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Archive for the ‘US Treasury’ Category

http://www.treasury.gov/press-center/press-releases/Pages/tg1299.aspx

In sum, the net foreign acquisitions of long-term securities, the change in foreign holdings of short-term U.S. securities, and banking flows yielded monthly net TIC outflows of $51.8 billion. Of this, net foreign private outflows were $44.4 billion, and net foreign official outflows were $7.4 billion.

Uh, that’s a problem folks, and one that is directly caused by government ponzi economic policy.

It’s one we better address too – and quickly.

The bond market figured it out immediately, pricing it in.

That’s the 10 year Treasury on a weekly chart.  It is now back to effectively where it was in the depths of the crash.

The 5-year yield is below that of the crash.

And the 2-year has basically been turned into a T-bill.

The bond market is telling you that there will be no material economic growth for the next two years and that a deflationary depression is the economic path that will be followed.

This is effectively what happened in Japan, although the worst of the economic impacts have been muted as they had tremendous internal surpluses to expend (those, incidentally, are now pretty-much “used up” – two decades later.)  We do not have those internal surpluses – to the contrary.

The stock market has been doing plenty of “up and down” and it will probably rally for a bit yet, as stock traders tend to be the short bus riders.  But make no mistake – the bond market’s response to the FOMC announcement is entirely rational and consistent with only one outcome – a sustained economic slowdown coupled with deflation, not inflation.

What will cause this?  The debt bubble collapsing.  Maybe kicked off by Congress failing to reach agreement or doing a “nothing” with the so-called “commission.”  Maybe kicked off by collapsing net interest spreads for the banks and then their collapse from the weight of their bad loans and inability to earn their way out of the box they’ve painted themselves into.  Or maybe Unicredit blows up and the tsunami comes from Europe. There are plenty of things ticking out there, and it only takes one big one that goes off to set the next move in motion.

The bottom line is that either the bond market is wrong or stocks are wrong.  Given that Bernanke just provided you his pronouncement and expectations, I wouldn’t bet against the bond market, and if the bond market is right then the modest “mini-crash” we just saw is a warning and not a buying opportunity, just as Pompeii’s Vesuvius rumbled many times before it blew its stack.

When this is priced into the equity markets – and others – it is likely to be in the form of a nasty dislocation.  This also fits with the technical picture; assuming the low today of 1103 holds for the moment and is a localized low then the most-likely retrace is up around 1220, all in the S&P 500.

The next move down, unfortunately, should comprise almost four hundred S&P points and close to four thousand DOW points, and is likely to be more violent than what we just experienced.  It could be worse too – it’s possible that we see an S&P decline of more than six hundred points, basically cutting the indices in half, more-or-less “all at once.”

Enjoy the rally today (and likely for a bit yet on a forward basis) but beware – if I have to choose between the stock market and bond market as to who’s right the bond market is almost always both the leader and the correct choice.

Ok, someone please explain this one to us because we must be a little slow. Wasn’t the whole thing with the debt ceiling hike such that no more Congressional melodramas would have to be inflicted upon the population until after Obama [won|lost] the 2012 elections? Because according to the one again exponentially increasing debt balance of the US Treasury (there is another $51 billion in debt/cash coming in next week), the total US treasury balance (subject to the ceiling) is $14.54 trillion (and $14.58 trillion for total), an increase of $20 billion overnight, the Treasury will hit its latest ceiling no later than the end of September.

As the latest DTS statement indicates, the debt ceiling now is $14.694 trillion: a number which Tim Geithner will hit in about a month. So if this is due to a planned expansion as part of the two step plan, we would like to understand how it works, because the $400 billion additional ceiling is barely sufficient to cover the catch up in funding for the SSN and the various governmental trust funds.

And the far bigger concern is that tax receipts are about to plunge courtesy of the imminent double dip. So we wonder just based on what assumptions does the Treasury believe that its issuance needs will be met by this paltry debt ceiling.

ZeroHedge

Federal Reserve openly targets dollar demise – U.S. Treasury and Federal Reserve solution to economic crisis is to crush dollar and target the standard of living for American families.

The collapse of the global stock markets was something that was supposed to happen if the debt ceiling wasn’t raised.  But here we are, seeing a sudden correction even after the debt ceiling was raised.  The Federal Reserve and U.S. Treasury are actively trying to crush the U.S. dollar so the debts of their banking allies will get cheaper as the years go by and the quality of life for most Americans continues to erode like a tide washing away a sand castle.  Of course it will be expected that at some point some other archaic form of quantitative easing part three will be brought to the table but the Federal Reserve is a faith based system.  Suddenly people are having less and less faith from a central bank that has sat idly by for the working and middle class while allowing the wealthiest in this country to become even wealthier simply by gaming the current financial system.  The markets are not pleased with raising the debt ceiling without actually looking for new revenue streams.  This is like getting a credit card line increase without your income rising.  The Fed is targeting the dollar not because it is good for America, but for the specific reason that it will allow banking allies to hide the ill bets of the 2000s.

National debt jumps $238 billion in one day

Source:  U.S. Treasury

The national debt went up an incredible $238 billion in one day after the debt ceiling was raised.  You don’t need to live a life like a Hollywood superstar to spend on a gigantic scale.  Most Americans are wondering why so much money is being spent with such little results in the real economy.  The underlying reality is the Federal Reserve is focused on fixing the balance sheet of member banks and if this helps Americans as a secondary result, so be it.  Yet the opposite is occurring.  Those connected to the financial sector are becoming wealthier while the other 90 percent of Americans witness their quality of life collapsing.

The phony recovery

The vast majority wouldn’t realize we are in an “official” recovery but that is what we are told from key people in the Federal Reserve.  In fact, we’ve been in recovery since the summer of 2009 if you can believe it.  Of course the recovery is for those in the banking and financial sectors because most Americans are not seeing any of this massive spending and bailout growth.  Quantitative easing is not supposed to be a common way of fixing an economy.  In fact, take a look at this chart of QE actions from the Federal Reserve:

Read more at My Budget 360

We now know exactly how much Turbo Timmy had to pilfer, er, “borrow” from various things (like government worker retirement accounts) in order to not run out of money while the debt ceiling was frozen, and it’s not a pretty picture.

The August 1st DTS

The magic number is $14,293,975

Now the August 2nd DTS:

The magic number there is $14,532,332

That’s $238.357 billion.

Remember, May 16th was the “official” day the debt ceiling was hit.  So Turbo has been running roughly $100 billion in the hole a month.

That sounds like about $1.2 trillion, but in fact it’s worse.  Why?  Because June is a heavy deposit (tax payment) month due to estimated taxes.  How big of a deal is this?  Pretty big – June saw receipts of $108.372 billion, while July saw just $54.069 billion – about half.

Oh, the debt limit increase deal added $400 billion immediately.  After taking care of the theft, er, “borrowing” that had previously occurred there is now just $162 billion remaining.

Anyone care to bet on whether Congress will get its act together before two more months run?  At current “burn” rates, and considering that September is also a estimated tax deposit month, that $162 billion should just about get us through September – and that’s all.

Here’s how it all can come apart, and why Congress – and Obama – are both on the wrong track.

Note this story from Bloomberg:

Political wrangling over a plan to reduce the deficit may cost the U.S. its AAA rating, adding $100 billion a year to government costs while dragging down economic growth, according to Wall Street bond dealers.

A U.S. credit-rating cut would likely raise the nation’s borrowing costs by increasing Treasury yields by 60 to 70 basis points over the “medium term,” JPMorgan Chase & Co.’s Terry Belton said today on a conference call hosted by the Securities Industry and Financial Markets Association.

But that’s just the start, you see.

Right now rates are at historic lows.  So let’s presume that the economy “improves”; if that happens then rates go up.  In fact, there was a hearing this afternoon in the House Banking Subcommittee talking about exactly that.

Here’s the current Treasury MTS; it shows total interest on the public debt last year was $355 billion, and this year thus far is $386 billion. This implies (on a grossed-up 8/12ths basis) that the blended interest rate on the debt is running about 4%.

Here’s the problem, in short: Rates have nowhere to go but up.

So is 70 basis points “realistic”?  No.  If the economy improves, they’ll go up double that or more just on their own on the short end. Then you get to add this “penalty” from the downgrade.

We have the government claiming they will “cut” about $1 trillion in real spending (the rest is gimmicks – the wind-down of the wars that were going to happen anyway) over the next ten years.

But if the economy improves the increased cost of the interest on the existing debt will be double that over the same ten years, and if we get downgraded you can double that again!

Each 100 basis points on $15 trillion in debt is $150 billion a year – every year – and the CBO says we’ll have $25 trillion in debt by 2020.

At a 5% blended interest rate this load on that $25 trillion will come to $1.25 trillion in interest annually – just 1 percent higher in interest than we’re paying now!

We will not get to 2020 folks; this is, in fact, exactly how the death spiral happens.

Interest expense as a percentage of government, this year, if the MTS thus far is 8/12ths of the total (through June), will run $579 billion.  This out of a budget of $3.8 trillion (approximately) is ~15% of the total federal budget.  To put this in perspective this is about 50% of the total receipts under federal income tax – just to pay interest!

Now I’m probably being pessimistic, because there’s a roughly $80 billion “whack” that comes from semi-annual coupon payments in the trust funds, and we’ve already gotten both of those.  So let’s be nice and call the trust fund interest accrued already, which means we now get $280 + $199, or $479ish, which is about 12% of the budget.

And that assumes that neither interest rates go up due to an improving economy or a downgrade.

What happens if that 4% blended rate goes up 70 basis points on a downgrade?  Oh that’s easy – just multiply that number by 117% and you’re close enough.  Call that $560, or ~$80 billion a year more.  Each and every year for the next ten, that’s $800 billion.

The problem is that the downgrade cannot be avoided without an actual credible $4 trillion in actual reductions in the deficit from the baseline. This means you can’t count anything that was already expected to happen like the wars being wound down.

It also means at least $400 billion in actual spending reductions for FY 2012 and then $400 billion more in each of the next three to four years! Or we can just do it in two – $750 now and $750 in FY2013.

We might get away with either of those plans, although the impact on the economy will be very significant – the exposure of the Depression we have been in since 2008 will occur with certainty.  GDP will contract and coverage – that is, the percentage of federal income that goes to interest – will actually go up for a while rather than down! It has to because as the economy adjusts to the lack of deficit spending GDP will contract and tax revenue will fall.

It is, in fact, precisely this inescapable mathematical reality that means that we must deal with this now rather than attempting to kick the can and have the market make these choices for us.

The outcome of taking our medicine will be bad.  Very bad.

But if we don’t do it – and do it now – it’s going to be worse.

Much worse.