Monday, July 25, 2011

Projection on When the Treasury Balance Goes Negative

Stone McCarthy is out with projections on when the Treasury is likely to run completely out of cash, if the debt ceiling is not extended (Chart is in millions):

Stone McCarthy write:
At this point, we expect Treasury to have less cash in early August than we thought previously.
In mid May, for instance, we thought Treasury would open the day on August 2 with cash of about $85.0 billion....

The table above summarizes our cash flow projections for the first two weeks of August, assuming that there has been no increase in the debt ceiling. The projections assume that Treasury will be able to at least roll over maturing debt on August 4, 11 and 15. That's probably becoming a more questionable assumption given all of the statements coming from the rating agencies. As the table shows, we now show Treasury with a negative cash balance of $15.5 billion on August 15, which implies that Treasury wouldn't have the resources to pay $30.6 billion in interest on that day.
Of course, the Treasury is likely to cut elsewhere, before they cut interest payments, and there may be other maneuvers Geithner may have cooked up, but this is a rough guide.

What is more scary is that the Treasury will be like a whale in a backyard pool once a debt extension is approved. Stone McCarthy again:
Once the debt limit is increased, we think the Treasury will be ramping up bill auction sizes pretty aggressively.
And who exactly is going to be around to buy up all that paper? Bottom line: Prepare for a hike in rates once the debt ceiling is raised.


1 comment:

  1. when that day comes (the 15th) - do you think gold & silver prices will go up or down?

    up; because people will realise that the government money really is junk if they can just go into the red like that

    or down; because interest rates will go up and talk of cuts & reining in the money will be awash in the media