Remember The Debt Ceiling?

Tyler Durden's picture

As Erskine Bowles notes "Everyone claims that they’re not going to let our nation default. And Lord knows we all ought to pray that they don’t. But, could it happen? You bet." But it seems the world has forgotten that between the "grand bargain' negotiations and the looming final-final debt ceiling deadline, the US fiscal situation remains troubled at best. While Washington is "only capable of focusing on one big issue at a time," dominated currently by espionage, immigration, and scandals, Bowles notes, from mid-September to mid-November the fiscal issues will be forced into the headlines and he believes there is only a 20-25% chance a deal is struck. As Stone & McCarthy notes, the Treasury will exhaust its extraordinary measures to create borrowing authority on October 31, and run out of cash on November 1.



Via Stone & McCarthy,

Key Takeaways:

  • We expect the Treasury to exhaust its extraordinary measures to create borrowing authority on October 31, and run out of cash on November 1.
  • Our "drop dead" date is about two months later than an earlier forecast. The main reason for the change is that we underestimated how much borrowing authority Treasury could create this time around.
  • Our forecast assumes that Freddie Mac pays Treasury a $30.0 billion dividend at the end of September. That's not a given, though.
  • Even without the dividend payment, Treasury could probably make it to November 1 without a debt limit increase.

We've updated our projections for when Treasury will exhaust its extraordinary measures that will allow it to borrow under the current debt ceiling. We now expect that Treasury will exhaust those measures on October 31, and run out of cash the next day, November 1.


We estimate that Treasury used $89 billion of its extraordinary measures as of June 30, leaving about $183 remaining.

Based on our projections for marketable debt issuance and SLUG redemptions, we think Treasury will use up that $183 billion on October 31. More specifically, we think Treasury would be about $30 billion short of the room needed to settle all of the auctions scheduled to settle that day.

Our projections assume that Freddie Mac will pay Treasury a dividend of about $30.0 billion related to the release of a valuation allowance against deferred tax assets on September 28. (For a related comment, see Agency Focus: Fannie and Freddie: The New Treasury Cash Cows? 4/2/13.) While that's our base case, we think there is some risk that Freddie won't release the allowance or only releases a portion of it. The language in Freddie Mac's first quarter SEC filing regarding the valuation allowance was a little more tentative than in Fannie Mae's fourth quarter filing. (Fannie Mae released its valuation allowance in the first quarter, and paid Treasury a $59 billion dividend at the end of June as a result.)

Here are some excerpts from Freddie Mac's discussion of the issue in its SEC filing:

"On a quarterly basis, we determine whether a valuation allowance is necessary on our net deferred tax assets. In doing so, we consider all evidence currently available, both positive and negative, in determining whether, based on the weight of the evidence, it is more likely than not that the deferred tax assets will be realized...


"In recent periods, certain of our negative objective evidence has been improving and could become positive as early as the second quarter of 2013. Specifically, we currently expect that we will no longer be in a three-year cumulative loss position...Due to the significant uncertainties related to the conservatorship and ongoing changes to our business as a result of public policy, it is very difficult for us to make projections concerning our financial performance beyond the near term. In addition, under our current base forecast we would need projected income over the next 17 years in order to fully realize our net deferred tax assets."

Even if Freddie Mac doesn't release the valuation allowance, and pays Treasury $30 billion less in dividends than we are currently projecting, our drop-dead date for the debt limit doesn't change. However, it would make it more definitive.

Our cash flow projections show Treasury with $7.0 billion less than it needs on November 1 if Freddie pays the full dividend; that shortage grows to $37.0 billion if Freddie doesn't pay the dividend related to the treatment of deferred tax assets. (We are assuming that each GSE will pay about $5 billion in dividends just based on quarterly profitability.) We will have clarity on this issue in a few weeks, when the GSEs release their financial results for the second quarter.

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Dareconomics's picture

I bet they push that date back to early 2014. Lots of people will be paying taxes on those 1st half gains.

Herd Redirection Committee's picture

The government default?  Don't get our hopes up like that!

Everyone knows its the currency that will be sacrificed on the altar, not the government.

Rob Jones's picture

I was reading reports yesterday that the gov ran a surplus in June. Are these true? Or was this a result of debt ceiling avoidance manipulations?

AlaricBalth's picture

The surplus was due in part to $66.3 billion in dividend payments from Fannie Mae and Freddie Mac as well a reduction in extended jobless benefits.

Herd Redirection Committee's picture

For one month they ran a surplus...  One month...  And you have to use very specific accounting standards, forget accrual accounting, this is cash-basis.   All those unfunded liabilities that have been incurred are not to be discussed.

NeedleDickTheBugFucker's picture

The record June budget "surplus" of $117 billion doesn't seem to be reflected in the change in the national debt for the month.  Total Public Debt Outstanding fell by approximately $502 million.  So, what happened to the other $116.5 billion?  Just more accounting chicanery.

trillion_dollar_deficit's picture

In addition to the dividend payment, spending was some $100 billion less than the prior 6 month average. I dont know what quirk caused that. But, looking back at historical data, it happens from time to time.

Bastiat's picture


--Everyone knows its the currency that will be sacrificed on the altar, not the government.--

Yes, in other words the people will be sacrificed.

Herd Redirection Committee's picture

Gov't default= cronies being sacrificed  (and gov't employees)

Currency crisis= everyone gets to share the pain, around the world.

Hmmm...  Doesn't take a Reverse Utilitarian to figure out which one is the more likely outcome.

fonzannoon's picture

the announcement to permenantly suspend the debt ceiling should provide the umph to push the S&P to 1800 to close the year.

thismarketisrigged's picture

@fonz, push the s&p to 1800? what makes you think we wont be at 1800 or beyond by then?


1800 should be around the corner, next week when bernanke testifies.

The Master's picture

Wasn't there a trillion dollar coin or something that solved this problem already?

RacerX's picture

A trillion dollar chocolate coin. It was delicious.

knukles's picture

Oh, fugalug me!
The Krugster'll be back with a whole month of "I todja sos."

Can't wait...

Obchelli's picture

Yes but it melted in my hand - not in my mouth

venturen's picture

that wasn't chocolate;)

Obchelli's picture

May be but he said it was delicious ;-)

lakecity55's picture

Relax, soon your AGEs will be worth 1 million ferns each.

Devotional's picture

debt ceiling will increase and more shit paper printed. there you go,problem solved.

Cdad's picture

Thank you, Ben Bernanke.  Not only for bailing out all of these toxic US banks, but also for continuing to green light Congress's spending madness...otherwise known as the looting the US treasury.  This is your legacy, sir.  We thank you for the wasteland that you have made for us. 


DosZap's picture

Thank you, Ben Bernanke. Not only for bailing out all of these toxic US banks, but also for continuing to green light Congress's spending madness...otherwise known as the looting the US treasury. This is your legacy, sir. We thank you for the wasteland that you have made for us.


DO NOT forget the Uber Billions thrown away to the European Banks,staggering amounts(and damn few EVER saw or heard it in the MSM, or the Commie News papers).IF we truly saw the real amount (off book), we would shite our pants.We just see the TIP of the iceberg.

Herd Redirection Committee's picture

So its a variant of "Just the tip?" 

xtop23's picture

If you have a penis on par with a blue whale ..... then yes.

Although a more accurate description would be that you aren't even covering the urethra.

Tortfeasor's picture

A fevered dream, default.

Tinky's picture

"Could it happen?" 

Not if, but when. Hello!??

q99x2's picture

Only the greedy globalist middle men don't want the US to default. The citizens want to lock the boarders down Send Congress the Senate and the Administration to China where they belong and convert the TBTF to free range chicken ranches. The rest of want to see those bastards pay for taking of the Untited Statres of America and turning it into a Nazi state. Default is an answer.

kevinearick's picture

Horse & Buggy Automation

“If I speak in the tongues of men or of angels, but do not have love, I am only a resounding gong or a clanging cymbal. If I have the gift of prophecy and can fathom all mysteries and all knowledge, and if I have a faith that can move mountains, but do not have love, I am nothing. If I give all I possess to the poor and give over my body to hardship that I may boast, but do not have love, I gain nothing.”

A turtle will swim across the ocean and walk across a continent, to lay its eggs, leave them behind and do it again, as a matter of course, to outdistance time and the lazy predators inhabiting it. As you can see, the empire majority talks, but it does not prosecute the bankers of its currency. Instead, it desperately seeks out any remaining producers that it may tax into submission, to maintain its ponzi. Have you examined the tax returns of all those talkers that claimed they would leave the empire if QE-Obama continued?

The empire majority will sit on its fat a- and plead equal rights to your work right up until its end, always has, and always will. Don’t expect the upper middle class to give up its make-work jobs, crumbling infrastructure, or McMansions willingly, ever. Instead, it will mollify with welfare to its own ultimate end and imprison the rest, to ensure continued compliance with the past. It’s not the rich you have to concern yourself with. Take a look; it’s the middle class hunting you down. Heaven forbid you become successful on your own merit, proving all its assumptions false.

The only thing worth going to war over is love. Prepare your children, from birth, accordingly, and expect the majority to attack them. Only an upside-down empire robot sends its children to war, under the auspices of eunuchs, to preserve the status quo of unthinking tradition. It is your job, as a parent, to wage war against the peer pressure seeking to contain your children and steal their future.

Jesus didn’t wake up to the ongoing concern and wage war with those around him. He walked away, only to return and deliver the blow, blow after blow after blow. You are not going to alter the majority’s interest in adopting false assumptions to benefit itself, but you can remove the false assumptions underpinning their lives at will. When the majority gangs up on you, it is doing you a favor, if you can enter and exit its event horizons at will.

That Boeing went down because the empire majority is depending upon automation to do its thinking for it. That’s what I mean by saying that the light circuit remains wired, but the rest of the elevator is being modernized. The automobile, the airplane and the flattop are all dinosaurs being delegated to the trash heap of History, which is why the price of oil goes up with declining consumption. How much more basic does it get than height and altitude? False assumptions may always be replaced with technology, but a thinking human will always be required so long as there are humans.

Labor is not going to replace the rich scapegoats. You don’t replace the negative battery pole because the cells have stopped conducting, because you are installing the next set of cells. Manners are rules of war developed over time, which allow you to ignore the complexity of stupidity, while you develop your priorities. The insecure, fearful, and greedy majority isn’t going to attack you directly if it can avoid it. It is going to attack your children, which it is incapable of rearing itself.

The majority wants you to focus, along with it, on the symptoms at the end of the process assembly line. Let the empire steal incremental development improvements, rather than your children, which, like Boeing, continue to fail relative to nature, while you build quantum advancements. The empire plus you equals excellence is the majority’s algorithm. Nature plus you is God’s algorithm, and the latter wins every time, when you are ready with your part of the development.

Congress is done. The Fed is done. All that remains is the US Navy. And Labor still hasn’t played trump. Bet accordingly.

kchrisc's picture

Without love I do not have family, friends and community.

Without firearms I do not have Life, Liberty or Property.

Without love and firearms, I have nothing.

flacon's picture

Money is the root of all good because without money we are just apes.

maxblockm's picture

Well, maybe not the root of all good, but it can be a good thing.  Just like fire, or a knife, money is a tool, and it is what you do with it that determines bad or good...

"money is the root of all evil" is a's supposed to be:

"the love of money is the root of all evil"

Kirk2NCC1701's picture

As long as the USD is the GRC (Global Reserve Currency), Dickhead Cheney is right:  "Deficits don't matter".

Unlike Argentina or the Weimar Republic, who does/did not enjoy the GRC status, we are exporting our money-printing inflation to the entire world.  Instead of "local toxic pollution", our smokestack is the tallest and we get to spread this "pollution" over the entire globe.  This increased absorption capacity makes the Day of Reckoning further into the future.  By then, our NSA+MIC will have had all the world's key material assets (minerals, energy) under the Empire's control.  Savvy, Kimosabi?


kchrisc's picture

They'll pay attention to the legal "debt-ceiling" like they pay attention to the Constitution and the Bill of Rights.

Down the road though, they'll pay full attention to the guillotine.

McMolotov's picture

Word is we're pre-approved for several new credit cards. No need to worry.

ParkAveFlasher's picture

Balance transferz, bitchez!

knukles's picture

Do it the European Way!*
Put the deficit on AMEX, Discover, Visa and MC.
Default on CC payment.
Treasury/Fed bail out said companies.

Problem solved 


* As in gov't sells useless debt to banks, banks carry at book, loan money to government with government guarantee of said debt and banks.  Holy horseshit, Batman!

asteroids's picture

Goto Average debt / taxpayer is $148k. As an exercise, take your gross pay and cut it in half. From that half, how many YEARS would it take you to pay off your share? Yah, that's what I thought. You'll NEVER pay it off in your working lifetime. MOAR QE makes this worse, not better.

monad's picture

They won't be putting just the taxpayers on the auction block. Post fiat crash, it will take about 1 pound troy per person to buy our freedom. Stack accordingly. 

TrustWho's picture

We do not have to worry about such trivial matters when we have Daddy Bernanke. Ye of little faith, Daddy Bernanke will deliver electronic dollars to the Treasury. After tax increases and sequester, $65 billion a month is chump change.

semperfi's picture

" out of cash..."  LMFAO !!!!  good one !!!

Surging Chaos's picture

"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." -- Alan Greenspan

Dr. Engali's picture

Default by inflation is still default.

PiratePawpaw's picture


but how many human lifetimes are there in an "eventually"?

Im starting to think more than there is left of this one.

knukles's picture

Walter Wriston's Famous Last Words

Governments can't go bankrupt they just print more currency... shortly before the Latin American debt crisis (defaults) when nobody wanted their funny pesocentimebozo stuff...


Always works out according to what plan?

Winston Churchill's picture

Must be why the Arabs are buying gold as fast as China.

A lot of unpublished diplomatic meetings taking place between

Saudi and ,and China recently.

Prolly about rice exports or something.

Goto go,my soap is on.

Dr. Engali's picture

Yeah right, like they aren't going to come to a deal and raise the debt ceiling. They will cut a last minute deal like they always do, once they all had a chance to get their fugly mugs on the teevee. Althought November 1st is as good a time as any to collapse this thing with the Fed's anniversary coming up.

ekm's picture

Seeing how 10yr yield collapsed from 2.52 to 2.60 in 2.5 hrs, the end is near, and all preplanned


1) The Fed has to buy bonds

2) Repo market needs the same bonds to be pledged as collateral



either yield skyrockets thus imploding derivatives and triggering margin calls, since UST are bought at 1.5% margin and 98.5% leverage


or. repo market ceases to function due to shortage of collateral, hence collateral calls.


Current reality:

- margin calls

- collateral calls

- crude oil super inflation

- extremely expensive Dow, S&P (overpriced by 100%)

- extremely expensive housing (overpriced by 100%)

- high unemployment

- China imploding due to politburo infighting


It cannot get any worse than this, unless civil war in USA.

Collapse imminent, not because of market, but because of executive order, same as in 2008.

The collapse will fix the debt ceiling issue, easy peasy.

Dr. Engali's picture

Civil war is coming...and probably very soon.

PiratePawpaw's picture

@ekm     I hope you are right, but unfortunately it CAN get worse, and most likely will.

@Dr        I tend to doubt that too. The sheeple have long been conditioned to be just that, sheep.