Treasury Admits It Underestimated Debt Needs, Predicts Ceiling Breach In 2012; $600 Billion More Debt In Second Half

Tyler Durden's picture

Back on April 30, when the US Treasury, together with the TBAC chaired by Matt Zames (who as everyone knows is being groomed to take over JPMorgan after Jamie gracefully steps down) sat down put together its latest debt funding needs projection, we openly mocked the numbers when we said "Now obviously we are all for the US needing less debt, however we wonder: did the US discover some magical source of tax revenue: last we checked the companies with $100+ billion in cash were paying virtually zero taxes, and US workers were making less and less courtesy of more and more jobs being converted into temp jobs with lower wages, and less withheld tax as a result." Sure enough, minutes ago the Treasury just admitted what we and our readers knew all along: in its quarterly Treasury refunding appetizer, it noted that during the "September 2012 quarter, Treasury expects to issue $276 billion in net marketable debt, assuming an end-of-September cash balance of $60 billion.  This borrowing estimate is $12 billion higher than announced in April 2012.  The increase is primarily due to lower receipts, higher outlays, redemptions of portfolio holdings by the Federal Reserve System, and higher issuances of State and Local Government securities." In other words: if only it wasn't for that pesky lack of revenue and excess spending our mocking would have been for nothing. Alas, it was spot on, and as a result instead of needing $253 billion in fiscal Q4, the US will need $272 billion (after having a $5 greater financing need in fiscal Q3, calendar Q1 as also expected).

Finally, in calendar Q4, the Treasury expects to get back to its roots, at which point it will need $331 billion in debt, 21% more than in calendar Q3, and 17% more than in calendar Q4 of 2011.

Alas, as the chart below shows, which forecasts US Treasury debt based on the just released numbers, all these numbers will ultimately need to be revised even higher as it is now inevitable that the debt ceiling will be breached in 2012, only not as the Treasury predicts toward the end of December, but well before that.

Some other factoids:

  • Treasury forecasts total debt on September 30, 2012 of $16,132 billion and total debt on December 31, 2012 of $16,448 billion. As a reminder, the debt ceiling is $16,394 billion
  • Total debt incurred by the US in the second half of calendar 2012 is estimated to be $592 billion; total financial needs are expected to $603 billion.
    • Total debt incurred in calendar Q4 is expected to be $316 billion, higher than both Q3 ($276 billion) and Q4 2011 ($310 billion).
  • Total debt incurred by the US in all of calendar 2012 is estimated to be $1.165 trillion
    • Total debt incurred by the US in all of calendar 2011 was $1.051 trillion.
  • In other words, calendar 2012 will see a 10% increase in total debt, while total US GDP is expected to rise by just under 2% for the full year.
  • Assuming the Treasury's numbers are correct, each calendar day in the second half will see the US Treasury issue on average $3.3 billion in debt every day, and $136MM every hour; on a work day basis, this amounts to $4.8 billion in new debt each work day, and $200 million every working hour.
  • Assuming 1% sequential growth in GDP, the US will close 2012 with a debt/GDP ratio of 103.4%.
  • Keep in mind, all these numbers will be revised worse in 3 months when the next refunding statement is released.

One word: "Sustainable"