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