The Debt Ceiling Cometh

The US federal government’s debt ceiling was reinstated on March 16th at around $20 trillion, the amount of debt outstanding that day (see my post of March 12th).

Now the fun starts.

The Trump Administration has allowed the Treasury General Account (TGA) to run down to almost nothing. Essentially, the TGA is the Federal Government’s checking account. As of March 15th, when the debt ceiling moratorium ended, the TGA had only $23 billion, its lowest balance in years. On January 25th, five days after Trump’s inauguration, the TGA balance was $390 billion so the new administration has run down the account by an astounding $367 billion. This outflow does not reflect additional spending; rather, it’s largely the result of not issuing new debt to cover debt that was expiring.

Here’s the updated ugly picture:

Team Trump could have used the last two months to increase the TGA balance and increase the debt outstanding, thereby effectively raising the ceiling before it was re-imposed. But instead, they lowered the debt outstanding and the eventual ceiling and slashed their cash position, thus greatly accelerating its rendezvous with destiny. Inquiring minds want to know; what the hell were they thinking?

Washington and the media are currently consumed by Russiagate and the Republican drama of repealing and replacing Obamacare. Will they or won’t they? Soon, no one will care because the government will not be able to pay its bills. The US Treasury can implement so-called “extraordinary measures” (essentially selling marketable assets in other accounts they control), but the latest analysis suggests they could begin failing to pay all their bills as soon as Memorial Day.

I believe the infusion of cash from the TGA into the financial system probably accounts for much of the Trump Bump in the stock market. The cash outflow has now ended and the S&Ps have just experienced their first 1% down move in 110 days. Coincidence? I think not.

Say goodbye to Trump’s tax-cutting and infrastructure-spending plans because the Treasury’s sole focus from now until a new debt ceiling is agreed upon will be on getting the government’s bills paid without breaching the debt ceiling. How many House Republicans will vote for a debt ceiling increase? How much will House Democrats try to extort for their support of a debt ceiling vote that will likely need them to pass? Will the credit rating agencies cut the US debt rating?

Stay tuned. We are about to enter the Twilight Zone. There is nothing good in there for the stock market. But it sounds like gold could come in handy.