Here Comes The Debt Tsunami: Goldman Warns Treasury Issuance To More Than Double In 2019

During yesterday's surprisingly candid remarks by Bill Dudley, the second most important person in the Federal Reserve - the organization that is responsible for the third consecutive and largest ever yet asset bubble in history - said that one risk he was increasingly worried about was, drumroll, elevated asset prices. Because, supposedly, the Fed has little to input in how asset prices came to be where they are...

Just as ominous was Dudley's admission that the second risk he was concerned about is "the long-term fiscal position of the United States" i.e. US debt. Specifically, Dudley said that the Trump tax cut "will increase the nation's longer-term fiscal burden, which is already facing other pressures, such as higher debt service costs and entitlement spending as the baby-boom generation retires."

Oddly there was no mention of which administration doubled US debt from $10 trillion to $20 trillion in under a decade, and which organization enabled this to happen by keeping rates at record low levels, while crushing savers, and bailing out habitual gamblers.

In any case, now that the narrative has shifted, and Donald Trump will be scapegoated not only for the upcoming "tremendous" market crash - something he has made especially easy by taking credit for every single uptick in the S&P - but also for the inevitable fiscal collapse of the United States, it is time to provide the backing for this particular strawman, and to do that, this morning Dudley's former employer, Goldman Sachs released a report in which the bank's chief economist said the he is updating his Treasury issuance forecast to account for recent revised deficit projections. As a result, US marketable borrowings will more than double from below $500 billion in 2018 to over $1 trillion in 2019 as the debt tsunami finally get going.

To build up the strawman, Goldman explains that US borrowing needs will rise for three reasons:

  • First, recently enacted tax reform legislation is estimated to raise the deficit by more than $200bn, on average, each of the next four years, and Congress looks likely approve substantial new spending as well.
  • Second, Fed portfolio runoff will increase the amount of debt the Treasury must issue to the public.
  • Third, the Treasury’s cash balance is likely to rise by around $200bn once a longer-term debt limit suspension is enacted, which will also necessitate additional borrowing.

Goldman expects that the "substantial increase" in borrowing needs will be announced by the Treasury when it lays out its plans at the February quarterly refunding.

What Goldman has left unsaid is what happens to interest rates at a time when on one hand US debt supply is set to double and on the other the Fed is set to continue shrinking its balance sheets, the ECB and BOJ are set to accelerate (and begin) tapering their own QEs and when global inflation is expected to keep rising.

What is also unsaid is just who will be the marginal buyer of this debt tsunami when central banks increasingly shift away from debt monetization.

What is certainly unsaid is what "market event", a la Lehman 2008, will be used to unleash QE4 in order to bring the Fed back into the deficit funding business once it becomes all too obvious that borrowing spree the US is about to set off on is unfeasible absent a central bank monetizing the new supply and keeping rates low.

We look forward to the answer being revealed in the not too distant future.

For now, however, here is Goldman's explanation why US debt supply is set to soar by more than 100%.

Raising Our Treasury Issuance Estimates

Ahead of the February quarterly refunding, we are updating our Treasury issuance estimates. We expect net issuance of marketable Treasury securities to roughly double in FY2018 over the FY2017 level, for three reasons:

  1. We expect the budget deficit to rise. We project a deficit of $750bn (3.7% of GDP) in FY2018 and $1050bn (5%) in FY2019, compared with $666bn (3.5%) in FY2017 (line 1 of the table in Exhibit 1). The main factor behind the increase in the deficit we expect is the recently enacted tax legislation, which more than offsets the fiscal effects of an improving economy. We also expect Congress to approve additional spending. Two installments of disaster relief funding have already been approved and a third is likely to pass soon; in the next month or two, Congress is also likely to approve a roughly $100bn increase in the caps on regular appropriations, which should lead to a similar increase in spending spread over the next few years.
  2. The Treasury’s cash balance shrank in FY2017 but is likely to increase in FY2018 because of the debt limit. Over the last few years the Treasury has aimed for a cash balance of $350bn to $400bn when the debt limit is not a factor but reduced the balance to $150bn to $200bn for most of FY2017 as a result of constraints imposed by the debt limit. We expect Congress to suspend the debt limit once again by March, probably through mid-2019. Once the debt limit has been suspended for a longer period, we expect the cash balance to rise to around $350bn. This will require nearly $200bn in additional borrowing in FY2018 in particular (line 8 of the table in Exhibit 1).
  3. Fed balance sheet runoff leaves more for the market to absorb. We estimate that $378bn in Treasuries held on the Fed’s balance sheet mature in FY2018 and $412bn will mature in FY2019 (line 2b of the table in Exhibit 1). In light of the FOMC’s policy to reinvest maturing securities only if principal payments exceed gradually rising caps, we expect balance sheet runoff to add $179bn to the Treasury’s marketable borrowing in FY2018, and $286bn in FY2019.




As a result of these factors, we expect net marketable borrowing to increase from $488bn in FY2017 to $1030bn in FY2018, and we expect a similar level of net borrowing in FY2019 (line 13a in Exhibit 1). The increase in financing needs is likely to be addressed through increases in bill and coupon issuance. The most recent quarterly refunding statement, released in November, indicated that the Treasury will increase bill supply and announce a gradual increase in coupon and FRN auction sizes at the February refunding. The Treasury also indicated that it is likely to fulfill its upcoming issuance needs in a manner that keeps the weighted average maturity (WAM) of its outstanding debt roughly stable. This comment came as a surprise to many fixed income investors. The Treasury has extended WAM for roughly a decade, and many investors assumed it would continue to do so at least modestly and perhaps even more materially if Treasury Secretary Mnuchin followed through on his comments earlier this year in favor of ultra-long issuance.



Exhibit 2 shows our estimates of net bill issuance plus gross issuance by security through 2021. In the current fiscal  year, we expect that net bill issuance will be used to close the majority of the new issuance that will be necessary over the FY2017 level. This is in large part due to the fact that the Treasury has kept coupon auction sizes unchanged since the start of the fiscal year in October 2017. However, once coupon auction sizes are increased, which we expect to be announced at the February refunding, bills will make up a slightly smaller share of new issuance. In FY2019, for example, we expect the increase in net bill issuance over FY2017 to close about 1/3 of the financing gap (i.e., the difference between the new money that would be raised using current auction amounts and the projected financing need), in line with the TBAC recommendations. Most of the remaining gap would be made up through additional issuance of 2-year, 3-year, and 5-year notes. We expect the Treasury to take the initial steps in this direction next month when it makes its quarterly refunding announcement.

Finally, in light of the unspoken message, which for anyone confused is that interest rates are about to spike, here is the only quote that matters from future Fed Chair Jay Powell, who made the following prophetic observation during the October 2012 Fed meeting.

I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy.

You almost can, because "down the road" is finally here, and rates are about to come up. As for those "big losses" from record duration, don't worry - by the time someone has to deal with the fallout, they will be someone else's problem...


Teja sodbuster Fri, 01/12/2018 - 15:05 Permalink

Trump just tries to follow Ronald Reagan, the president he cherishes most. Massive debt expansion with tax reduction, aka "Voodoo Economy". It worked to build the greatest pyramid scheme of all, the United States Treasury Bonds.…

Pyramid schemes tend to end when there is no buyer dumb enough to buy. Only in this case the bonds are bought with paper money the U.S. can print themselves if necessary. Kind of a magic pyramid.

In reply to by sodbuster

Countrybunkererd wisehiney Fri, 01/12/2018 - 14:20 Permalink

Good point.  But at what point does this rush favor something other than the USD?  Spain used actual metals when they were the WRC and still lost it (there is a case study in there if someone hasn't yet).  Seriously, at what point will "the masses*" say, for example, I would rather build/start a housing or apt. complex (or any number of items**) in X rather than the USA because the return is better due to rising wages in X vs. the USA.  Eventually the Tulip becomes unfavorable I only wish I knew when, or at least a firm grasp of what season this will occur (or pinpoint the true why).


Can you tell I want to get back to a ZH that helps all of us sh**holes learn something via multiple levels of critical thinking?  We know what we are up against, how do we deal with it in our respective understanding of it?  How do we combine this for our good rather than bicker about this sh**hole being worse than that sh**hole and on and on.  It's Friday, I am sick of all the sh**holes everywhere I look, every single day, don't take any wooden Bitcoins.  DIE FREE! (I sound like D.C.)


*"the masses" is a reference to those with access to capital but not levels of the global cartels.  Or a reference to the global cartels who dump the USD (why did Russia show the world it's gold vault??).

**this excludes the massive transfer of jobs already gone from the USA.

In reply to by wisehiney

Radical Marijuana hedgeless_horseman Fri, 01/12/2018 - 14:43 Permalink

"Bad People Keep Using USD To Do Bad Things."

A cute paraphrasing of the underlying issues that MAD Money As Debt has innate structure which inherently requires exponentially increasing debts.

Indeed, whenever the worst people who dominate the worst MADNESS  "decide" to collapse the established systems, they may simply throttle back on making more "money" out of nothing as debts.

There is now nothing which directly connects the public "money" supplies to the physical world. Rather, there are only the indirect connections of social habits made and maintained by the ways that the money systems were backed by the murder systems.

The greatest paradoxes follow from the ways that civilization necessarily operates according to the principles and methods of organized crime, which includes the corollaries that civilization is necessarily dominated by the best organized gangsters, which are currently the banksters.

The banksters' bullshit almost totally dominates the public discussion of political economy. Indeed, the biggest bullies' bullshit-based world view has been built into the basic structure of the dominate natural languages and philosophy of science, in ways which are far more profound than how the banksters' bullshit has been built into political economy.

The central features of that bullshit are the DUALITIES of false fundamental dichotomies and the related impossible ideals, which enable burying the FACTS that public governments enforcing frauds by private banks ARE symbolic robberies.

Relatively few people fully understand THAT. Moreover, the few that somewhat do understand still tend to fall back to bogus "solutions" based on the same old-fashioned impossible ideals about "what money should be."


THAT is how and why the currently existing monetary and taxation systems actually exist. Furthermore, THAT is how and why there can never be any genuine resolutions of the problems which do not admit and address THAT.

The greatest paradoxes continue to develop almost exponentially increasing sets of consistent contradictions, due to civilization necessarily being controlled by the methods of organized crime, which includes the ways that those gangsters' dominated the public discussions of what they were doing so much, for so long, that almost everyone automatically takes for granted thinking and communicating about those issues in ways which are drowning in ever deepening bullshit, in ways which are spinning out of control ...

The United States Dollar is a global reserve currency, operating as the supreme MADNESS of money made out of nothing as debts, in ways which have no direct connections to the physical world. Therefore, the USD is now the supreme symbol of how and why the only connections between human laws and natural laws are the abilities to back up legalized lies with legalized violence.

Americans, and the rest of the world, are stuck inside the vicious feedback spirals of the funding of the political processes, which have enabled enforced frauds to become exponentially more fraudulent. The underlying issues are the same now as have always been the case regarding being able to back up lies with violence, namely, that doing so never stops those lies from still being fundamentally false.

The MADNESS of sociopolitical systems which have to grow total debts at an exponential rate, or else those systems will collapse into chaos, is the single most important manifestation of the runaway MADNESS of Globalized Neolithic Civilization. One of the most problematic aspects of that MADNESS is that there is almost nothing but the central core of excessively triumphant organized crime, surrounded by layers of controlled "opposition" groups, which mostly stay within the same frames of reference regarding how those problems are publicly discussed.

In proportion to the degree to which the banksters dominate political economy with their bullshit, which is almost totally, so too it is barely possible to exaggerate the degree to which almost everyone thinks about everything in the most absurdly backward ways which were humanly possible to make and maintain through thousands of years of being able to back up lies with violence, which became more sophisticated and integrated systems of legalized lies, backed by legalized violence, which has manifested as the ways that the US Treasury operates due to bankster domination in ways which are runaway criminal insanities.

In general, see Excellent Videos on Money Systems , and particularly watch:

The Biggest Scam In The History Of Mankind

However, almost all of those presentations follow the pattern of relatively good historical analysis, which then return to bogus "solutions" based on recommending various impossible ideals regarding "what money should be."

The USD led the world toward the development of globalized electronic money frauds backed by the threat of force from atomic weapons. Therefore, it has become barely possible to exaggerate the degree to which "Bad People Keep Using USD To Do Bad Things."

Political economy exists INSIDE human ecology. The debt controls were backed by the death controls. In the same ways that the debt controls have generated runaway numbers which have become debt insanities, which require the total debts to keep on doubling and doubling, so too the underlying death control issues are also doubling and doubling their potential to erupt as death insanities.

Endless exponential growth is absolutely impossible. However, everything that currently exists is based on pretending that is possible, and therefore, enforced frauds continue to become exponentially more fraudulent. The overall results are that the USD is leading the world toward egregious psychoses, especially because there is practically no publicly significant "opposition" which is not similarly psychotic.

Being able to achieve symbolic robberies through enforcing frauds requires that the majority of people are brainwashed to believe in the banksters' bullshit for generation after generation. At this point in time it is politically impossible for any more radical truths to emerge, but rather, the only politically possible responses are for various controlled "opposition" groups to propose and promote various bullshit-based "solutions."

"Good people doing good things" would require better death controls to back up better debt controls. However, thousands of years of human history has selected for the best death controls to become the most deceitful, while the best debt controls have become the most fraudulent. Moreover, the social successfulness of the manifestations of those kinds of biggest and best organized crimes have simultaneously resulted in the apparent "opposition" groups being controlled by the ways that they take almost completely for granted the bullshit-based world views which were built into their languages and philosophical presumptions.

As long as the USD  is MAD  Money As Debt, then the only "solutions" are to continue doubling that MADNESS, despite that doing so drives enforced frauds to become exponentially more fraudulent. Although human beings and civilization always have and will continue to operate according to the laws of nature, Globalized Neolithic Civilization has, therefore, been driven towards the maximum possible dishonesties, and collective social psychoses.

MAD Money As Debt systems require that most people deliberately ignore the principle of the conservation of energy, as well as misunderstand the concept of entropy in the most absurdly backward ways, while, at the same time, most people continue to take doing so for granted, including that the various controlled "opposition" groups against the banksters mostly stay within taking for granted the basic bullshit-based ways of thinking about political economy that the banksters were able to make and maintain as the overwhelmingly dominate social stories.

While it is certainly cute to paraphrase:

Mnuchin: "We Want To Make Sure Bad People Can't Use Bitcoin To Do Bad Things"

with the restatement that:

"Bad People Keep Using USD To Do Bad Things."

that only expresses some superficially correct observations regarding how and why the worst people doing the worst things are the international bankers, who were able to capture control over the US Treasury, such that the Federal Reserve Board became a private central bank, whose frauds would be enforced by the public powers of US government, whereby that legalized counterfeiting became the single most supreme achievement of the best organized gangsters, the banksters.

As those enforced frauds become about exponentially more fraudulent, there accumulate apparent anomalies. However, it is still extremely rare for there to follow from that sufficient series of intellectual scientific revolutions and profound paradigm shifts regarding political science, in order to come to better terms with how and why the USD has become the globally dominate expression of organized crime.

In reply to by hedgeless_horseman

Hubbs Fri, 01/12/2018 - 13:12 Permalink

So what? As long as the FED and Central Banks can print and everyone is in on the Nash equilibrium (adversarial game theory where no one is going to change his behavior as long as he perceives no one else is changing theirs) everything stays the same, until of course, either war,  food or energy disruptions topple the equilibrium.


Forget what Goldman says. They have been lying, screwing and stealing for at least as long as money stopped being asset backed. 

Dark star Fri, 01/12/2018 - 13:19 Permalink

The only certain way of protecting oneself against U.S Sanctions, is to avoid the dollar.

The US has just written that up in neon lights.

Who in their right mind would voluntarily buy US debt when it is increasingly obvious that outright default will be disguised as "Sanctions" on some pretext or other.?

It is increasingly obvious that uncoordinated policies from the various sections of the US Government are sabotaging each other.

Money_for_Nothing Fri, 01/12/2018 - 13:28 Permalink

Don't you remember? The congressional budget office (mandatory non-partisan claim inserted here) said the tax reform bill was revenue neutral. (sarcasm)

Inflation, low unemployment, and COLA suppression of Federal transfer payments will fix debt problems. 100 trillion GDP in ten years. 19 trillion dollar taxes. Government budget 24 trillion. Deficit 5 trillion. Debt 30 trillion.

yogibear Fri, 01/12/2018 - 14:07 Permalink

The old fed gang is bailing.

Yellen and Dudley departing soon. Then it's Doves on steroids.

Trump wants a much lower dollar. Exactly what he will get.

Plus just loads more debt.

tahoebumsmith Fri, 01/12/2018 - 14:42 Permalink

Because, supposedly, the Fed has little to input in how asset prices came to be where they are... ????

Are you kidding me just look at all the ink you've purchased in the past few years you fucking dumbass. 

LawsofPhysics Fri, 01/12/2018 - 14:51 Permalink

...and The Fed or their proxies will buy all that government debt with money created out of thin air with no real work, no real risk, and no real collateral requirement!!!

So fucking what?

"Full Faith and Credit"

same as it ever was!!!

JailBanksters Fri, 01/12/2018 - 18:15 Permalink

It's purely mathematical

You have to keep borrowing more money into existence to repay the previous money you loaned into existence. You can't taper a Ponzi Scheme.