• 141 days Could Crypto Overtake Traditional Investment?
  • 146 days Americans Still Quitting Jobs At Record Pace
  • 148 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 151 days Is The Dollar Too Strong?
  • 151 days Big Tech Disappoints Investors on Earnings Calls
  • 152 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 154 days China Is Quietly Trying To Distance Itself From Russia
  • 154 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 158 days Crypto Investors Won Big In 2021
  • 158 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 159 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 161 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 162 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 165 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 166 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 166 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 168 days Are NFTs About To Take Over Gaming?
  • 169 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 172 days What’s Causing Inflation In The United States?
  • 173 days Intel Joins Russian Exodus as Chip Shortage Digs In
  1. Home
  2. Markets
  3. Other

WANTED: Money for Uncle Sam

In our estimate, the U.S. Treasury will have to raise over $2 trillion dollars this year to finance new obligations. In addition, over $2 trillion in government debt held by the public is coming due and has to be re-financed this year.

My pocket calculator tells me that this requires over $15 billion of government debt to be issued every business day. Note that summer months tend to be bad months to issue debt, as many buyers, including foreign buyers, tend to take vacation. Conversely, it looks like vacation has been cancelled for the U.S. Treasury's debt issuance department.

On Wednesday, the Treasury issued $19 billion in 10 year notes; on Thursday, another $11 billion in 30 year bonds will be sold. Those happen to average $15 billion a day, but these are the highlights of the week and the government will need to ramp up future issuances substantially to meet its funding needs.

However, the government is not the only party issuing debt. A lot of corporate debt needs to be rolled; and a lot of foreign governments and corporations need to raise unprecedented amounts of debt. So far, there seems to be appetite for Uncle Sam's debt, but the cost is rising; at the auction today, creditors demanded a yield of 3.99%, up from 3.6% only a week earlier. It shall also be noted that bonds were trading at a yield of 3.95% at the time of the auction, suggesting the government had to offer an unusually high premium over prevailing market rates to sell the bonds.

In our view, the cost of borrowing may rise dramatically this year; a big unknown is whether the Federal Reserve will allow this to happen, as a spike in borrowing costs could put any nascent recovery into a tailspin. The Fed may step in and finance the deficit - to an extent, this is happening already, as the Fed has been buying government bonds, but the activity would need to be ramped up dramatically to keep borrowing costs low. At this stage, the Fed denies it will print money to finance deficit spending, although this may be more about semantics than substance.

If creditors are not properly compensated for the risk they take (which is the case when the Fed artificially keeps long-term borrowing costs low), the U.S. dollar may fall sharply. It is also possible that the Fed will be overwhelmed by market forces: the Fed may be able to print money, but it is not almighty; we may end up with a weaker dollar and higher borrowing costs.

 

Back to homepage

Leave a comment

Leave a comment