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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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Fri, 07/12/2013 - 13:40 | Link to Comment Dareconomics
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.

http://dareconomics.wordpress.com/2013/07/12/around-the-globe-07-12-2013/

Fri, 07/12/2013 - 13:52 | Link to Comment Herd Redirectio...
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.

Fri, 07/12/2013 - 13:59 | Link to Comment Rob Jones
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?

Fri, 07/12/2013 - 14:04 | Link to Comment AlaricBalth
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.

Fri, 07/12/2013 - 14:16 | Link to Comment Herd Redirectio...
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.

Fri, 07/12/2013 - 15:20 | Link to Comment NeedleDickTheBu...
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.

Fri, 07/12/2013 - 14:36 | Link to Comment trillion_dollar...
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.

Fri, 07/12/2013 - 14:51 | Link to Comment Idiocracy
Idiocracy's picture

Foreskin Bawls

Fri, 07/12/2013 - 14:20 | Link to Comment Bastiat
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.

Fri, 07/12/2013 - 14:38 | Link to Comment Herd Redirectio...
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.

Fri, 07/12/2013 - 13:41 | Link to Comment fonzannoon
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.

Fri, 07/12/2013 - 13:58 | Link to Comment thismarketisrigged
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.

Fri, 07/12/2013 - 13:41 | Link to Comment The Master
The Master's picture

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

Fri, 07/12/2013 - 14:05 | Link to Comment RacerX
RacerX's picture

A trillion dollar chocolate coin. It was delicious.

Fri, 07/12/2013 - 14:07 | Link to Comment knukles
knukles's picture

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

Can't wait...

Fri, 07/12/2013 - 14:15 | Link to Comment Obchelli
Obchelli's picture

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

Fri, 07/12/2013 - 14:30 | Link to Comment venturen
venturen's picture

that wasn't chocolate;)

Fri, 07/12/2013 - 15:13 | Link to Comment Obchelli
Obchelli's picture

May be but he said it was delicious ;-)

Sat, 07/13/2013 - 09:15 | Link to Comment lakecity55
lakecity55's picture

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

Fri, 07/12/2013 - 13:41 | Link to Comment WarriorClass
WarriorClass's picture

The machinations of Babylon's Banksters never end.

http://americandictators.blogspot.com/2013/07/the-zimmerman-trial-and-wa...

 

 

Fri, 07/12/2013 - 13:41 | Link to Comment Devotional
Devotional's picture

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

Fri, 07/12/2013 - 13:43 | Link to Comment Cdad
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. 

 

Fri, 07/12/2013 - 14:07 | Link to Comment DosZap
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.

Fri, 07/12/2013 - 14:20 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

So its a variant of "Just the tip?" 

Fri, 07/12/2013 - 17:56 | Link to Comment xtop23
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.

Fri, 07/12/2013 - 13:44 | Link to Comment Tortfeasor
Tortfeasor's picture

A fevered dream, default.

Fri, 07/12/2013 - 13:46 | Link to Comment Tinky
Tinky's picture

"Could it happen?" 

Not if, but when. Hello!??

Fri, 07/12/2013 - 13:46 | Link to Comment q99x2
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.

Fri, 07/12/2013 - 13:47 | Link to Comment kevinearick
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.

Fri, 07/12/2013 - 13:56 | Link to Comment kchrisc
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.

Fri, 07/12/2013 - 14:18 | Link to Comment flacon
flacon's picture

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

Sat, 07/13/2013 - 05:38 | Link to Comment maxblockm
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 misquote...it's supposed to be:

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

Fri, 07/12/2013 - 13:47 | Link to Comment Kirk2NCC1701
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?

/s

Fri, 07/12/2013 - 13:47 | Link to Comment kchrisc
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.

Fri, 07/12/2013 - 13:52 | Link to Comment McMolotov
McMolotov's picture

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

Fri, 07/12/2013 - 14:01 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

Balance transferz, bitchez!

Fri, 07/12/2013 - 14:12 | Link to Comment knukles
knukles's picture

Absolutely.
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!

Fri, 07/12/2013 - 13:54 | Link to Comment asteroids
asteroids's picture

Goto usdebtclock.org. 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.

Fri, 07/12/2013 - 14:20 | Link to Comment monad
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. 

Fri, 07/12/2013 - 13:58 | Link to Comment TrustWho
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.

Fri, 07/12/2013 - 14:04 | Link to Comment semperfi
semperfi's picture

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

Fri, 07/12/2013 - 14:07 | Link to Comment Surging Chaos
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

Fri, 07/12/2013 - 14:13 | Link to Comment Dr. Engali
Dr. Engali's picture

Default by inflation is still default.

Fri, 07/12/2013 - 14:46 | Link to Comment PiratePawpaw
PiratePawpaw's picture

Eventually.....

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

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

Fri, 07/12/2013 - 14:15 | Link to Comment knukles
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?

Fri, 07/12/2013 - 14:20 | Link to Comment Winston Churchill
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.

Fri, 07/12/2013 - 14:12 | Link to Comment Dr. Engali
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.

Fri, 07/12/2013 - 14:12 | Link to Comment ekm
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

 

Hence,

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.

Fri, 07/12/2013 - 14:22 | Link to Comment Dr. Engali
Dr. Engali's picture

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

Fri, 07/12/2013 - 14:52 | Link to Comment PiratePawpaw
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.

Fri, 07/12/2013 - 17:03 | Link to Comment Overfed
Overfed's picture

If George Z. is aquitted, all bets are off.

Sat, 07/13/2013 - 09:05 | Link to Comment lakecity55
lakecity55's picture

Oh, like there won't be a riot either way.

Fri, 07/12/2013 - 20:32 | Link to Comment Serenity Now
Serenity Now's picture

ekm,

I'm smart enough to know that the status quo is not sustainable, but not smart enough to lay it out in a theory like you have.  I enjoy reading your posts.  :)

Fri, 07/12/2013 - 14:15 | Link to Comment Fix It Again Timmy
Fix It Again Timmy's picture

Ceiling, smeeling - we ran out of real money 40+ years ago, it's amazing what this play shit will buy....

Fri, 07/12/2013 - 14:20 | Link to Comment polo007
polo007's picture

According to CIBC World Markets:

The world remains a place where enormous amounts of debt just keep stacking up. Paying this debt back is constantly believed to be less of an issue given the crucial assumption that economic growth rates in the order of 3% to 5% will return AND will be sustainable. Even if it does, it must be noted that “total payback” of the debt could be unlikely to ever be achieved. At some US$18 trillion of total debt in the U.S., it would take 14,400 million ounces of gold or some 160 years’ worth of annual global gold mined supply (at the current price of some US$1,240/oz. and at current global output of some 2,800 tonnes per annum) to pay this down. At the same time, gold production is about to take an almighty knock and we won’t be surprised to see as much as 25% less gold output in the next five years.

Still, much of this precarious (let’s just stop the debt load from growing) position is critically dependant on very low interest rates being maintained – once rates start moving higher, debt repayment schedules quickly blow out, while the value of bonds, in particular government bonds, starts to decline. The current dramatic decline in the value of government bonds will already see banks’ balance sheets shrinking again, with possible resultant liquidity squeezes across the globe. Euro sovereign debt costs are already up dramatically and Italy is seemingly also sitting with an apparent +30 billion euro loss in the derivatives market…

This could very quickly turn out to be a very bad scenario, but the point, as far as we are concerned, is really that it does not even need to get to this for the markets to start realizing that currencies will have to depreciate much further – we believe this to be a crucial mechanism for delivering lower sovereign debt levels long term. Gold will be the currency that continues to benefit in the longer term. So, making a positive case for the gold price is not too difficult – particularly if inflation becomes a problem much sooner than everybody currently expects.

The real problem, unfortunately, is that all of this argument is dependant on data that will only become apparent much later down the line. Right now, nobody is willing to go against the Fed. That simply means bonds and gold are both getting the “chop” because the Fed is signaling a return to stronger economic growth – leading to a stronger U.S. dollar.

Fri, 07/12/2013 - 15:11 | Link to Comment Trampy
Trampy's picture

That simply means bonds and gold are both getting the “chop” because the Fed is signaling a return to stronger economic growth – leading to a stronger U.S. dollar.  Right now, nobody is willing to go against the Fed.

Nobody?  Then who is buying physical gold and silver at bargain basement prices?  Anyone with a brain who has the cash.

I think the smart money is betting that the entire house of cards will collapse as a bubble always does

The herd, as always, is wrong about everything that's important.

 

Fri, 07/12/2013 - 14:31 | Link to Comment Colonel Klink
Colonel Klink's picture

Government robbery bitchez!

Fri, 07/12/2013 - 15:02 | Link to Comment moneybots
moneybots's picture

Ah, the old debt ceiling game is back. The deficits don't matter, republicans will again claim they do matter, so they can politicize deficits against the democrats, instead of really trying to solve the problem.

Fri, 07/12/2013 - 15:07 | Link to Comment earnulf
earnulf's picture

Well that solves the problem of what to wear for a costume this year.   American's could do worse than dressing as V and spending the night celebrating the end of American Reponsible Capitalism (Also known as Halloween)

Fri, 07/12/2013 - 23:33 | Link to Comment dark pools of soros
dark pools of soros's picture

raise your budgets like the ceiling cant hold us....

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