With tax season mostly behind us, we now have a better sense of how much cash the US Treasury has on hand. Goldman has put out an updated estimate for when the debt limit could be reached.
Goldman economists were originally forecasting that after the Treasury Department announced it would take “extraordinary measures” to be able to continue paying its bills earlier this year, it would be able to continue with those measures until sometime in early August. But citing “weak tax collections” in April, Goldman said there was an “increased probability that the debt limit deadline will be reached in the first half of June.”
With this in mind, I jumped over to the Treasury’s website and plucked out their cash balance data and created the following graph.
Since the beginning of the year the US Treasury has been burning through about $100k a month. You can see the sharp increase with tax payments coming in. They currently have $252,552 in their coffers. If the Treasury keeps to the same rate of spending, this puts us at roughly 2.5 months before the Treasury is out of funds. This doesn’t quite line up with Goldman’s estimate of early June. In fact, if the Treasury can extend the runway through June, quarterly estimated tax payments will come in mid-month and extend the runway further. My estimate is going to be closer to mid- through late-July. Usually the Treasury has some tricks that it can pull to extend that date. I believe they have already been utilizing these so called “extraordinary measures” and I don’t think they will be able to extend the runway much longer. It seems the market sees it the same way.
The beginning of March (blue line) and April (green line) had similar short-term treasury curves. Mid-March (beige line) saw the bank failures of Silicon Valley Bank, Signature Bank, and Silvergate. There was an across the board flight to shorter-term treasuries. You can see this in lower rates for 1M through 6M T-bills. Now (the red line) we see that there is selling in anything longer duration than 1 month. This is a mad dash to the shortest-term treasuries.
If the debt ceiling isn’t resolved, the US would technically default on its contractual obligations. While it’s ability to pay the debt is not in question, its ability to pay its debt on time is. This is why we see the current treasury curve priced the way it is. Bond market investors are pricing in a chance of delayed payment.
We’re already starting to see headlines about the debt ceiling. The first that caught my eye was Zerohedge’s repost of the Punchbowl News article. The key to the article was this:
McCarthy’s strategy is to try to pass something — anything — to show that he can move legislation through a fractious House. In McCarthy’s view, this will force Biden to negotiate and may shift the onus on Senate Democrats to pass their own bill.
Then we got the actual bill that the House GOP proposed. In it is a smorgasbord of wants. Everything from repealing green tax credits, permitting for the Keystone pipeline, increasing oil and gas leases, prohibiting student loan forgiveness, clawing back coronavirus funds and IRS funds. The bottom line, the GOP is willing to raise the debt ceiling by $1.5T or until March 31, 2024, whichever happens sooner.
Kevin McCarthy is leading this fight. He believes that he’ll have every republican vote in the House. Senate Minority Leader Mitch McConnell has signaled that this is McCarthy’s fight but he will back him up “as needed”.
Today saw the White House fire back.
According to Jean-Pierre, House Republicans who vote for the bill will be voting "to cut education, veterans medical care, cancer research, meals on wheels, food safety, and law enforcement," adding that they would also be voting to offshore American manufacturing, reduce health care for Americans, threaten food assistance for older Americans, boost energy bills, raise taxes and "protect wealthy tax cheats."
Jean-Pierre is Biden’s press secretary. In a similar statement, House Minority Leader Hakeem Jeffries stated that, “House Democrats will oppose any effort to hold the economy hostage as part of any scheme by Extreme MAGA Republicans to jam its right-wing agenda down the throats of the American people."
Neither of these people are serious players in this game. Jean-Pierre merely holds water for the Biden administration’s efforts and Hakeem Jeffries has no power in the House.
The person to keep an eye on is Senate Majority Leader Chuck Schumer. If a debt ceiling deal is going to get done, it is going to require Schumer and the Senate. There are not enough GOP votes to get this bill through without him. This is because 60 votes will be needed to pass a debt ceiling deal. So what would motivate democrats to cave? Or will republicans cave and pass a “clean” debt limit increase? This is where I’ve been spending the last three days, on this idea of cui bono?
Obviously, it the debt ceiling gets lifted with all the republican demands, they win. If there is a clean limit increase, the democrats win temporarily but this song and dance then becomes center stage for the 2024 elections. But what happens if something passes in-between? If there is a protracted debate and the government temporarily shuts down, who wins? Clearly the mainstream media would hold water for the democrats and paint the republicans as “holding the economy hostage”.
Jerome Powell and Jamie Dimon have both said that Congress needs to get its fiscal house in order. Powell was specific. He said that the current level of debt is sustainable but that the path was unsustainable. To me this says that spending needs to get cut or taxes need to increase. With the massive fight that it took to gain the speaker-ship, I find it doubtful that McCarthy has much wiggle room here. He got his marching orders and I’m guessing the other side knows it. The problem I see is that the globalists/Davos would win if there was a protracted debate that saw the shutdown of the US government. If that were to happen, US treasuries would look unattractive because repayment of interest and principle come into question. This, in turn, causes de-dollarization to accelerate.