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Such a Deal
Such a Deal
Courtesy of Lee Adler of the Wall Street Examiner
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So they made a deal. Let’s assume for just a minute that they actually can corral enough votes in both houses to pass it with the votes of the “moderates” of both parties within the next couple of days. (Update: House Passes Debt Ceiling Vote.) That would be when the real trouble starts– dealing with the nuts and bolts of the fact that the US Government would still need to raise a whole lot of cash fast, in a market without Fed support (for the moment anyway), and where the world, its central banks in particular, are likely to be a whole let less pleasantly disposed toward lending the US Government countless billions every couple of weeks.
The New Yawk Times posted a nice time line of the government’s expected revenues and outlays over the next few days, estimating where the Treasury would run out of cash. It’s not perfect. I found a few mistakes right off the bat, but with it being 11 PM on a Sunday night, the chart is good enough for my purposes. Gotta sleep some time.
Here’s what they left out. The Treasury had $51.6 billion cash on Thursday, which is the last available Daily Treasury Statement. On Friday, based on last year, they disbursed around $25 billion, leaving $31 billion in the till, but they also settled $8 billion in new debt, bringing the cash balance to $39 billion. On Monday, they will issue a net of $43 billion in new debt, bringing the cash balance to $82 billion, less payments of around $27 billion. So at the start of the Times’s chart, the government would have somewhere around $57 billion on hand. If the Times’s figures were right, then the government would have enough cash to make it to August 11. However, the NYT does not appear to include a required CMB payoff on Tuesday of $12 billion. That means that D-Day would probably be August 8 or 9, by my back-of-the-envelope calcs.
So lets assume that the government sausage making gets done in time for the Treasury to start raising money before it defaults on something.
We know that they are going to start to need to raise a whole lot of extra money at the Treasury auctions to dig out of the $232B hole they dug since May. But that can wait. Most of it involves IOUs to government pension funds. They can spread that out over months or even a couple of years.
However, they will need extra cash immediately because the next big Treasury auction round would not be until the week of August 8 and settlement would not be until the 15th, and they will run out of cash a week before that.
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Over the same week last year, outlays were $134 billion and revenue was $38 billion. That suggests that the government will need to auction, andsettle by August 8, somewhere around $96 billion in new debt next week, just to get from August 8 to August 15 when they normally raise a chunk of new cash. Then they’ll need the usual big round of new debt to settle on August 15, auctioned right on top of that $96 billion or so. The original TBAC estimate called for $54 billion. So in a week’s time the Treasury will need to hit the market and raise around $150 billion in new cash, with Primary Dealers and other market participants having virtually no advance notice of what type of paper will be sold when. The last time the market faced anything like that was when they were raising money for the TARP in late August and September of 2008, and we know what happened to the stock market then. Splat!
Anyone who thinks that the crisis is over for the market has another thing coming. Admittedly, we don’t know what the Mad Scientist Bernankenstein will do. Will he pick up the batphone and call his batty friends on the FOMC for a money blast to juice the market and send commodities to the moon? I doubt that anyone thinks that the government bond market would swallow such a move with a wink and a nod any more. Ben’s hands may be tied.
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Picture credit: top, Jr. Deputy Accountant; bottom, Jesse's Cafe Americain.
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Goldmam Sachs will pick up the phone and call China. " Hello, Look I have a special favor I would like to ask for." Pause. " Yes you can have Taiwan, Rockefellar Center and Exxon Mobil, we will even throw in Alaska"
Problem Solved ,at least until after the election
Yes I,remember the extortion and the gun to our heads in Aug,Sep 2008..Why does this bullshit always happen on my birthday.
Which is today Aug 2. Here is a song that surely all of you can understand.Please grant me a birthday wish by listening.One of the better financial songs in my opinion.
My linking is not working,anyway it is called "the bailout rap" on you tube.
Hank Paulson ,you better check yourself before you wreck yourself.
Cheers to all
Commentators and economists who keep referring to the 'economic recovery' and to the GFC in the past tense - will be proven wrong. Unfortunately the charts indicate GFC 2 will be worse ~ Tues June 14, 2011 - 12:55 pm UTC
http://stockmarket618.wordpress.com
Are these the same economists with the two word vocabulary ?
Those two words........You guessed it.
"Unexpected"... "Surprised"
year after year decade after decade.fire them all save the planet and billions in funding or give it to someone that really does know what they are doing.
You forgot "transitory".
Next 24 hours maybe very interesting, how many of you think that Senate may not pass the final bill? Now everybody thinks Senate will but ......
Nice analysis of the potential liquidity problem with this much debt to market. I think an equity crash both here and in Europe is going to be required to round up the necessary cash to buy all the new debt. That's probably why the "relief" rally was so brief. Major players figured this out. Chinese and US PMIs below 50 don't help either. No time to be long except gold and silver and AGs.
They should stuff Barney Frank up the arse of that Bernanke turkey! Or perhaps the other way around!
did someone just throw a wrench into the deal?? equities, and oil just dropped while gold and chf just spiked.
Without the Fed buying treasuries, primary dealers will have to pick up the slack. They will be
given little choice since they are indebted to the administration. But if they aren't able to sell
them back to the Fed in a short time, and it's doubtful they will have any other buyers, they
will have to hold on to them. How many treasuries will they be able to buy before they run out of working
capital and stop lending which would cause a liquidity crisis for businesses. Either interest rates go up on
bonds or the Fed will have to step in. Otherwise the U.S. could have a failed bond auction which in itself
could trigger a crisis. The plot thickens.
I have very little skin in this game but it's an enormously interesting thought problem to try to figure out how this knot will unravel. My first bet is they tank the market to create buyers. Playing the Euro card yet once again might bring in European cash and could be used as the catalyst for the market tanking. Will that be enough? I fear they've boxed themselves in so much that liquidity will dry up, but what will that actually do to the market and economy? Which sectors will get hit least and most? How will the algos play into this. How will the state and local bond markets fare. This is not your everyday economic soft spot and it won't play out the same as most other market corrections. If anyone wants to give input, I won't mind using clues on this puzzle. May the reset be kind to you.
This wonderful "deal" gives Mugabe a $2 trillion slush fund to bailed out liberal voting cities and towns who's munis should default. Towns in the tiny Dem state of RI are failing because of insane pensions and open borders with a tax base of illegals.
Dead Fred, I doubt you are still awake at this late hour, but if you are, it seems you do have a grasp on the situation.
With all the negative news, the stock market will tank by itself so they will probably get the rating agencies to further
downgrade the PIIGS and European banks. The rating agencies have been doing the WH's biddings as they fear being
prosecuted for their complicity in the MBS fiasco that caused the bank crisis in 2007 and 2008. By expediting the collapse
of the EU, money will pour out of Europe into the safe haven of the bond market. The U.S. money market funds will
have to quickly exit EU banks with whatever funds are still invested there. Whether it will be enough to buy all the treasuries
that will go on sale without a substantial rate increase, only time will tell.
Ben looks great !!!
http://www.youtube.com/watch?v=Rq8s0JShs7o&feature=channel_video_title
Uploaded by bstill3 on Jul 29, 2011
None of the options being debated by the U.S. Congress can fix the economic situation. Only monetary reform -- a simple solution -- can fix this.
More bread & circus, ahem, foodstamps and debt ceiling debates...
NEXT...
Sorry, it still ain't about printing or borrowing paper tickets (aka dollars) to buy stuff. It's about producing stuff. And the banks, fed & guvmunt don't produce nothing. They print paper tickets.
Who in their right mind would build a factory in Oba-Zimbabwe USSAR?
the debt ceiling debate was the only thing holding up the market. no one wanted to short in front of it. just like EFSF V 3.0 those are both gone and the data is turning really bad, look out below. anyone who believed the market was weak because of the debt ceiling debate is weak (or worse)
But... but with the Senate voting we may have a SUPER CONGRESS to save us all... (early morning sarc)
How can there be a SUPER CONGRESS when you don't have a army that is willing to shoot and beat down unpatriotic US citizens?
I think it's pretty clear there will be SUPER SOLDIERS to!
problem is dat breeding those takes 2 decades... so they'll need to hire some. Which legit company could supply enough mercaneraries who can get the job done... let me think...
or maybe the US can use those Iraki soldiers which where trained by the US army in Irak? Just thinking out loud here...
Yup! When austerity really comes to Amerika, it will come at the end of a police baton with a swift jack boot to the ass.