On Wednesday of this week, the U.S. has a debt ceiling again. Since the deal between Speaker John Boehner and President Obama in October of 2015, the debt ceiling has been suspended, allowing the President to borrow as much as he wanted. Not anymore. Now the Treasury will be limited to borrowing no more than what is outstanding on March 15th, approximately $20 trillion, unless Congress ups the limit.
Now, you would think $20 trillion would be enough. But of course it is not. Over a one year period, the U.S. Government spends on average about $3 billion more PER DAY than it takes in. So the debt ceiling must be raised. When? That dear reader is the problem.
When Team Trump took over the Executive Branch of the US Government there was about $390 billion in the U.S. Treasury’s General Account (TGA) which you can think of as the Federal Government’s checking account. As of March 8th, there was only $66 billion in the account. This means that the balance has dropped $224 billion over the past six weeks. About $87 billion of that was actually used to pay down debt that could have been re-issued but wasn’t. Here is the chart.
When money leaves the TGA, it enters the economy. So, the Trump Administration has pumped $224 billion into the financial system (ie. the markets) over the past six weeks which probably has a lot to do with the run in the stock market during that time.
You may remember what a battle the debt ceiling was the last time around; virtually nothing else got done for months. Something similar is almost surely on its way. A smarter move would have been to build up the cash position in preparation for what is likely to be a nasty and lengthy debt ceiling debate. With so little in the TGA, the Federal Government may soon be unable to pay all its bills on time. This is not to be confused with default…the Treasury will undoubtedly prioritize its obligations to its lenders…but the process will not be good for the stock market. Nor will it be good for expediting the Trump economic plan. It probably will be good for gold.
Why did the Trump Administration allow its checking account balance to fall to such dangerous low levels at such a critical time? Perhaps it was neglect. Or perhaps they want a crisis for some reason. If so, they are probably going to get one.