities will drop ahead of everything else. So far GOLD doesn't show anything to proof otherwise. Market Down, Gold/Silver down, OIL down. It might all changes at the end of usual summer PM correction.. Remember Silver at $8 2008-9? So you better pray for stability or Silver will be priced as dirt. I have a lot of physical Silver too.. And tell me what pops price of the silver to $50? finance crisis or QE's? You know the answer to that, obviously.

SheepDog-One's picture

Yea Greeny? Hows your 1.46 Euro long doing?

Greeny's picture

Jees, man do ever trade Forex? I think, I rarely hold anything over 1-2 days, sometimes even 20-30 min enough. What makes you think,
that I keep that position open? BTW ones Greek pass that Austerity cuts vote you can find EUR ones again above 1.44. Just watch.

SheepDog-One's picture

Really? Well Friday you told me that was a 1 year buy and hold trade.

Jonas Parker's picture

Go get a copy of "When Money Dies" and read it (in fact, you better read it twice). Then come back and tell us all how silver will be priced "as dirt" when the FRN crashes. On second thought, don't bother with the book. Ignorance is, after all, bliss!

oddjob's picture

How's your 30%+ haircut on MFN feeling?

Boston's picture

"And no matter how dire the Treasury's situation is, gold, oil, and stocks will be dumped in a panic during any and all financial crises and proceeds promptly stuffed into Uncle Gorilla paper."

Agree with everything except the gold part. While I hope gold tanks (temporarily so that I can buy MUCH more physical), I believe gold will outperform silver and may not drop by nearly as much.  

6 String's picture

I agree Robo. Many like Schiff will be flogged again in a financial crash until Benny comes in with CNTRL ALT P. In fact, if there is no debt ceiling hike, the Dollar might also get bid and silver drops 50% or more. It's too early to be completely loaded up on silver. It's best to accumulate a little over each ensuing month....and then buy big if all lines up.

bankrupt JPM buy silver's picture

6 string:  Your entire statement above represents how dumb sheep are.  Thank you for clerifiying your position.  Lastly, most of us are 'loaded' up from $15 silver.  Not $45 like you. 

6 String's picture

You are right: sheep are dumb and you cannot underestimate that. However, your groupthink stupidity doesn't make you any smarter. It makes you a fool. I bough silver heavily between $17 and $19, moron. Unlike you, in this environment, I pledge no alligenance to anything. It's the last man standing dipshit.

CPL's picture



I liked it at $8 an ounce and delivery over the counter.

trav7777's picture

...except that last time the Euro was "collapsing," the euro POG exploded

Zing's picture

I shall simply junk you and send you on your way.

QuantumCat's picture

RobotTrader speaks truth. Additionally, a little engineered short term market panic will increase demand for treasuries. They own both sides of the trade... the stock market through primary dealers, and T-bills through the treasury. A pendulum for wealth confiscation.

MrBoompi's picture

It's only the paper that will be dumped, and it's the paper that's the cause of most of our problems.

Here we have about 14 to 1 collateral on average vs. upwards of 32 to 1 in Europe! Who knows what collateral backs up derivatives??? Any at all?

You can't engage in this extreme activity without fake paper wealth. No one doubts it makes a few people extremely wealthy. That doesn't make it right or safe for the rest of the world.

vote_libertarian_party's picture

Who cares...American Idol auditions start this week!!!

Oh regional Indian's picture

Velocity negative, issuance as positive as can be.

Talk about kicking an off-balance drunk in the nuts/guts. I think by the end of this week, we'll have new thigns to worry about. Huge earthquake/volcanoe/freak weather warnign from Piers Corbyn. And me. ;-) Good luck all around.


oogs66's picture

Some politician on cnbc hinted that the aug 2nd deadline isn't hard and there might be a couple weeks or even a month more. So massive treasury issuance in sept and oct Perfect timing for a crash I we haven't had one by then

Alea Iacta Est's picture

Fed to spend another $300B purchasing treasuries? Has QE3 arrived? Market seems to think so.

SheepDog-One's picture

No free Hefty bags full of crack rocks for stocks = no QE.

No one gives a shit about some bond issuances to themselves.

Alea Iacta Est's picture

Thanks Tyler. That helps, though the market doesn't seem to get it just yet.

FEDbuster's picture

The real question seems to be, "What is the "asset" limit for the FED balance sheet?"  How many worthless Tbonds can the Bernak convert into FRNs, before FRNs are deemed worthless? 

"Just a couple hundred billion more Mr. Bernake. Bon appetit."

jomama's picture

any chance we could see a 2x size image for that revised chart?  


Mr Lennon Hendrix's picture

QE Lite, in my book, means QE continues.  Socrates' look alike Jim Rickards has been proven wrong already when he said QE will not continue.

buzzsaw99's picture

that article is bogus and the headline misleading. they are counting rollovers as net purchases. Pathetic reporting.

SheepDog-One's picture

Similar to how theyre counting the FED's gold, already spent to different entities many times over, so they simply multiply the imaginary gold number by that factor. 

buzzsaw99's picture

similar to how they will sell t-bonds in order to buy back the t-bonds they sold when they hit the debt ceiling. fun to watch but don't think about it too hard or you will go crossed-eyed.

doomandbloom's picture

dip the freakin buy, did u?

SheepDog-One's picture

'Republicans kicking and screaming against it'? Not what I see at all, the 2 top republiclowns Boehner and Graham have already said they have no problem raising it a few hundred billion here and there as requested.

cougar_w's picture

Kicking and screaming in the media.

We're all about appearances in the great Bread+Circus Travelling Big Tent of Nightmares.

Whoa. That would be a good title for a story...

Boston's picture

In other words, as Treasury prepares to flood the market with Bills of all shapes and sizes, we could see one of the biggest curve flattening moves in recent history.

Unless of course, there we just happen to get a panic sell-off in risk later this summer, coincidentally just when Timmy needs to catch up by selling this boatload of shorter term paper.

cougar_w's picture

"just happen" to get a panic? What are you attempting to imply, sir? Speak plainly!



File under "Things that make you go hmmm"

qussl3's picture

So i guess today was the pre QE3, debt ceiling raise rally?

Todays action is absolutely bizarre.