T-Minus Two Months Until The $500 Billion Rolling Debt Ticking Timebomb Goes Off

Tyler Durden's picture

Ever since the famous Stanley Druckenmiller Op Ed published in early May, which called for an outright default of the US, saying it would not be
the end of the world, and in fact the US would emerge stronger as a
result of finally taking the first steps to getting its fiscal house in
order, there has been a visible shift regarding the US debt ceiling discussion, with republicans (so far) digging in and refusing to budge on the issue. After all, on the surface Druckenmiller is absolutely correct: with interest rates near record lows for the past 3 years, interest payments would be manageable for a long time even if general rates were to surge due to the Treasury's fixing of low cash coupons over the past 3-4 years, amounting to about 20-30% of all annual tax receipts. There is however one very big problem with this argument, one which we pointed out back in April 2010 when we said that "What people don't realize is that...unless the UST can roll its debt not on a monthly
but now weekly basis in greater and greater amounts, the interest rate
doesn't matter.
All it takes is one semi-failed auction and it's game over as hundreds of billions in bills become payable." Enter the always forgotten maturing debt argument. And as a just released presentation by the Bipartisan Policy Center titled "Debt Limit Analysis" reminds us, aside from the actual deficit funding math, which is that in August there is a $134.3 billion cash shortfall that has to be funded with debt, there is a far greater risk. Or, put numerically, 467.4 billion far greater risks. This is the amount of debt that matures through August 31, and has to be rolled over or the US is bankrupt... in every sense of the word. Once again, America's politicians and media get broadsided by the definition of gross versus net. Because, in reality, the inability to issue more debt post August 3 means a halt to all new debt issuance. Which, unfortunately because it means Geithner's scaremongering is actually correct, would imply the end for the debt ponzi.

Below is the maturity schedule in August from the BPC:

And their commentary, which recaps what we said 14 months ago:

  • Treasury must “roll over” almost $500 b in debt that matures during August 2011
    • New debt is issued and the proceeds are used to repay the maturing debt plus interest due
    • Treasury will require market access throughout August to avoid defaulting on maturing debt
  • About $380 b in short-term T-Bills maturing, plus $90 b in long-term securities
    • Quarterly refunding auction on August 15

And that's not it. On a Net basis, there is in addition another $134.3 billion in deficit that must be satisfied somehow. Alas, after August 3rd it will become impossible to plunder savings accounts going forward which means a game over in the kick the can down the road game:

Breaking down the spending side:

The BPC's observations on what happens on August 4 absent a deal are rather spot on:

  • If the debt ceiling is not raised by August 2, all three ratings agencies will put the United States on watch for a downgrade, at a minimum. Fitch (6/8/11):
    • “If the debt ceiling is not raised by the [X Date] and timely and full payment of its obligations, including Treasuries, is not secure, the U.S. sovereign rating will be placed on Rating Watch Negative.”
  • An actual downgrade would cause major losses among holders
  • Even without downgrade, it is likely that rates would increase, perhaps significantly
    • Less likely, but possible, that Treasury would lose market access during such an unprecedented event and default

As a reminder we are now 32 days away from D-Day, and about 60 days from the need to fund half a trillion, all of it with new gross debt issuance.

To date, there has been no progress in D.C. at all. Will there be progress in the next 4 weeks? They better, or as demonstrated, the extend and pretend game, contrary to the well-meaning intentions of the likes of Drucknemiller, is about to come to a very violent end.

Full presentation link.

Debt Ceiling Analysis

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
bernorange's picture

Probably why Timmy wants to quit around that time.

Mr Lennon Hendrix's picture

Raise the debt ceiling or bust!

SheepDog-One's picture

Bust the debt ceiling, or bust!

falak pema's picture

oh, dolly! Good bye to all that!

JW n FL's picture

The Republican's! who I hate! are going to bring about Change we all can believe in! I hope Ya'll got your Guns! Ammo!! and Food!!! ready.. with fall back positions! The democrats and the republicans are going to destroy this Country so that it can be made over in a more Bank Friendly Format! LULZ!! Internet Switch is a comin boyz!

Pool Shark's picture


Both parties have already destroyed the country.

All that's happening now is that the facade is being stripped away to reveal the horrible truth: we're bankrupt.


Michael's picture

Rolling over old national debt is like issuing new debt. It has all the trappings of issuing new debt except it doesn't increase the size of the national debt.

I thank God everyday for the complete and total economic collapse of the USA.
When we finally default, the rest of the world will cut us off from trade with them and we will get our manufacturing jobs back because we need replacement parts for our shit.
Default is a win win for the .

BigDuke6's picture

I'm with you.

And if default really would do that to the usa then i think we can all safely say that an agreement will be reached where the politicos can save it up for another day with the can kicked down the road yet again.

It doen't feel right yet... these people are the lowest of the low, they'll keep kicking until the wheels are totally off for all to see.

Quixotic_Not's picture

Since The Trend is firmly in place, the only question is whether the U$D will hold any value after default until Jan. 2012 and what currency will replace it?

¿Tienes plata gringo?

Oh regional Indian's picture

Quix, I heard you Quixit in des-gust a few weeks ago. Didn't you? But this place is like crack eh? Keep coming back fro more.

And perhaps your question should be will the USD trade for anything of value. it hold's no value in and of itself.

My sign reading, batting a decent average as I type, says we will see major dislocations between tnow and July 15th, with July 16th as a key date.

In the light of what is to unfold, whether in the Nuclear Mid-west or freak heat for snow-melt, reality will trump all this nonsense soon. We need look no further than Fukushima and the rolling disaster signs in the US.

Our new normal, nothing like the old normal.



Quixotic_Not's picture

Sorry, don't give two-bits about the opinion of some H1B wannabe...The rumours of my departure have been greatly exaggerated ;-)

Only concerned with hard asset value internally within the former USofA, not looking to purchase foreign trinkets or pathetic attempts at labour.

Since I moved my U$D holdings out of T-Direct, I'm sincerely hoping the dollar maintains par against 'MeriKan Ponzi housing schemes, but I'm starting to worry that the huddled masses will miss the opportunity to sell their inflated assets before 2012 Obamageddon...

Too bad none of former US patriots have a crystal ball!

P.S. Just curious, did you have your Indian piece of ass come to the US on a tourist visa - Like millions of other H1B temp visa slaves - and did you make her pop out a bambino so you and your lil' tribe could claim 'MeriKan "citizenship"?

If not, get with the scam!

New Yawk City is awash in anchor babies...

TruthInSunshine's picture

Hmmm...I wonder if they will or won't raise the debt ceiling?

I'm really analyzing this. It's a profound issue with profound consequences and implication.

Will they or won't they?


/SARC/xQExTARPxTALFxMaiden LanexHilarity+∞²

TaxSlave's picture

It's not what the debt BUYS that matters.

It's what the debt SELLS.



Oh regional Indian's picture

Ahhhhhhhaaaaaaah! A liar AND an asshole.
Good luck mate!
I'm in India BTW.
You are welcome to your dystopia and your hate.

cosmictrainwreck's picture

the dude's in love with himself, that's all. which makes him a prick. aside from that, he does (on rare occasion) make pertinent comments

Michael's picture

I love Dr Ron Paul.

He says;

"The US defaulted on its national debt many times before. It wasn't the end of the world the last few times. We muddled through it. We can do it again." 

Michael's picture

So what if you wanted a monetary system that was different than the one we have now?

After the default we could try one that Ron Paul could describe. Imagine that, a President who could actually describe to the American people from his own mouth not reading a teleprompter, what a new monetary system we should use and be like, in great detail. What other man on the planet Earth could copy what Paul could actually do? 

No other person running for President in the country could do that.

Michael's picture

Dr Paul, he had a good life. He just wishes it could be there for his grand kids.

He knows his grand kids have another 75 years to go.

Michael's picture

I just got an idea for a new Youtube upload.

Tell me what you think?

Things That Should Not Be Said In Public! Dr. Who?


Zero Govt's picture

Benny has an Ap for that: 'Print'

1inchRacker's picture

to: JW n FL

"Obama LOVES us!!


Obama $656 Million LOBBY Dollars! http://bit.ly/Tu4v Obama Let the FED Print 1/2 a Trillion since Jan 1 2011 http://bit.ly/aBu9yF  "

I guess it's all Obama's fault, right? I mean, he didn't inherit a crappy situation or anything, did he ?

FlyPaper's picture

Pool Shark +1 - both parties spent money we didn't have.   [Clinton's "balanced" budget was not balanced if they had not taken the excess from Social Security].

JW n FL's picture

what do you think is going to happen with the full faith of the American Dollar is called into serious question?


Unicorns shitting rainbow skittle turds everywhere?

Mr Lennon Hendrix's picture

Don't you want to go where the rainbow ends?

Rodent Freikorps's picture


Too many leprechauns wanting to bum an American cigarette.

Dugald's picture

Not forgetting....Got any Gum Chum!!!

Printfaster's picture

The last Irishman that worked for me loved saying at the end of a meeting:  "I need to murder a fag".

Not very PC.  But very Irish.

topcallingtroll's picture

what I think will happen is a chance to rebuild a limited government with true individual liberty and personal responsibility for all.

Of course the next ten years or so might not be too pleasant, but you can't make an omelete without smashing a few eggs and blending them up, adding a little cream and bacon.  I always think a little bell and jalepeno pepper works great too.

JW n FL's picture

I was brought up to put Tabasco in.. with or without peppers.. give it a try.. Louisiana as well I have developed a taste for over the last 5 years of so?


I LOVE Breakfast!

oldman's picture

'full faith and credit" of the US Treasury, or Government, or how did that go on those old bond indentures?

I haven't seen one in a couple of decades----all digital now, no?

Does anyone know anything about what I can't remember?


dolly madison's picture

My prediction of what will happen unfortunately is they will raise the debt ceiling, and in the process of doing that the Reps will win at pushing for austerity.  The game is the Reps ask for austerity, the Dems fight, but lose.  They want us as cheap labor.  They want to make us all poor, so we will be desperate and cheap.

Quixotic_Not's picture

You would be wrong!

'MeriKans, by continuing to vote for the (D) & (R) Duopoly, have volunteered themselves and their progeny to the new Fuedalism.

Sorry, but there's no one here to blame but We The Sheeple themselves...

The road to hell is paved with selfish fantasies.

Please, do try to keep up, and pull your head out of your arse before you suffocate!

legal eagle's picture

I see an increase in the aggregate supply of prostitutes.

Freebird's picture

Not before time for an asset firesale & not talking Ukranian
hooker bitches in the Hamptons. Greek style. US Sell your gold
( Hahmmm ), sell Manhattan, sell everything possible until
there is a few trillion available to pay down the steaming

Dreadker's picture

Maybe the opening trailer for Modern Warfare 3 was actually a prophecy... Chinese submarines in New York harbor coming to collect whats owed to them lol

max2205's picture

When will TLT trade on the pink sheets?

malikai's picture

This premise, like that super bowl commercial is rediculous. If the US defaults on the debt, EVERYONE will drop treasuries, including the Chinese. What happens afterwards is anybody's guess, but it won't end with hoards of angry Chinese demanding payment due. But it might end with hoards of BMW drivers walking for a change.

CompassionateFascist's picture

None of this apocalyptic stuff is going to happen...yet. First, both parties are posturing, playing to their constituencies, special interests, group entitlements. There'll be a deal, mid- to late-July, involving Xtrillions in "spending cuts" (over the next 10 years....), none of which will ever actually occur, and some token, nuisance increases in taxes and fees. That's all; oh, almost forget, Boner will have a good cry at the signing ceremony. Then back to the Universal Ponzi for maybe another 12 months. More important reason it's not going to happen...yet...is that I am still insufficiently stockpiled and weaponized.  

Jonas Parker's picture

Somebody would BUY Manhattan??? Do they have to take Goldman Sachs, JP Morgan Chase, and Bof A too??? Can we throw in San Francisco and Nancy Pelosi???  Naw... nobody's that dumb!

FinalCollapse's picture

Buzz off from San Francisco. You can take Nancy though. 


zerozulu's picture

Total US assets are US$75.55 trillions dollars. Still long way to go.

lolmao500's picture

You think one night with Michelle Obama is worth that much?

GtownSLV's picture

I could wash myself clean of that experience for $75T but not a penny less!

hannah's picture

mark-to-myth total us assets are us$75tril.....while actual value is what you can get for cash.....so who has $75tril in credit to buy our assets...oh wait...we sell the assets to ourselves...? right.....the 'we are the richest nation on earth' crap is wearing a little thin.....