Treasury Cuts Its Borrowing Need Estimate By Half, To Suspend State, Local Gov't Funding Due To Upcoming Debt Ceiling Breach

Tyler Durden's picture

After announcing it issued $265 billion in marketable debt to fund $445 billion in financing needs (including the wind down of $195 billion in SFP cash management bills), the Treasury has just announced it expects to need just $142 billion in Treasury issuance in the April-June quarter. This ridiculous amount is more than 50% lower than the previous estimate of $299 billion disclosed on January 31, and confirms that the Treasury is now scrambling to appear prudent to Congress with its debt needs. That it will need far, far more at the end of the day is beyond question. The reason for the over 50% plunge in borrowing needs "largely relates to higher receipts and lower outlays." Well, that's great - perhaps the treasury can explain why its preliminary cash need for the July-Sept quarter are $405 billion (compared to $396 billion a year earlier). Altogether, this advance estimate is ludicrous and shows that Geithner has totally lost a grip on reality. Yet on the other hand, in order to make his point, the market needs to crash (just like the May 6th crash killed any hope of an Audit the Fed bill). Looks like risk is duly noting its duty to act appropriately when record 2011 bonuses are at stake.

The sources and uses sheet is presented below:

And the full text of the Treasury's borowing estimate announcement:

 

The U.S. Department of the
Treasury today announced its current estimates of net marketable
borrowing for the April – June 2011 and the July – September 2011
quarters:

  • During
    the April – June 2011 quarter, Treasury expects to issue $142 billion
    in net marketable debt, assuming an end-of-June cash balance of $95
    billion, which includes $5 billion for the Supplementary Financing
    Program (SFP).  This borrowing estimate is $156 billion lower than announced in January 2011.  The decrease in borrowing largely relates to higher receipts and lower outlays.
  • During
    the July – September 2011 quarter, Treasury expects to issue $405
    billion in net marketable debt, assuming an end-of-September cash
    balance of $115 billion, which includes $5 billion for the SFP.
During the January – March 2011 quarter,
Treasury issued $265 billion in net marketable debt, and ended the
quarter with a cash balance of $118 billion, of which $5 billion was
attributable to the SFP.  In January 2011, Treasury
estimated $237 billion in net marketable borrowing and assumed an
end-of-March cash balance of $65 billion, which included an SFP balance
of $5 billion.  The higher cash balance resulted primarily from higher receipts and lower outlays.
And concurrently with the release of the revised borrowing needs, Tim Geithner sent another letter to Boehner reminding him that since the debt limit will be hit at the very latest by May 16, it is now time for the "or else" part. Casualty #1: state and local government debt: "On Friday, May 6, Treasury will suspend until further notice the
issuance of State and Local Government Series (SLGS) Treasury
securities.  SLGS are special-purpose Treasury securities issued to
states and municipalities to help them conform to tax rules that
restrict the investment of proceeds from the issuance of tax-exempt
bonds.
[This action] will deprive state
and local governments of an important tool to manage their outstanding
debt expenses."
The Honorable John A. Boehner
Speaker of the House
U.S. House of Representatives
Washington, DC  20515
 
Dear Mr. Speaker:
 
Further to my letters of January 6 and April 4, 2011, I am writing
again to Members of Congress regarding the importance of protecting
America’s creditworthiness by enacting an increase in the statutory debt
limit.  This letter is to inform you of the extraordinary measures the
Treasury Department will begin taking this week in anticipation of the
date the debt limit will be reached, and to provide an updated estimate
of the Department’s ability to use these measures to preserve lawful
borrowing authority without exceeding the debt limit.  In my last
letter, I described in detail the set of extraordinary measures Treasury
is prepared to take in order to extend temporarily our ability to meet
the Nation’s obligations if an increase is not enacted by May 16, when
we estimate the limit will be reached.  Because it appears that Congress
will not act by May 16, it will be necessary for the Treasury to begin
implementing these extraordinary measures this week.
 
On Friday, May 6, Treasury will suspend until further notice the
issuance of State and Local Government Series (SLGS) Treasury
securities.  SLGS are special-purpose Treasury securities issued to
states and municipalities to help them conform to tax rules that
restrict the investment of proceeds from the issuance of tax-exempt
bonds.
  These bonds are used to fund a variety of expenditures,
including infrastructure improvements across the country.  When Treasury
issues SLGS, they count against the debt limit.  Because the United
States is very close to reaching the debt limit, Treasury must take this
action now.  However, it is not without costs; it will deprive state
and local governments of an important tool to manage their outstanding
debt expenses.
 
If Congress does not increase the debt limit by May 16, the
Treasury Department will be forced to employ further extraordinary
measures on that date to provide headroom under the limit.  Therefore,
on May 16, I will (1) declare a “debt issuance suspension period” under
the statute governing the Civil Service Retirement and Disability Fund,
permitting us to redeem existing Treasury securities held by that fund
as investments, and to suspend issuance of new Treasury securities to
that fund as investments and (2) suspend the daily reinvestment of
Treasury securities held as investments by the Government Securities
Investment Fund of the Federal Employees’ Retirement System Thrift
Savings Plan.  (Under the law, Federal employees are protected by a
requirement that both funds be made whole after a debt limit increase is
enacted.)
 
In addition, it may become necessary, at a time to be determined,
to suspend the daily reinvestment of Treasury securities held as
investments by the Exchange Stabilization Fund.
 
Largely as a result of stronger than expected tax receipts, we now
estimate that these extraordinary measures would allow the Treasury to
extend borrowing authority until about August 2, 2011, approximately
three weeks later than was forecast last month.  This is a projection
and is subject to change based on government receipts and other factors
during the next three months.  While this updated estimate in theory
gives Congress additional time to complete work on increasing the debt
limit, I caution strongly against delaying action.  The economy is still
in the early stages of recovery, and financial markets here and around
the world are watching the United States closely.  Delaying action risks
a loss of confidence and accompanying negative economic effects.
 
As I have written previously, default by the United States on its
obligations would have a catastrophic economic impact that would be felt
by every American.  A broad range of government payments would have to
be stopped, limited or delayed, including military salaries, Social
Security and Medicare payments, interest on debt, unemployment benefits
and tax refunds.  A default on the Nation’s legal obligations would lead
to sharply higher interest rates and borrowing costs, declining home
values and reduced retirement savings for Americans.  Default would
cause a financial crisis potentially more severe than the crisis from
which we are only now starting to recover.
 
I want to emphasize that, contrary to a common misperception, the
debt limit has never served as a constraint on future spending, nor
would refusing to increase the debt limit reduce the obligations the
country has already incurred.  Increasing the debt limit merely permits
payment of obligations Congress has already approved to citizens,
servicemen and women, businesses and investors.  In order to honor those
obligations, increasing the debt limit is unavoidable.  In fact, under
both the President’s budget and the House-passed Republican budget, the
debt limit would need to be raised by roughly the same amount in order
to fund the government through the end of FY2012.
 
Protecting America’s creditworthiness and our economic leadership
position in the world is a duty to our country that is shared by
policymakers in both parties, in the Legislative Branch as well as the
Executive Branch.  Therefore any attempt by either party to use the full
faith and credit of the United States as a bargaining chip to advance
partisan policy agendas would be irresponsible.
 
President Obama is strongly committed to restoring fiscal
responsibility to our government, and he has put forward a specific
framework and set in motion a process to work with both parties to
accomplish this critically important objective.  As that process moves
forward, I again urge Congress to act to protect America’s economic
interests by approving an increase in the debt limit as soon as
possible.
 
Sincerely,
 
 
 
Timothy F. Geithner
 
Identical letter sent to:
            The Honorable Nancy Pelosi, House Democratic Leader
            The Honorable Harry Reid, Senate Democratic Leader
            The Honorable Mitch McConnell, Senate Republican Leader
 
cc:        The Honorable Dave Camp, Chairman, House Committee on Ways and Means
            The Honorable Sander M. Levin, Ranking Member, House Committee on Ways and Means
            The Honorable Max Baucus, Chairman, Senate Committee on Finance
            The Honorable Orrin Hatch, Ranking Member, Senate Committee on Finance
            All other Members of the 112th Congress
Posted in:
 Debt Limit

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carbonmutant's picture

Paging Meredith Whitney...

hedgeless_horseman's picture

...it will deprive state and local governments of an important tool to manage their outstanding debt expenses.

Congress needs to subpoena the traitor that wrote this, too!

Bastiat's picture

Why?  SLGS are custom issued securites to allow advance refunding of muni bonds. The municipality sells new bonds to get cash which it pays the US Trasury cash for these securities (SLGS).  The SLGS are then used to fund an escrow to make the payments on the refunded (defeased) bonds including the principal and premium, if any, at the first call date.  The statement you object to is true and fair.

Such refundings take place in the vast majority of cases in a falling rate environment in order to get existing higher yeilding bonds off the books, replacing it with lower yielding, new bonds.   Same idea as refunding your mortgage but without the ability to call in the mortgage until a certain date.

Not many of these are going on these days as rate are flat and the escrows are inefficient -- ie. the yield on the SLGS or, alternatively market UST paper, are much lower than the interest rates on any new issued refunding bonds.

 

SilverRhino's picture

Yet another building block in the manipulation of PM's ... in 6 months this week will be looked at like a giant speed bump on the way up.

 

km4's picture

Geithner wants to protect America’s creditworthiness ;)

 

bankonzhongguo's picture

Its really just goes to show the absolute contempt the federal government has for the States and that they will do whatever they can to usurp State's rights and power.

Let the Feds abandon the States. 

We will be better off without those debt issuing free lunch whores.

Misean's picture

I think Timmah! is confuzzled...

Mr Lennon Hendrix's picture

"Timmah!"  Timmah quipped with a smile on his face as he played his 8 bit PPT video game on his Nintendo.  "Timmah, Timmah, Timmah!"

He was enjoying his morning Jolt soda as he took the market for a ride.  He was pleased to sell all the miners he had accumulated during the Fall of '08.  He wanted to show all those gold bugs who was boss.

"Timmah, bitchez!"  He drooled as he slurped his Jolt from a beer helmet.  Just then BS Bernanke walked into the room.

"Good work this morning Timmah.  We are going to use the proceeds from SLW to buy AMZN.  Got it?"

"Timmah!"

"And make sure to cut funding to everything except US."  BS licked his chops.  "Next we will cut spending to SS and then once the dollar hits DXY 66 we will steal the pensions."  He made a weird face as he began to talk to himself.  "Oh, you are going to move out of the dollar?  But who will protect the world from the bad guys?  Who will fight al qaeda?"  He laughed to himself and pulled a cigar out of his coat pocket.  "I will be in my den.  Daddy has some dollars to print."

Timmah didn't hear him.  He was busy pulling buy bids and selling the moves.  Bernanke walked into his den and closed the door.

1100-TACTICAL-12's picture

Smoke & mirrors, shell game. But sufficient to not startle the sleeping sheep..

NOTW777's picture

good grief - the jp morgan guy just said on national tv that bin ladens death with give americans new confidence in their government and in particular - to fix the economy

NOTW777's picture

surreal - sorry, but they look like bused in actors

who would cheer like that?

NOTW777's picture

obama and holder would like to remind everyone there is no "war on terror" and no "war" in libya

Bicycle Repairman's picture

This is why Obama's speech was delayed.  The buses hadn't arrived on time.

angmikey's picture

No need to worry about the people hearing that, they are sleeping well now that the mastermind of all things evil has been terminated. As a plus, JPM can continue doing what it does best.....hey where is my wallet!

TruthInSunshine's picture

Good.

Shut it down.

Lay millions off.

I am serious.

It's the best thing for the Republic in the long term. It will remind people that government doesn't produce much of value, and certainly what it does produce is done at an incredibly inefficient rate and cost, and that more often than not, government gets in the way of and impedes the market and the choices and freedoms of average Americans, while it picks their pockets to fund the kleptocracy of Crony Capitalism.

And if we're really serious about returning to liberty and opportunity based on merit, send that SEAL team in to the lair of The Bernank to neuralize forever the threat that is the Federal Reserve Bank.

nmewn's picture

Exactamundo!

"Therefore, on May 16, I will (1) declare a “debt issuance suspension period” under the statute governing the Civil Service Retirement and Disability Fund, permitting us to redeem existing Treasury securities held by that fund as investments, and to suspend issuance of new Treasury securities to that fund as investments and (2) suspend the daily reinvestment of Treasury securities held as investments by the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan.  >>>(Under the law, Federal employees are protected by a requirement that both funds be >>>made whole<<< after a debt limit increase is enacted.)<<<

OMG!!!...not the dreaded "debt issuance suspension period"!!!

Hey honey come here, just look at this pile of bills...we're going to have stop using those damn credit cards, a kind of "debt issuance suspension period"...ROTFL!

Duuude's picture

 

Paging Chuck Jones...

Paging Chuck Jones...

We have a call for you from Rod...

 

Cleanclog's picture

  In order to honor those obligations, increasing the debt limit is unavoidable.  

But not honoring those obligations is actually what some people want.  Then what Timmy?

medicalstudent's picture

less than they expected... to borrow.

 

you know, as in interest payments are now not part of the debt..

 

did they update all those accounting textbooks yet.

Cleanclog's picture

Good point!  They will need to make interest payments or they will actually default - so just not paying bills to employees and vendors is what they'll do first.  Do not provide services or goods to the US of A until debt ceiling raised. Federal employees can take a page from California state employees.

Blagio's picture

It's called living paycheck to paycheck. Deal with it Timmay!

Dr. Richard Head's picture

True, but instead of stalling on the elctric bill so the gas gets paid during the winter, Timmay wants to rob Peter to pay Lloyd.  Cock gobblers.

trav7777's picture

where are the silver pimps today?  PMs getting crushed. 

penisouraus erecti's picture

++

Nice opportunity again as it dips below 44 just before the close

Pegasus Muse's picture

Trav and other PM-bashing irritants only show up on down days.   Boringly predictable.

As TF pointed out so well the other day:

"I wish to remind you again that none of the fundamentals have changed. In fact, they've only moved further in our favor.

Has the U.S. government discovered spending restraint and is moving toward a balanced budget?

Are California, Illinois, New York, Michigan and about 30 other states suddenly solvent and prosperous?

Did the TBTF banks suddenly become solvent, their CDOs and loan portfolios truly valued at par?

Has the Comex opened a hidden vault containing 1,000,000,000 ounces of physical silver, tested and ready for immediate delivery?

Have peace, love and harmony suddenly broken out all over the MENA region as well as the entire world?

If you answered NO to any (all) of these questions, why do you care what the fiat prices of silver and gold are this morning? The prices may not recover to new highs today or even this week but recover they will. Sit back, relax, gaze at your physical holdings and smile."

http://tfmetalsreport.blogspot.com/2011/05/was-it-really-just-week-ago-20.html 

I bought more ounces of Ag this morning on the Bankster orchestrated slam-down.  Thanks JPM.  Thanks Blythe.  Thanks Jaime. Appreciate the discount.

Physical Silver.  No paper for me.  

 

LawsofPhysics's picture

Gold is still at 1556 and silver is at 45.  Oh wait, that is right this is the up is down, down is up bad is good mantra.  Got it.  Just glad I got out of PMs (except physical) in November.

slow_roast's picture

Yeah, because you clearly sold at the top right? 

TruthInSunshine's picture

Gold and silver have already recovered most of last night's raid.

Nice.

Very bullish. Hugely so.

tmosley's picture

Where are the oil pimps?

Oh yeah, where they normally are, being butthurt.

CH1's picture

Puh-leeze... I'm holding till the bag boy at Wal-Mart recommends a mining stock.

StychoKiller's picture

Until I see silver dimes and other coins in my change, I see no reason to bail out!

Mercury's picture

I want to emphasize that, contrary to a common misperception, the debt limit has never served as a constraint on future spending, nor would refusing to increase the debt limit reduce the obligations the country has already incurred.

In other words it's just another silly stage prop (as this letter is) in the never-ending story of self-aggrandizing government expansion.

LawsofPhysics's picture

Awesome.  Fuck the states who can not get their fiscal house in order.  I love it.

falak pema's picture

silver is a fickle queen. My story of ancient egypt said it all...

Cognitive Dissonance's picture

Before you know it they will be checking for loose change behind the sofa cushions at the Fed and Treasury.

"I found a quarter over here Timmy. Will that help?"

TruthInSunshine's picture

The government is rolling out a new security screening device; the Upside Down Citizen Shaker 8000.

It's hit rate of anyone carrying pre-1964 quarters is 100% in elaborate testing.

Cognitive Dissonance's picture

Below is a photo that was smuggled out of the Homeland Security test site of a successful test of the Upside Down Citizen Shaker 8000. It is being manufactured by GE and will be sold to the TSA for $7 million per.

 

TruthInSunshine's picture

Thanks, CD. Very nice, too.

I envision there will be a stainless steel grate underneath the 'pocket content fall area' to collect the valuables, and a sophisticated sorter to separate the coins by denomination and silver/copper/etc. content, too.

StychoKiller's picture

Comes complete with "cattle" prod to get lazy citizens to wrigglin'! :>D

medicalstudent's picture

an ealier arnie gunderson...

 

nahhhh, not risky enough... so he left to study nuclear energy.

 

(reverse osmosis. hepa. polimaster.)

 

 

I Got Worms's picture

Timmah: "Was it minted before 1965?"

NOTW777's picture

re-elect barack hussein obama - go to: cnbc.com for info

for questions or donations contact: john harwood

NOTW777's picture

hilarious - hear that. bill griffeth says it was thought there would be a rally when they caught obama.

falak pema's picture

Why does Meredith have such a bad image with MSM? I find her very courageous and on the button...

StychoKiller's picture

TPTB always shoots the bearer of bad news.

Ruffcut's picture

Holy shit batman.

This is where the rubber meets the road.

This is not going to end well.

Perfect showing how the Hill, of critters, support their sheeples. DC, district of criminals bastards,

Sell the silver and rollover to lead, food and those piddly things.