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Key Treasury Cash Payments And Transactions After The X-Date
While we documented (and predicted) the surge in October 31 T-Bill yields, now that the market is increasingly pricing in the probability of a (supposedly brief) technical default of short-term US debt around October 17, aka the "X-Date", a more disturbing development has been the rapid rise in November 14 Bills, as increasingly more traders become concerned not only about a failure to successfully negotiate away the debt ceiling, but the possibility of a protracted debt ceiling fight continuing well into November. So just what are the US government's key obligations in the immediate aftermath of the X-Date? Here, once again, is a breakdown of key events and cash "deliverables."
And in a world in which the current "autopilot" course of events is untouched, the increasingly most likely option for the US Treasury would be "payment prioritization", one which focuses on the sacrosanct debt-obligations including rollover and interest, and puts other, less critical payments on the backburner.
Two such possible scenarios are presented below:
Priotiziation, or selective payment of obligations.
- If we reach the X Date, Treasury might either prioritize payments or make full days’ worth of payments once they receive sufficient revenues to cover all of a day’s obligations.
- Interest on the federal debt would likely be prioritized in either scenario – it is paid on a separate computer system (FedWire).
- Scenario # 1: Pay some bills, but not others
- Treasury might attempt to prioritize some types of payments over others. Prioritized payments would be made on time, others would not.
- This option may not be possible to implement using Treasury’s current financial systems. It would involve sorting and choosing from nearly 100 million monthly payments.
If the X Date arrives on October 18 (the beginning of the BPC range):
- Treasury would be about $106 billion short of paying all bills owed between October 18 and November 15 (20 business days).
- Approximately 32% of the funds owed for the period would go unpaid.
- The reality would be chaotic:
– Unfair results, unanswered questions
– Treasury picking winners and losers
– Public uproar
– Intense global media focus
- Scenario # 2: Make all of each day’s payments together once enough cash is available
Treasury might wait until enough revenue is deposited to cover an entire day’s payments, and then make all of those payments at once.
(For example, upon reaching the X date, it might take two days of revenue collections to raise enough cash to make all of the payments due on day one. Thus, the first day’s payments would be made one day late. This, of course, would delay the second day’s payments to a later day.)
- In the 2012 OIG report, some senior Treasury officials stated that they believed this to be the most plausible and least harmful course of action.
- Since debt operations are handled by a separate computer system, these payments could likely still be prioritized under this scenario.
The problem, as noted above is that no matter what happens absent a compromise, "Treasury would be about $106 billion short of paying all bills owed between October 18 and November 15 (20 business days)."
And since the specter of a debt default is too unfathomable for HFT algos (and what little remains of carbon-based traders) to consider, expect the market to continue levitating into the X-Date, which of course will send just the wrong message of urgency to both Obama, despite his stern warning to Wall Street that a market selloff may be just what is needed, and of course the very theatrical Congress.
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I like how these charts show that SS and Medicare are the two real budget-busters. Why don't we defund those two programs?
...oh wait, I forgot. Nobody wants to cut a penny to those programs.
Only sacrosanct payment is to bank (Treasury Bill and Interest Payment), rest can to be eating cake.
Da. All rest is just krap of bull. + 1
Social Security is supposed to pre-funded by everyone's years of working, but that money has long been spent. At my age (no chance of getting anything worthwhile [whether they raise the tax and cut benefits or print into oblivion making the dollar toiletpaper]), I just see it as another part of my income tax. My income tax is now 7% higher. I was so happy when the government cut the Social Security payroll tax. It was bad for the Boomers, but good for the younger generations (especially if you took it and bought PM's) who will be getting nothing out of it.
Mr and Mrs Bearing are just about old enough to qualify for SS and Medicare. A few months ago, we went down to the SS office to see what the deal was.
Oh. We had not worked long enough in the private sector (paying SS and Medicare taxes), so we do not qualify.
That's OK, though, because I think you are right: no money left! Just as well we did not pay those taxes all those years.
Smart ZH-ers might cash-out of their IRAs and 401(k)'s as well, all that money is sitting there, waiting for Unca Sugar to take it...
While I agree that we all have paid into social security, it was never actuarily sound based on an ever growing ponzi scheme.
It takes on average 15 years for SS to repay an individual's lifetime contributions to SS. Retirement age is 65, life expectancy is 79- do the math. Maybe it is inevitable that people will have to take haircuts on their SS contributions, its a dumb notion though that that's where we should start when you consider how much waste we have elsewhere (medicare, mic, for example). As with most of the problems we face Ron Paul offered the best solution: let young people opt out and make cuts to other areas to ensure people recoup the money they've been forced to hand over to the government under the guise that they'd be paid back. These people didn't just go out and buy bonds which have the inherent risk of not being paid back, they were forced. I'd amend Ron's proposal in one way, that being no individual new to the workforce should be allowed or forced into the SS program, which would eventually phase the program out.
To me what you're suggesting (as far as SS goes) is the same as what we've seen in Detroit. People who have labored all their life are put behind the big money who put a portion of their portfolio in bonds that had obvious risk. The money is there, its just a matter of getting are shit in order and, in all reality, who the politicians decide to give the money to. Fucked up at best but we gotta play with the hand we're dealt.
Washington deadbeats. Send an aggressive collection agency after congress. Harass at night and at work. Call neighbors and coworkers for contact information. Freeze credit cards and brokerage accounts. Check with Russian mafia about collection and recovery rates.
Russia mafia is not accept check, cash and gold only.
(Russia mob is carry pliers, so not recommend hide wealth in grillz)
Can we sell Washington D.C.?
I think it would make an nice little financial product if we bundle wall street and D.C. out of the U.S. and sell them to the highest bidder.
TPTB will never allow "outsourcing" of that type.
That would be redundant.
next best utility is as a nuclear waste site.
wait, thats a higher utility
Sell it physically? The rights have been long sold off
Just thinking of ways the Fed/gov't complex could avoid a default:
One possibility is a variation of Ron Paul's proposal sometime back where the Fed would cancel some of the Treasury debt on the asset side of its balance sheet. They would need an offsetting transaction on the liability side, which would logically be equity. But then the Fed would be obviously insolvent which wouldn't be good PR. So an alternative would be to use an accounting change they made a few years ago whereby they added a liability account which is essentially, "Amt payable to Treasury". That could be reduced instead and become negative, meaning the Fed owes a negative amt to the Treasury. It would be total gimmickry but maybe it would work.
Ron Paul’s Surprisingly Lucid Solution to the Debt Ceiling Impasse
Ac-cent-tchu-ate the Positive: The New Accounting at the Fed
It would be more honorable to just lie.
<-- Alternative # 1 Prosecute Bankster
<-- Alternative # 2 WWIII
Who is control of choice?
It's a trap! I can only pick one.
They'll sell all the tungsten in Fort Knox. Instant one month's worth of payment..
They've probably already turned that tungsten into armor-piercing ammo for DHS.
Trillion dollar coins are a better and more straightforward option.
Easier to explain certainly. But the Fed and Treasury already rejected the idea, possibly because it so transparently shows the nature of our money system.
Those tax "refunds" represent funds confiscated from a working man's pay which the government had interest free use of for the year. If they choose not to refund it then they should also no longer be extracting it from society......
I thought about that and if I ever work in this country again, I would claim 1000 dependents the minute I got a job.
It's closer to 150 million dependents.
That's the government. Realistically I couldn't support 1000 dependents, let alone 150M. I'm talking about when you fill out your W-4.
Full Faith and Credit of the Government of United States of America
That brought tears to my eyes as I immediately stood and started shouting the Pledge of Allegiance. It made me feel so..........so..............exceptional. Thanks I needed the reminder as I was loosing hope.
Exceptional Full Faith and Credit
Just "print it" at this point it makes no difference in the long run anyway.
The Fed prints, the US government needs permission from Congress to go into more debt so Bernanke can be the only buyer. So the Republicans would have to go along with the whole "Debt Monetization into Dollar Worthlessness" "Plan."
Using SS as an example: All they have to do is issue new treasuries while simultaniously redeeming SSTF bonds, then SS pays out. The debt ceiling does not get breached and the national debt does not increase. Since the payroll taxes are part of general revenue, they will then be able to use that revenue for other expenses. The same can be done with all intra-governmental debt. How many trillion can they play with? Not saying I'm for this but just sayin......
Yeah, they could do that, I guess. Honestly, I had no idea there even were SSTF bonds, since the country is in so much debt. At least they really have the IOU's on the books.
Redeeming those bonds is going to exacerbate the problem. Right now the bonds seem to earn 4% interest. What happens when you redeem the bonds to pay the funds? You're not earning that 4% anymore. I'm sure the interest payments are part of the calculations of how long the program will remain viable. It's weird that they would have to redeem the bonds and have the Treasure sell them to Ben (the only person in the Treasuries' market).
300 billion per month should do the trick. Japan has been doing this for 20 years. They are also suffering a nuclear disaster and the island has energy issues, but it doesn't matter to them. Tokyo is all lit up and cars keep being produced. I assume this mess will come to a hyper-inflationary head at some point, but I think the Fed can print 20 more trillion or so. Party On Garth!
They can keep up the Barnum & Bailey 3-ring act for a while. Until a Sovereign says "call" on USTs and defects from USD.
Look what happened to Kenya just before they wanted to switch from USD to Yen: Mall attack by "Terrorists". Pffff!
/ We know who the REAL fucking "terrorists" are. /s
Kirk
please site a source for your "Kenya switch from dollars to Yen' idea.
Let me toss in the obvious comment, 106 B over 20 days, is a little more than 5 B a day. 5 b a day times 365 equals 1.8T... how is the deficit only 500B and change?
Because... the debt limit has been reached. That's why the deficit has been ``lower`` since April.
On Oct 8th there will be a windfall of $998,000,000,000 seniorage on the new issue of 100$ notes. Should last for a few months. The US cannot default. Money is free.
The Fed can simply forgive the federal debt and print itself money as payment.
Who the fuck cares at this point? its not like any of the big banks or government agencies are following any real accounting standards anymore.... its all just a big joke and no one is laughing
Just issue some new debt to cover the payments; the bearded one will buy it. It's worked so well for all these years.
/s
Does anyone really believe that our politicians will allow a default? How does a default work to their interests of taking more of our money? There is no way.