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The Debt Ceiling Is Back

Tyler Durden's picture




 

While many may not recall that the US has been without an official debt ceiling for the past three months, or even that it has a debt target ceiling, the bonus period agreed upon in January to let the nation rake up some $400 billion in addition debt in the past few months, officially runs out tomorrow, May 19, when the debt limit will be restored to its previous level plus the debt that was incurred in the interim, which means around $16.735 trillion in total debt as of yesterday, plus the amount incurred today, excluding the debt not subject to the cap which is about $30 billion. And since no grand bargain is forthcoming in a world in which official governance is now almost universally in the hands of the world's central bankers and out of the hands of the theatrical career politicians, it means that the next deadline in the endless US debt ceiling saga will be the day when the extraordinary measures to extend the debt ceiling run out.

Such a deadline will likely be hit in just over three months. As the WSJ reports:

Mr. Lew said the Treasury would be able to use the same extraordinary measures that the department deployed during the last debt-ceiling standoff at the start of the year. Those include halting investments in government worker retiree funds and drawing down some accounts.

 

“Treasury is not able to provide a specific estimate of how long the extraordinary measures will last,” Mr. Lew said.

 

But because of strong tax receipts and billions of dollars in dividend payments from mortgage giants Fannie Mae and Freddie Mac the U.S. will be able to continue borrowing–and paying all of its bills–until after Labor Day, Mr. Lew said.

September 2 happens to be a rather interesting day: just after the August Jackson Hole symposium where Bernanke will be famously absent, and just before the September FOMC meeting at which the Fed may (or may not) announce it is tapering QE (and when according the current run rate, the S&P should be roughly in the 1800 ballpark).

The song and dance is well-known:

If the Treasury exhausts the extraordinary measures and Congress doesn’t raise the debt limit, the government would be forced to fund its operations with the cash it has on hand, potentially putting Social Security, Medicare, military salaries and other payments at risk.

 

“The global economic leadership position enjoyed by the United States rests on the confidence of Americans and people around the world that we are a nation that keeps its promises and pays all of its bills, in full and on time,” Mr. Lew said.

 

Republicans have argued that the Treasury could prioritize to ensure that the government doesn’t default on bond payments. Mr. Lew rejected such an option, saying it would be “unwise, unworkable, unacceptably risky.”

 

Mr. Lew said that the Obama administration would not negotiate with Congress over the debt ceiling.

The good news is that as a result of an acceleration in government receipts and modest slowdown in spending (however temporary), the immediate cash needs of the government are lower, even though they once again pick up in the last quarter of fiscal 2013 (July-Sept), when marketable borrowings are expected to increase by a fresh $223 billion. The other issue of course is that without the Treasury creating "collateral" (read government debt to fund a deficit) which the Fed can monetize and expand bank reserves in the primary market, the Fed risks to become far too dominant a holder of Treasurys which it would then have to buy from the secondary market, and in the process eliminate even more liquidity from the market. This means that implicitly, Congress will be given a green light to spend away at will, even as Bernanke rages, very theatrically, against the will to generate sound fiscal policy. Bernanke's whole spiel is to create as many billions in excess reserves as he can thus pushing stocks, pardon the "wealth effect" as high as possible, for which he desperately needs a profligate Congress.

Which brings us to the bad news, namely that while many expected a bipartisan compromise on the debt ceiling to be quick and easy, especially in the aftermath of the GOP humiliation from the end of 2012 and early 2013, the events of the past week, which have seen scandal after scandal unfold in the Obama camp, have drastically changed the equation, and suddenly the resurgent GOP may once again play hardball with both the president and the democrats, at just the time when some are starting to throw around the "I" word. And if there is anything that the Obama camp would want to avoid, it is another debt ceiling fiasco at a time when all plates are full as is.

Does that mean a replay of August 2011 is in the cards? It would be oddly symmetric. And yet, that would presuppose that the GOP and the democrats truly have divergent agendas, when in reality both parties are eagerly willing to spend as much as possible in the name of "the people" and both are eager fans of a government that is as big as possible.

And finally, we now live in a day and age when the legislative and the executive are sorry shadows of their former selves, and the only true branch of government, is the monetary (in other words Wall Street). And Wall Street will only let the market drop when it is well and ready, and when it is confident it  has transferred enough paper wealth into hard assets, and not a moment sooner.

 

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Fri, 05/17/2013 - 17:33 | 3574349 malikai
malikai's picture

I'd bet that if the US defaulted tomorrow, the 10 year would be pricing 200.

Fri, 05/17/2013 - 17:52 | 3574387 FL_Conservative
FL_Conservative's picture

It's about fucking time!  Someone (or something) needs to take this equity market "behind the woodshed" for a good beating.

Fri, 05/17/2013 - 17:57 | 3574404 knukles
knukles's picture

Oh
My
God
No

Debt-ceiling-gate?
The gubmint'll fall!

Fri, 05/17/2013 - 18:22 | 3574466 JPM Hater001
JPM Hater001's picture

Anybody know where I'm suppose to place this ever so tiny domino?

Fri, 05/17/2013 - 18:53 | 3574543 Jekyll_n_Hyde_Island
Jekyll_n_Hyde_Island's picture

Fiscal Cliff round ?

Fri, 05/17/2013 - 19:09 | 3574576 Skateboarder
Skateboarder's picture

They ran out of bail-outs and bail-ins, so now they'll do bail-arounds.

Fri, 05/17/2013 - 19:12 | 3574581 SafelyGraze
SafelyGraze's picture

it's time to just go ahead and outright eliminate the debt ceiling

it just imposes artificial limits that tie the hands of government in helping needy people through programs that have become increasingly essential

 

 

Fri, 05/17/2013 - 19:34 | 3574635 Stuck on Zero
Stuck on Zero's picture

Too much worry about the debt ceiling.  I know that my wonderful representatives from California can be counted on to extend the debt ceiling.

 

Fri, 05/17/2013 - 20:26 | 3574770 NewThor
NewThor's picture

With elections no where in sight,

do they just pass something stuffed with pork in it?

or

do they wait until the last minute and pass something stuffed

with pork in it?

Or...

Sat, 05/18/2013 - 02:51 | 3575349 StychoKiller
StychoKiller's picture

Needy persons like ADM, Monsanto, & GE?

Fri, 05/17/2013 - 17:36 | 3574361 Major Major Major
Major Major Major's picture

Someone should push to lower the debt ceiling.

Fri, 05/17/2013 - 17:46 | 3574375 Jayda1850
Jayda1850's picture

Just as likely as the FED tapering QE infinity.

Fri, 05/17/2013 - 17:52 | 3574391 walküre
walküre's picture

Did Fed forget about debt ceiling when members started jawboning about tapering? Don't think so! The talk about tapering is a pre-emptive warning shot across the bow of Congress to let the Fed do what the Fed does best. Monetizing debt.

Debt ceiling needs to remain a moving target or the Humpty Dumpty will fall of the wall and all the Fed's members cannot put Humpty Dumpty back together again.

Debt ceiling, austerity and tapering would be the unholy trifecta ending the fiat ponzi.

Fri, 05/17/2013 - 18:32 | 3574493 Peachfuzz
Peachfuzz's picture

Fortunately we now have intangibles added to the gdp, so the percentage of debt to gdp never has to go up! Brilliant!

Sat, 05/18/2013 - 12:30 | 3575856 IPA
IPA's picture

If we all start taking two shits a day, I feel like it will be a grand improvement in GDP.

Sat, 05/18/2013 - 00:23 | 3575246 tunnelvizn
tunnelvizn's picture

Sometimes you just can't make this shit up :

RE : "It's 1.7 miles long. Its surface is covered in a sticky black substance similar to the gunk at the bottom of a barbecue. If it impacted Earth it would probably result in global extinction. Good thing it is just making a flyby.

Asteroid 1998 QE2 will make its closest pass to Earth on May 31 at 1:59 p.m. PDT. " 

   http://www.latimes.com/news/science/sciencenow/la-sci-sn-asteroid-1998-q...

1998 QE2 Yeah, I wonder when they named that asteroid (krugmeroid ?)

Maybe Krugman was right about the aliens, just missed on the trajectory ("Just a bit outside"), however . 

 

Fri, 05/17/2013 - 17:42 | 3574368 Great Depressio...
Great Depression Trader's picture

Federal deficit set to shrink to 600 billion dollar range for fiscal 2013. Lets see what 2014 brings.

Fri, 05/17/2013 - 17:47 | 3574377 Schmuck Raker
Schmuck Raker's picture

You better pull over and let someone else drive.

600 billion? As if.

Fri, 05/17/2013 - 18:30 | 3574487 lolmao500
lolmao500's picture

Get real the CBO is full of shit. Always has been always will be.

Fri, 05/17/2013 - 19:31 | 3574622 Ness.
Ness.'s picture

 

"In 2000, after more than 40 years of nearly consecutive budget deficits, both the White

House Office of Management and Budget and theCongressional Budget Office (CBO)

projected decade-long budgetsurpluses. Moreover, both agencies projected that publicly

held government debt(then about $3.5 trillion)would be eliminated by 2010." 

http://research.stlouisfed.org/publications/review/12/01/21-40Kliesen.pdf

CBO... that's funny.

 

 

 

Fri, 05/17/2013 - 20:39 | 3574797 Element
Element's picture

The budget you are having when you are not having a budget.

Fri, 05/17/2013 - 19:13 | 3574583 kchrisc
kchrisc's picture

If it's below a trillion I'll eat my hat or at least a facsimile thereof.       hujel

Fri, 05/17/2013 - 19:35 | 3574636 Ness.
Ness.'s picture

The fucking Powerball scam is $600mm in one day.  You can shove your $600b up your ass.  It's all bullshit.

Sat, 05/18/2013 - 11:28 | 3575765 The Phu
The Phu's picture

If I won that $600m, figure roughly $300m for cash and net of taxes, I think I'd start funding a commodities account and start taking delivery of some gold.  Certainly not enough to cause any supply shortages or catch any attention, (SURELY NOT MY INTENTION AT ALL) and see how my buds over at JPM feel about that. /sarc

 

That and I'd buy about 30,000 acres of timber and a Barrett 50cal sniper rifle... the ones that can reach out and say "hello" from a mile and a half away.  Not because I need it... because I want it... and because I have a second amendment right to own one bitchez.

Sat, 05/18/2013 - 15:34 | 3576258 famousisourname
famousisourname's picture

Hey you need any help, I'll volunteer for a small fee

Fri, 05/17/2013 - 17:44 | 3574372 toadold
toadold's picture

There is already talk about saving money by de-funding scandal plagued executive agencies like the EPA and the IRS.  Some hope to use the IRS scandals to eliminate corporate taxation, introduce a flat tax, and etc.  One idea is to keep feeding piecemeal reform bills from the House to the Senate to see if the Democrats will keep defending agencies that are getting more and more unpopular with the voters.  

 

Fri, 05/17/2013 - 18:41 | 3574510 XitSam
XitSam's picture

Keyword: "talk"

Fri, 05/17/2013 - 17:46 | 3574374 ultimate warrior
ultimate warrior's picture

Debt doesn't matter.

-Paul "dick in my ass" Krugman

Fri, 05/17/2013 - 17:58 | 3574407 knukles
knukles's picture

Throw in some shards of broken glass for extra sensitivity.

Fri, 05/17/2013 - 17:49 | 3574382 surf0766
surf0766's picture

The sheep are back to sleep. They will willingly hand over the rest of their rights for a new ipad. Watch as they welcome communism in with open arms.

Fri, 05/17/2013 - 17:52 | 3574390 Great Depressio...
Great Depression Trader's picture

Actually the "sheep" are enjoying the meteoric rise in the stock market and corresponding increase in their 401ks while bitter DOOMERS watch as their PM holdings get wiped the fuck out.

Stop being so arrogant

Fri, 05/17/2013 - 17:54 | 3574398 surf0766
surf0766's picture

Piss off. I don't hold physical and I am not in the market. Asswipe

Fri, 05/17/2013 - 18:02 | 3574416 IridiumRebel
IridiumRebel's picture

PMs are down by about 5-10%....so what. That's not "wiped the fuck out". They get below 1200 I'll begin to lose money. Meanwhile your precious S&P is a crack addicted whore. Stay nimble fuckhead. This cannot last forever and you know that. Sell in May and then FUCK OFF ASSHOLE.

Fri, 05/17/2013 - 18:06 | 3574425 Great Depressio...
Great Depression Trader's picture

Recent gold high is $1913, now trading at $1360...28 percent loss
Recent silver high is $48 now trading at 22 or a 55 percent loss.

WTF u talking about 5 to 10 percent loss

Fri, 05/17/2013 - 18:18 | 3574457 LeisureSmith
LeisureSmith's picture

I'm a patient man and i will keep putting money into things i believe have lasting value. No loss here Hoss.

Fri, 05/17/2013 - 19:01 | 3574558 IridiumRebel
IridiumRebel's picture

The last week...sorry I did not provide a timre frame for your special ed ass. We will see who is where in two decades. 

Fri, 05/17/2013 - 18:07 | 3574433 Great Depressio...
Great Depression Trader's picture

Recent gold high is $1913, now trading at $1360...28 percent loss
Recent silver high is $48 now trading at 22 or a 55 percent loss.

WTF u talking about 5 to 10 percent loss

Fri, 05/17/2013 - 18:12 | 3574445 fonzannoon
fonzannoon's picture

Show me someone who bought at those levels and sold at these levels and I will show you a person that was born to lose money.

Fri, 05/17/2013 - 19:06 | 3574553 IridiumRebel
IridiumRebel's picture

I bought at 1200 fuckhead. You perpetuate this shit. I hope your portFUCKYOUfolio is kicking ass because America is hurting. THE STOCK MARKET IS NOT THE ECONOMY. Don't you have a coke dealer to meet somewhere? Is this Bob Pisani?

Fri, 05/17/2013 - 20:39 | 3574798 natty light
natty light's picture

The gain(loss) is only crystallized when you sell.

Fri, 05/17/2013 - 18:44 | 3574522 XitSam
XitSam's picture

If they get below 1200 you still have the same amount of money. You will start losing value if converted to Federal Reserve Notes, but why would you?

Fri, 05/17/2013 - 18:18 | 3574456 ultimate warrior
ultimate warrior's picture

The "sheep" also enjoyed a meteoric rise in tech stocks in the late 90's and the "sheep" enjoyed a meteoric rise in real estate prices in the early/mid 2000's. Who got wiped the fuck out then?????

 

Stop being so arrogant

Fri, 05/17/2013 - 20:43 | 3574805 Panafrican Funk...
Panafrican Funktron Robot's picture

Dear Great Depression,

Tell me how the boomers that have the vast majority of the 401K/IRA/etc. wealth for their retirement, actually access those gains.  They have to sell their stock, correct?  Where do you envision the S&P 500 headed over the next several years, given the steady flood of stock selling by an incredibly huge generation of people? 

Fri, 05/17/2013 - 21:45 | 3574920 Great Depressio...
Great Depression Trader's picture

Beats the hell out of me. All I know is that the stock market is on a tear while NO ONE expected it. Not even the bulls envisioned 1666 on the SPX.

My point being: can't be overly bullish or bearish on anything

Sat, 05/18/2013 - 01:42 | 3575315 holdbuysell
holdbuysell's picture

It means a steady dose of printing to hold the nominal line; all the while, the true, real value is drained into real assets. In some ways, a more drawn-out version of what ZH describes in the last sentence of the article.

Without any shocks (which would be surprising in itself), that's where this goes in the limit of the thought experiment, IMO. The paper will slowly drain into real assets, deleveraging the paper-to-real relationship, but each piece of paper will buy less and less. Until ultimately some event horizon (faith in the paper) is hit and anyone not in real assets at that point will be holding the bag.

Fri, 05/17/2013 - 17:51 | 3574386 Bobbyrib
Bobbyrib's picture

"The other issue of course is that without the Treasury creating "collateral" (read government debt to fund a deficit) which the Fed can monetize and expand bank reserves in the primary market, the Fed risks to become far too dominant a holder of Treasurys which it would then have to buy from the secondary market, and in the process eliminate even more liquidity from the market. This means that implicitly, Congress will be given a green light to spend away at will, even as Bernanke rages, very theatrically, against the will to generate sound fiscal policy. Bernanke's whole spiel is to create as many billions in excess reserves as he can thus pushing stocks, pardon the "wealth effect" as high as possible, for which he desperately needs a profligate Congress."

And who would be happening to hold such Treasuries that the Fed would surely have to pay a hefty premium to purchase? Same shit, different scam. I honestly don't know what will happen, but would not be surprised if it came down to the Fed having to purchase in the secondary market and the TBTF banks selling their Treasuries to the Fed for a large premium. That would certainly help earnings. It would help create not only a stock market bubble, but also a short term bond bubble.

Fri, 05/17/2013 - 17:53 | 3574392 Winston Smith 2009
Winston Smith 2009's picture

"The Debt Ceiling Is Back"

Just the talk about it.  There never actually is a debt ceiling.  It just keeps moving upward.  It's a bad joke in an insane economic system that absolutely requires increasing debt in order to continue functioning:

http://www.youtube.com/watch?v=Kwen2OoXLs0&hd=1

Fri, 05/17/2013 - 18:02 | 3574417 DCFusor
DCFusor's picture

I think even the masses have figured this joke out, and this will no longer affect markets much - we all know that they'll pull something out of their ass at the last instant.

Fri, 05/17/2013 - 17:53 | 3574394 dick cheneys ghost
dick cheneys ghost's picture

This has been like a 5yr long episode of the Twilight Zone........But Im prepared to work until Im 90yrs old so that my Gov can spy on me while Im changing my diapers so that we can fight more wars for Israel and fund more banker bonuseseses'

Fri, 05/17/2013 - 18:02 | 3574401 Winston Smith 2009
Winston Smith 2009's picture

DICK Cheney will never be a ghost ever since they've succeeded in cloning rat hearts a few years ago... but I agree with your comment.

Fri, 05/17/2013 - 17:59 | 3574410 knukles
knukles's picture

That's the old spirit!

Fri, 05/17/2013 - 18:05 | 3574423 fonzannoon
fonzannoon's picture

Bernanke picked a hell of a week for his nephews little league tournament.

Debt Ceiling same week as Jackson hole and he is a no show.

Fri, 05/17/2013 - 18:08 | 3574437 JLee2027
JLee2027's picture

""Mr. Lew said that the Obama administration would not negotiate with Congress over the debt ceiling.""

Classic. Absolutely priceless. Go down in flames you pukes.

Fri, 05/17/2013 - 18:11 | 3574442 Common_Cents22
Common_Cents22's picture

I'm gonna try the Lew tactic and tell my credit card bank my credit increase is non negotiable.   

Fri, 05/17/2013 - 18:14 | 3574452 Super Broccoli
Super Broccoli's picture

3 months ? that's like tomorrow's tomorrow's tomorrow's ... or like 90 times sleeping, who cares ????

Fri, 05/17/2013 - 18:24 | 3574469 WillBest
WillBest's picture

Perhaps these scandals broke to give the GOP cover to raise the debt ceiling while nobody noticed.

Fri, 05/17/2013 - 18:27 | 3574477 lolmao500
lolmao500's picture

If the Treasury exhausts the extraordinary measures and Congress doesn’t raise the debt limit, the government would be forced to fund its operations with the cash it has on hand, potentially putting Social Security, Medicare, military salaries and other payments at risk.

Tough shit. Most of what was promised can't be delivered on... the faster people realize that, the better.

Fri, 05/17/2013 - 18:29 | 3574482 lolmao500
lolmao500's picture

Do a deal... the house will pass a debt ceiling raise in exchange for the senate to pass an impeachment bill beforehand.

Fri, 05/17/2013 - 18:41 | 3574509 tao400
tao400's picture

Big deal. they will extend it by doing A and B and C. then they will make a deal. It's not even an issue

Fri, 05/17/2013 - 18:42 | 3574517 syntaxterror
syntaxterror's picture

Debt Ceiling? More like The Abyss.

Fri, 05/17/2013 - 18:47 | 3574528 Common_Cents22
Common_Cents22's picture

no debt ceiling raise until all information requested on Benghazi, IRS, and AP is provided.    

Fri, 05/17/2013 - 18:56 | 3574547 tao400
tao400's picture

Wanna bet? of course it will be raised after much theater. the powers that be will never let the us default.

Fri, 05/17/2013 - 19:05 | 3574564 lolmao500
lolmao500's picture

No BILLS brought the house floor till Obama resigns... what about that instead?

Sat, 05/18/2013 - 00:06 | 3575241 logically possible
logically possible's picture

Don't wish too hard for that resignation, just look at what would take his place.

Fri, 05/17/2013 - 18:52 | 3574541 surf0766
surf0766's picture

The debt ceiling will be raise in the middle of the night umm I mean day without anyone giving a shit. All hair the red diaper babies

Fri, 05/17/2013 - 18:55 | 3574546 MrBoompi
MrBoompi's picture

I suppose the GOP won't extort more cuts to entitlement programs?

Fri, 05/17/2013 - 19:08 | 3574574 kchrisc
kchrisc's picture

Does anyone else find it laughable that they call this the "debt ceiling?"

It's the "debt ceiling" like the moon is a ceiling.                 hujel

Fri, 05/17/2013 - 19:37 | 3574646 css1971
css1971's picture

it  has transferred enough paper wealth into hard assets

mmm, you mean like the farm land bubble...

Fri, 05/17/2013 - 19:55 | 3574690 auntiesocial
auntiesocial's picture

Debt Ceiling? That'll go over like a loud fart in Sunday Sermon

Fri, 05/17/2013 - 20:31 | 3574782 Element
Element's picture

Can't they just 'Cyprus' the Federal Reserve BANK?

Fri, 05/17/2013 - 20:48 | 3574811 natty light
natty light's picture

Maybe we need two trillion-dollar platinum coins.

Fri, 05/17/2013 - 21:46 | 3574929 StarTedStackin'
StarTedStackin''s picture

It's Bush's fault.........since it happened on Obowel's watch

Fri, 05/17/2013 - 23:54 | 3575219 ak_khanna
ak_khanna's picture

A majority of individuals, corporations and governments have spent years of their future incomes by taking on debt. Now it is time to pay the bill. So now for years to come they have to service their debts on reduced incomes. Moreover all the borrowings by the governments are being spent to save the banks instead of focusing on job creation which is the only way the world economy can recover. There is unlikely to be an economic recovery in the foreseeable future because all the efforts of politicians, government, central banks etc are focused on saving banks instead of targeting job creation.

http://www.marketoracle.co.uk/Article40231.html

Sat, 05/18/2013 - 12:41 | 3575885 ali-ali-al-qomfri
ali-ali-al-qomfri's picture

Debt Ceiling : Credit Floor

Fiscal Cliff : Monetary Mountain

 

I'm learning English. Orwellian English

Sat, 05/18/2013 - 16:04 | 3576305 inca
inca's picture

Washington Signals Dollar Deep Concerns
by Paul Craig Roberts

..."If the consumption-based US economy deprived of consumer income by jobs offshoring takes a further dip down in the third or fourth quarter–a downturn that cannot be masked by phony statistical releases–the federal deficit will rise. What will be the effect on the dollar if the Federal Reserve has to increase its Quantitative Easing?

"A perfect storm has been prepared for America. Real interest rates are negative, but debt and money are being created hand over foot. The dollar’s demise awaits the world’s decision how to get out of it. The Federal Reserve can print dollars with which to keep the bond and stock markets high, but the Federal Reserve cannot print foreign currencies with which to keep the dollar afloat."

When the dollar goes, Washington’s power goes, which is why the bullion market is rigged"...

http://www.degaray.com/?p=3335

Do NOT follow this link or you will be banned from the site!