Treasury Anticipates $700 Billion Gross Borrowing Need By End Of March 2011, To Bust Debt Ceiling In Q1

Tyler Durden's picture

The US Treasury has just released its revised debt issuance/funding schedule for the Q4 as well its fresh estimates for Q1 2011 borrowing needs. While much of this will certainly be re-revised as it will likely soon become a function of massive QE2 driven demand than supply, as of today, the Treasury is expecting that it will have $362 billion in net marketable issuance in the current quarter (as cash balances decline by $10 billion), although the kicker is next quarter, where the Treasury now anticipates the issuance of $431 billion, in addition to a cash decline of $30 billion, implying over a $460 billion change in net debt levels. Now for some back of the envelope math: with the UST having already issued $97 billion in debt in October (per DTS), it means that Geithner anticipates issuing $265 billion in November and December. It also means that $431 billion has to be issued in January through March of 2011. Furthermore, as the most recent cash balance was $18.4 billion (ex SFP), this number will need to be replenished to $70 billion by March 2011, implying the need of another ~$52 billion in incremental debt funding. Altogether this means that roughly $750 billion in additional debt will have to be issued over the next 5 months. And since the most recent number of total debt subject to the ceiling was $13.609 trillion, adding $748 billion to this number results in $14.357 trillion. Which just happens to be $63 billion more than the recently revised debt ceiling of $14.294 trillion. Thus the US debt ceiling will have to be revised higher one more time, most likely in February or March of 2011.

We say likely, because as QE2 will suck up about $100 billion in Treasury issuance per month, and thus result in virtually zero net new issuance, the Treasury will likely be forced to emit even more Treasuries to make sure the entire curve does not pancake and lead to a collapse for the banks whose 6 Month - 30 Year funding carry trade goes extinct.

The full revised debt issuance schedule is presented below:

To say that the UST's Q1 issuance was greater than expectations, is an understatement. Even Goldman was surprised by the funding needs in Q1, and has some interesting reads on what it may mean for taxation assumptions:

Treasury cuts Q4 net borrowing estimate from $380bn to $362bn vs. GS $330bn.

Treasury estimates Q1 net borrowing at $431bn vs. GS $350bn.

1. The Treasury trimmed its Q4 borrowing estimate by only $18bn, much less than the $50bn we had estimated.  However, most of the difference is accountable to a higher cash balance in Treasury’s figures relative to our own—$300bn vs. $275bn.  Hence, no major surprise here.

2. The same cannot be said for the first quarter, where the Treasury estimates a $431bn net borrowing need despite a $30bn assumed reduction in its cash balance.  We have been estimating $350bn with no change in the cash balance, a difference of more than $100bn in underlying financing needs (i.e., net of changes in the cash balance).  While the Treasury does not amplify on the assumptions underlying its estimates, one possible explanation is that the agency does not want to assume the extension of any tax cuts until legislation actually passes.  We, on the other hand, are assuming an extension along the lines long proposed by the Obama administration.

3. If the Treasury’s figures are right, they would imply that the agency has less room than we had previously thought to reduce the sizes of coupon auctions, though we are reluctant to push this interpretation too strongly given the sizable uncertainties that exist on these estimates.

In other words, as we have been saying all along, Geithner will be forced to come up with greater issuance sources soon, due to both the funding needs, and the QE2 demand pull.

As for the debt ceiling, it may soon be the case that raising it will not be the trivial formality for Congress it has traditionally been, especially once Republicans retake Congress which is now a given.

We read the following in Dow Jones:

A senior House Republican said Friday he would push for a direct up or down vote to increase the federal government's borrowing capacity early next year.

Rep. Eric Cantor (R., Va.), who is almost certain to become the Majority Leader if the Republicans retake the House in the mid-term elections on Tuesday, said he wouldn't continue the recent history of using parliamentary procedure to disguise the vote's occurrence.

Cantor was speaking on a conference call alongside Robert Hurt, a Republican state senator, who is contesting Virginia's 5th District against freshman Rep. Tom Perriello (D., Va.).

Cantor said he hoped Republicans would be able to establish a track record on fiscal discipline before a vote to increase the total amount of debt the federal government is legally allowed to carry on its books.

The current federal debt total stands at around $13.7 trillion. The debt ceiling was lifted by Congress early in 2009 to $14.1 trillion. That probably sets up a need to increase that limit further in the first two months of 2011.

Democrats routinely used arcane parliamentary procedure to allow some of their members to disguise their vote on increasing the debt ceiling.

Even though the vote itself is largely a formality because the funds have already been spent by the Treasury, Democrats feared Republicans would seek to use a vote in favor of increasing the total the federal government can borrow as a political weapon. Next year, if the polls are correct and the Republicans take back control of the House, the shoe will be on the other foot and it will be up to them to lift the debt ceiling.

This could be an especially tough vote for Republicans who have attempted to make the midterm elections a referendum on Democratic spending in many parts of the country.

In the extreme unliklihood that Congress failed to increase the debt ceiling, the U.S. could be forced to default on its debt obligations. In that extreme scenario, global markets would be roiled, the value of the dollar could plummet and the U.S. economy abruptly pushed back into recession.

Ah, the sad reality of just how pathetic debt ceiling raise-to-debt ceiling raise US financial existence has become...

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SpeakerFTD's picture

Thus the US debt ceiling will have to be revised higher one more time, most likely in February or March of 2011.

Or not.  Time to find out if these Tea Partiers we are electing are worth a damn.

SpeakerFTD's picture

Fine, then stop using my avatar.

Sean7k's picture


In addition- bankruptcy bitchez! Bring on the collapse of the USA.

knukles's picture

BTW and just for fun.
There is no indenture relating to treasuries, and thus, no provision for (an event of) cross default. 

How'd 'ya like them for coupon payments, eh?

Well, at least some of the young boogger pickers on some sophisticated trading desk somewhere can win a bar bet over that one.  And you don't need to call corporate counsel, neither.  The info does not exist, no written process or procedures, no documentation, nada, nothing to reference.  Go tell your head treasury trader!  Quick, make a splash!

God, what great political theater this shall bring! 
Shirley, stock up on popcorn! 

justbuygold's picture

   $750 BB over 5 months =  $5 BB per day !   WOW !

chet's picture

The GOP will raise the debt ceiling, and very likely through parliamentary procedure, despite what Cantor says.

Those of you who think this election is really going to change something are in for a heck of a disappointment.

Bugman82's picture

I agree 100%.  Just watch videos like: which discuss this political nonsence.

The conservatives will just blame raising the ceiling on "oh, the troops need us".  The truth of the matter is the talk of cutting government down is hogwash.  They will have to start with the big pieces of the pie (medicare, social security, and other entitlement programs).  Austerity meassures would be instant political suicide.  Reagan increased government spending, Bush increased government spending.  It is giving people money that gets their votes.  It's a cycle that literally can't end.

Plus we have this wonderful little study:   Sorry, people don't get and never will until history looks back on our country decades in the future.

Hedge Jobs's picture

there is no "debt ceiling" anymore it is now called the "debt stratosphere" and treasury have a joint venture with NASA to work out how they can raise the "debt stratoshpere" to the "debt thermoshere" by 2011.

Assetman's picture

You're right... which likely means that the debt ceiling will likely be increased (significantly)... and passed... before the holiday recess THIS year...

That, of course, would be a fitting "parting gift" from those same congressmen who just couldn't keep their grubby little fingers out of the cookie jar.

chet's picture

Maybe, but why would the Dems hand that gift to the GOP, while making themselves look bad in the process?  From the Dem standpoint, it seems better to wait and watch the GOP squirm in March...

Turd Ferguson's picture

Chet, you are absolutely correct. The debt ceiling will be raised by the Republican Congress.

Any representative that says he will not support the raise is lying. Maybe, the raise will only pass 220-215 but it will pass, just like f-ing health care.

Assetman's picture

Well... if you want to make it into a GOP vs. Dem issue (which it really isn't), the GOP can actually gain points on gaining passage of a higher debt ceiling -- with serious strings attached on spending limits.  This would put Obama's 2011 budget -- if he even puts on out-- as a "dead on arrival" item.

There is likely to be HUGE turnover of elected officials in BOTH parties, however-- and the realization that voters see both parties as the same corrupt group will likely start sinking in.  If I were a party leader (in either party), I'd rather have my exiting group of goons take the hit on an unpopular vote than to bring it up next year, when something actually worse could happen if no action is taken.

You may be right, though-- and it may well be the strategy the Dems adopt-- but they already look butt-ugly bad.  I don't think for a minute most voters will look at the Dems as a bastion of fiscal sanity-- even if they manage to paint the GOP in a proverbial corner.

chet's picture

I agree with your broad points.  I just think that Congress has reached the point where either party will do whatever they can to screw the other, even for the most petty and fleeting political gain.

I truly have given up on Congress.  In it's current incarnation, it is utterly incapable of solving the country's problems.  I believe it is more plausible that the entire republic will come down in smoking rubble, than it is that Congress will pass meaningful fixes to entitlements or the military.

Joe Davola's picture

The playbook already includes this scenario:


As I commented in an earlier thread, there is a reason for the continuing resolutions:


Never let a crisis...

Assetman's picture

Thanks for the link... I remember the "good ol' days" when a significant chunk of the Federal Government was shut down.  Boy, did Newt Gingrich mess up on that one.

Given how Fed government salaries have outpaced the private sector over the past several years, I wonder if the such as stand-off would result in the same outcome?  Problem is, the "essential" non-discretionary programs take up almost all the pie now...

Joe Davola's picture

Good point on the salary ratio to J6P - it might not play as well now, particularly given how inept 1600 PA is these days.

DoChenRollingBearing's picture

@SpeakerFTD.  This will show us if the Rs, even new Tea Party ones, are worth anything.

My own view is the Rs are a little better than the Ds.  Different enough?  We will soon see.

Worth a damn, yes indeed, we will soon see.

merehuman's picture

Tha ball players may be exchanged, owners stay the same. Owners rule.

Hello Rothchild, Bildeburg etc. Fucking elitists rule, not the dems or pugs!

Whatever is good for banks will happen.

Unless some of you think of a sudden our politicos will turn over a new leaf?

Haha. hahahha! We may all long to be in Peru soon. Lol . Its NOT funny, but the other choice was tears.

Shameful's picture

Sadly yes, just another management team.

One way to put it into perspective is all of us are descended from migrants. Might be thousands of years back but people move, mainly to try to get a better life or escape problems. So that too will remain the same. The more things change the more they stay the same. Truly nothing new under the sun.

DaveyJones's picture

they stay the same but sometimes the problems are more "compounded" than others

Joe Davola's picture

As usual the R's (D's) who are in tight districts will be given the freedom to vote against (for).

Ivanovich's picture

Will be an interesting test for all those new "conservative" republicans.  See if they live up to their word.

centerline's picture

Can't. This puppy is on autopilot now.  The self-destruct button is about all that remains.

Cleanclog's picture

GOP won't NOT raise the debt ceiling but wait for the most incredible excuses and finger pointing "they did its".  Unless the GOP doesn't actually capture the House tomorrow.  Then watch the Dems go crazy in avoidance of owning that decision without accepting fault for the past 10 years, not just past 2 years, or economic incompetence in fiscal action (I really hesitate to call it policy).


Something Wicked This Way Comes's picture

Not suprised by gov't check kiting and counterfeit black ops. I just want me Timmy to put on the gloves. Never met a tax cheating weasel I couldn't whip.

SteveNYC's picture

Geithner's head as a speed-bag......I'd buy that for a dollar!

xenophobe51's picture

Better act fast at that price. Inflation is a bitch.

Tortfeasor's picture

Not going to see this reported today.  The only finance stories allowed are b.s. predictions on when broke companies plan on paying back their government loans (see, e.g. AIG and GM)

Pre-election stories MUST reflect well on incumbents.  

Azannoth's picture

I see a Revolution by March 2011

Turd Ferguson's picture

probably not but the election of 2012 is going to be far more interesting than this one

DoChenRollingBearing's picture


2012 could be the most interesting election ever (though two years may change that).

Gridlock from now until then will be interesting as well.

tmosley's picture

I'm looking for the emergence of a major third party in 2012.  I'm thinking it will either be the Libertarian party, or the Tea Party will form a formal third party.

The only way it can be avoided is if the Republicans step up to the plate and do the right thing.  The public won't give the Democrats another chance, and the Republicans are damn lucky to get this one, but they are likely to squander it.  If they do manage to do the right thing, then they have a chance at forming a Right-libertarian coalition that will keep them in power for decades, so long as they don't fall back into the stupid partisan crap, abortion hate, Jesus based thuggery, and warmongering.  I'd give this a less than 1% chance of happening.  The Rep. leadership can't see the bullet headed for their forehead.

Sudden Debt's picture


plocequ1's picture

YEA BABY, BRING ON MR DEATH!! Ill kick his ass

Best Satan in Town's picture

Just watched that TZ episode in, of all places, my American Literature course.

Rainman's picture

This ain't workin'. That's the way you do it. Money for nuthin' and your chicks for free.....!!

johngaltfla's picture

Thankfully, Ben is a buyer of crap. And creator. And shoveler. And stepping in it. And sharing it. And socializing it. And reeking of it. And dropping it from helicopters. And......

Waterfallsparkles's picture

Yep, the FED is a shit shoveler.  They keep shoveling shit on their balance sheet trying to pump the market so the shit smells better and just maybe someone will buy it.

Calculated_Risk's picture

He is the alpha and the omega...

god's work after all!

hugolp's picture

And this is the real reason QE2 will happen, no matter where it sends the prices of food and raw materials.

SheepDog-One's picture

What do you mean 'QE2 will therefore happen'? How so? $100 billion per month for bonds? $1 Trillion all at once? $4 trillion? What IS QE2?

Turd Ferguson's picture

I'm pretty sure it will be $100B/mo for 12 months.

What HellyBenny doesn't realize (but maybe he does) is that once you start, you can't stop. No way we get to Nov 2011 and the Fed just stops. They will be forced to continue. The market won't allow them to stop without total disruption.