Treasury Continues To Dip Into Retirement Accounts, Prepares To "Take Out" $66 Billion Chunk To Make Room For New Bond Issuance

Today, very quietly, the Treasury released its latest refunding announcement,
in which it disclosed it would issue another $66 billion in 3, 10 and
30 Year notes next week. The irony of course is that the US is and
continues to be at its debt ceiling limit (or just $25 million short of
it), at a total of $14,293,975 million. Furthermore, as was also
disclosed by the Treasury, this gross issuance will also be the net
amount added in marketable debt, as upon settlement on June 15, there will be no redemptions of maturing bonds. Which simply means that the continued "disinvesting" (which is merely a polite word for plundering) from intragovernmental debt, also known as retirement accounts, is about to kick into high gear. As a reminder, the only solution that Geithner
currently has to run the government, at least until August 2 when even
this runs out, is to slowly drain the debt in non-marketable accounts,
in the form of Suspension of G-Fund and ESF reinvestments,
as well as the Redemption and suspension of of CSRDF Investments,
measure which when combined will provide a short-term buffer of $232
billion. Yet for all practical purposes, what is happening is that
retirement accounts are now being seriously plundered, and if the
unthinkable were to happen, and the debt ceiling would not rise, not
only would the US be in technical default, but various retirement funds,
which already are underfunded, would find themselves even more severely
in the Red. As the chart below shows, the total amount of intragovernmental
debt currently outstanding, has dropped to levels last seen in early
April, even as total debt has continued its steadfast move higher. The
scary thing is that by the time August 2 rolls around, the current total
of $4.608 trillion in various Trust Funds, will drop to well about $4.4
trillion, or an implicit 6% underfunding in 2 months merely to keep the
bloated government operating for a few more months.

Of course if everything turns out fine, these disinvestments will be promptly reversed as the Treasury doubles down on its borrowing spree to fund the retirement accounts that currently are being pillaged. For the sake of all government worker retirees, we hope this is the final outcome.

In the meantime, for an explanation of the "disinvestment" process, here a brief primer from Stone McCarthy:

On May 16, Treasury effectively hit the current $14.294 trillion debt ceiling and began employing the tools available to avoid breaching the debt ceiling. Since May 16, the debt subject to the debt limit has been $14.293975 trillion each day, showing that Treasury has $25 million in breathing room under the debt ceiling.

Unfortunately (for geeks like us), it's not completely transparent how Treasury is managing the debt versus the debt limit on a daily basis. In a nutshell, Treasury appears to be disinvesting non-marketable securities on an as-needed basis to maintain that $25 million of breathing room under the ceiling. We do know that Treasury has used three of the tools available: Suspending G-Fund reinvestments, redeeming investments of the Civil Service Retirement and Disability Fund (CSRDF), and suspending new CSRDF investments. In sum, those options use about $147 billion of roughly $264 billion available to Treasury to create room to issue new marketable debt.

Before mid May, we thought Treasury would exhaust available measures to create room under the debt limit on August 1; Treasury expects to run out of room to borrow on August 2. The difference of one day is significant, because Treasury's projection assumes the ability to settle 2-, 5- and 7-year note auctions on August 1.

At this point, we are going to assume that the Treasury has more information than we do, and that those auctions will settle on August 2. We think it's becoming increasingly more important to focus on Treasury cash flows than on debt under the debt limit. The ultimate day of reckoning comes when Treasury runs out of cash, not when it runs out of room to issue new debt. Many in Congress and the press appear to confuse the two, and Treasury hasn't worked that hard to draw a distinction (although Secretary Geithner's last letter to Congressional leaders said that August 2 was the date on which "Treasury projects the borrowing authority of the United States will be exhausted.")

As we noted in a recent Chart of the Day comment, we think Treasury will run out of cash in mid August, assuming that it doesn't put off paying any obligations. Those projections still hold; based on our forecast, Treasury would be able to pay its August 15 coupon interest payment, but might not have enough cash to pay about $9.1 billion in Social Security benefits payments on August 17. Those projections can change a lot in either direction, however, over the next two months, depending mostly on the strength of tax receipts. Also, it's possible that Treasury could raise cash from other sources, including accelerated sales of MBS, although Treasury has made it clear it doesn't want to rely on asset sales to raise cash.

At this point, we do think some sort of deficit reduction deal will emerge from the talks Vice President Biden is holding with members of Congress. It's not likely to be a "grand bargain" along the lines of the proposal from the President's deficit reduction commission, but it will probably be enough to create a vehicle for a debt ceiling increase before Treasury runs out of cash.

That outcome isn't certain -- the two sides remain far apart. Comments from House Majority Leader Eric Cantor over the weekend were telling. On CBC's Face the Nation, Cantor reportedly said the talks have been positive. "Everything is on the table...we've said, as Republicans, we're not going to go for tax increases." Democrats certainly have a different definition of everything being on the table.

Comments

[Arch Duke Ferdinand]

Hail Caesar President Obama/Potus...

http://seenoevilspeaknoevilhearnoevil.blogspot.com/2011/06/hail-caesar-p...

An Open Letter to the Troops: You’re Not Defending Our Freedoms...

http://seenoevilspeaknoevilhearnoevil.blogspot.com/2011/06/open-letter-t...

[Everybodys All ...]

To think people believe Obama, Geithner, and Bernanke are doing a great job with our economy.

[AldoHux_IV]

The sad thing is neither outcome thrown out by the dumbocrats and republicants will bode will for this country long term-- either way we are screwed with these idiots jockeying for their next legislation that will pad their offshore accounts.

[grunk]

Next stop: farm land.

[RobotTrader]

The fate of Western Civilization will be determined by tomorrow's NFP.

Another leg up in stocks?

Or do we collapse in a heap like 2008?

[cosmictrainwreck]

get serious, ya tooool. they've rallied the pukin' "market" on every single bit of "bad" news. why is tomorrow different?

[J in Vegas]

I vote collapse.

[gametracker]

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

by Alan Greenspan

[Solid]

There is a BIG difference between the two parties. You'd have to be an idiot not to see that...just look at how they vote. One is clearly Marxist, and the other not so much.

[gametracker]

they have drinks at the country club together while laughing at how they've deceived you

[Solid]

They are both taking us to the same destination, but the Dems are destroying the country way better than any enemy could.

[jomama]

shirley, you can't be serious.

POP QUIZ: WHO SPONSORS BOTH SIDES OF AISLE?

[gametracker]

GS, JP, C

what do I win?

[gametracker]

but the Dems are destroying the country way better than any enemy could.

makes you wonder who the "enemy" really is

[mynhair]

Goobermint leeches deserve their turn.

[RobotTrader]

General Jim's "Formula" is going to get tested big time tomorrow morning.

Will gold crash if stocks crash on a bad report???

Will TPTB simply let the market crash out and clear like 2008 so they can pick up more "bargains"?

[GOSPLAN HERO]

Robo,

Do you hold precious paper FRNs for safety?

[jomama]

inquiring minds want to know.

[cranky-old-geezer]

Will gold crash  ...?

Let's hope so. 

BTFD ...physical obviously.

RT will smile all the way to S&P 10,000.

But those profits won't buy a loaf of bread.

[GOSPLAN HERO]

The Jubille Year is Forthcoming!

Debt relief via hyperinflation.

Got PM?

[jomama]

i think you meant jubilee? 

and no, jubilee isn't hyperinflation.

[Arkadaba]

Giving up at least temporarily:

http://www.thejohnnycashproject.com/

[tarsubil]

Let's see if this goes viral. Government retirees have a lot of time on their hands, fuck, government employees have a lot of time on their hands. This article may just get spread around a little.

[cosmictrainwreck]

so...uh...this is bullish for Treasuries? crash stocks...T-Bills to the moon

[GOSPLAN HERO]

Bonnie Blue Flag

We are a band of brothers and native to the soil
Fighting for our Liberty, With treasure, blood and toil
And when our rights were threatened, the cry rose near and far
Hurrah for the Bonnie Blue Flag that bears a single star!

Chorus:
Hurrah! Hurrah!
For Southern rights, hurrah!
Hurrah for the Bonnie Blue Flag that bears a single star.

As long as the Union was faithful to her trust
Like friends and like brethren, kind were we, and just
But now, when Northern treachery attempts our rights to mar
We hoist on high the Bonnie Blue Flag that bears a single star.

Chorus

First gallant South Carolina nobly made the stand
Then came Alabama and took her by the hand
Next, quickly Mississippi, Georgia, and Florida
All raised on high the Bonnie Blue Flag that bears a single star.

Chorus

Ye men of valor gather round the banner of the right
Texas and fair Louisiana join us in the fight
Davis, our loved President, and Stephens statesmen rare
Now rally round the Bonnie Blue Flag that bears a single star.

Chorus

Now here's to brave Virginia, the old Dominion State,
With the young Confederacy at last has sealed her fate,
And spurred by her example, now other states prepare
To hoist high the bonnie blue flag that bears a single star.

Chorus

Then cheer, boys, cheer, raise a joyous shout
For Arkansas and North Carolina now have both gone out,
And let another rousing cheer for Tennessee be given,
The single star of the Bonnie Blue Flag has grown to be eleven.

Chorus

Then here's to our Confederacy, strong we are and brave,
Like patriots of old we'll fight, our heritage to save;
And rather than submit to shame, to die we would prefer,
So cheer for the Bonnie Blue Flag that bears a single star.

[faithfulwatchman]

I'm a Government retired worker. You know, in 2006 I had a stroke. I returned to work, took a downgrade, and in 2008 I suffered my second stroke. I know this sounds really insane but they are probably the best things that happened to me (after my God, my wife, and my children).

For one, I was able to retire and withdraw my G-Fund, which I promply cashed out and invested in Silver (The 30% penalty for cashing out was/is compensated by far by my investment of the funds in Precious Metals). I've paid down my debt and currently preparing for the coming financial crash.

I would not suggest for any one to travel the road that I was forced to take. Each of us are at crossroads. Some will recognize the signs and exit accordingly. I call it the G.O.O.D. (Get out of Dodge) response. Others, will find themselves trying to pack every worldly possession and getting caught holding all the bags.

Still, others will fail to respond to the gravity of the times and will succumb to the will of their new masters (which is happening now).

I do not see myself a conspiracy theorist by nature yet the false flag/black swan events are quickly approaching and the destruction of our financials is apparent.

Preparing for your own protection, both financially, physically, and spiritually should be everyone's priority (I'm learning this lesson the hard way). Now is the time to organize your family and neighbors. Plan for the inevitable, but always pray for positive outcomes.

Each of us are responsible for ourselves, our friends, and our families. In the end, these are the only things  that truly matter. Remember life itself is "transitory" so don't lose your way.

Peace to all.

[longorshort]

Sounds to me you need to work on your health house more than your financial one.  Maybee some more Dr Oz blogs. Be careful with all the bubbles forming in stocks and commodities. It scares the shit out of me when I see high end jewelry stores acting like a pawn shop buying gold and hanging very large cheesy signs outfront. I am not your a financial advisor and this is for enterainment only. All the best to you...

[robertocarlos]

The city owes me 2400 a year in retirement pay starting in late 2012. I really need that money.

[Hook Line and S...]

I wonder how this article in particular is affecting the worker satisfaction and overall morale of .gov paid disinfo agents...

[Seymour Butt]

This concept is now new. Right now it "only" affects federal employee accounts, but not for long. 

This video from 2008-9 gives you an insight:

http://www.youtube.com/watch?v=kGfdGaqQyAk

[CEOoftheSOFA]

It's interesting to see their priorities.  Robbing employees pension funds and social security payments comes before missing a payment to Halliburton or the IMF.

[ivars]

Gold short term bubble (July-October) is coming closer :

http://saposjoint.net/Forum/viewtopic.php?f=14&t=2626&start=420#p32823

[Jimmy Bora]

THIS IS A MUST WATCH VIDEO

http://www.marketskeptics.com/2011/06/the-esf-and-its-history.html

ESF = Exchange Stabilization Fund

http://en.wikipedia.org/wiki/Exchange_Stabilization_Fund

AND THESE VIDEOs TOO!!!!

http://www.marketskeptics.com/2011/04/aigfps-massive-short-position-in-commodities-which-now-belongs-to-the-government.html

http://www.marketskeptics.com/2011/04/federal-reserve-is-selling-default-insurance-put-options-on-treasury-bonds-to-drive-down-yields.html

http://www.marketskeptics.com/2011/04/what-is-an-open-ended-fixed-price-mutual-put.html

http://www.marketskeptics.com/2011/04/government-financial-innovation-caused-2008-financial-crisis.html

GOT PHYSICAL PRECIOUS METALS AND OWN LANDPROPERTIES RIGHT NOW!

AND "THE INSIDE JOB" IS ALSO A MUST WATCH DOCUMENTARY

http://www.sonyclassics.com/insidejob/

SPREAD THE KNOWLEDGE NOW.

KNOWLEDGE IS THE PORTAL TO THE REAL FREEDOM.

PEACE BROTHERS!!!

[ak_khanna]

The politician­­­­­s and the Federal Reserve are only working for the bankers and make rules only to help those who are useful to them.

They bail out the bankers and the rich corporatio­­­­­ns (who should not be in business because of their incompeten­­­­­cies) without even changing their previous management because they fund the election campaigns and also place them in their organisati­­­­­ons at exorbitant salaries once they leave office. This class alongwith the rich individual­­­­­s pay the minimum amount of tax while getting the maximum benefit of the tax collected from the rest of the population in the form of bailouts.

The politician­­­­­s make promises to unions and pay them salaries which the employees in the private sector can only dream of in return for votes which would get them elected.

Th­e too big to fail bunch of banksters can get away with murder, fraud, coercian, harrasseme­­­­­­­­nt of the general public and any other illegal activity under the sun because they have a lot of influence on the political class, the rule makers and the rule enforcers due to their enormous purchasing power. So irrespecti­­­­­­­­­­­­­­­­­­­­­­­v­­e of the position in the government­­­­­­­­­­­­­­­­­­­­­­­, everyone works for their benefit. 

http://www­.marketora­cle.co.uk/­Article245­81.html

[overmedicatedun...]

PM's and oil the spring is being held down, they want us out of PM's but too many know the game..expecting an explosion, trying to time the bottom hope I can get in very soon.

Those who blame voters for the elite pols in office..remember : selected not elected..it matters not who votes, only who counts the votes..ala a criminal pol of times past.

The people are real, not numbers not statistics

change is coming.

[citta vritti]

about time the government started behaving like normal people, drawing down on retirement accounts to pay for current spending

[cranky-old-geezer]

Treasury Continues To Dip Into [Federal] Retirement Accounts

Couldn't happen to a nicer bunch of people :)