July 8, 2011
As of today, since the debt ceiling breach on May 16, the Treasury has plundered about $206 billion from the two primary retirement accounts: the G-Fund and the Civil Service Retirement and Disability Fund, according to calculations performed by Stone McCarthy. The full breakdown for sticklers is provided below, however what is more important is that with just 4 weeks left until the D-Day, there is about $62 billion in available debt ceiling stretching options. In other words, Tim Geithner has burned through 75% of his dry powder just 50 days into the debt ceiling breach. What happens in the next few days – Stone McCarthy gives the full breakdown “Based on our projections for marketable borrowing and trust fund flows, we think Treasury would need to use about $37 billion of that $62 billion in July, and would exhaust the rest with the settlement of auctions on August 1. If things go down to the wire, Geithner could create a little more room by declaring that the Debt Issuance Suspension Period will last longer than the original May 16-August 2 timeframe, which would be reasonable if Congress hasn’t acted by August 1 or August 2.” Said otherwise, with the market still completely ignoring the debt ceiling situation, if nothing has changed by the last week of July, it will once again, very much retroactively, panic.
SMRA reminds us that QE is now over, which means Primary Dealers will now be used as a monetization buffer. “Based on our current cash flow projections, we think Treasury could pay its obligations for the first couple of weeks of August, and probably manage to pay the August 15 coupon interest payment. That assumes that Treasury would be able to roll over maturing debt at auctions in the first half of August, even in the absence of a debt limit increase. We imagine under such a scenario that there would be stepped-up pressure on primary dealers to participate in Treasury auctions.”
As for government retirees, here is how the funding backing your retirement accounts if being used:
A tabular summar of sources and uses to date:
As for what the current status of (non) negotiations is, here is the summary of SMRA’s Nancy Vanden Houten:
Over the last few days, we’ve learned that the President has had some high-level budget talks — notably with House Speaker Boehner The President met with Congressional leaders today, and will do so again on Sunday. If we can believe what we’re hearing, the President and the Speaker at least appear to be aiming higher in their negotiations on a deficit reduction deal. Previously, the talks had been focused on deficit reduction of about $2.5 trillion, or a little more than any voted-upon increase in the debt ceiling. In the last few days, a deficit reduction package totaling about $4.0 trillion appears to be back on the table.
Certainly, a deficit reduction deal totaling $4.0 trillion would be a huge step toward addressing our long-term fiscal crisis. But we think an agreement of that magnitude is still a long shot. A deficit reduction deal of $4.0 trillion would have to have a fairly significant revenue component; otherwise, the necessary amount of spending cuts wouldn’t get much support from Democrats in Congress. On the other side, a large block of Republicans still opposes a deficit reduction deal that raises any revenue all. Surely the President and the Speaker know this. Do they think they can persuade their parties to come around and sign on to a “grand bargain?” Or are they posturing in front of an agreement on a smaller deal that gets us through the next election? We could see how the President in particular might benefit from that outcome: “I was willing to meet them more than halfway…to accept less in revenues that I’d like and support more cuts in programs that are most important to Democrats, but they wouldn’t take yes for an answer.”
And for the latest update here is the NYT confirming that Republicans and Democrats were still “far apart” on said “grand bargain”. Perhaps that article is best summarized with the following phrase:
“The big question everyone is asking is, ‘What are we getting?’ ” said Representative Edward J. Markey, Democrat of Massachusetts.
Alas, gone are the days of idealistic monologues by JFK that would have provided a witty rejoinder to the above. Instead, we get the days of US insolvency and pillaging of retirement accounts of former government workers.
This article was posted: Friday, July 8, 2011 at 3:40 am