Wednesday, January 16, 2013
US taps pension fund
Treasury announced yesterday that they are now beginning to utilize the "extraordinary measures" while the government continues to operate at the debt ceiling, in order to facilitate government payments.
It looks like they ran the cash account down about as low as they can this month ($40B) and still have enough for heavy UST redemption days and now they are looking to utilize the balances that are being made available from redemptions of USTs that are taking place in the intra-governmental federal retirement accounts and others.
Treasury has identified $156B of balances they have in view, I would think they are a bit at the mercy of the redemption schedules for these bonds in the pension funds in order to create $NFA flow.
At this point, total system $NFA flow cannot exceed the flow of these Treasury security redemptions.
Mike has the hard data of TTM $NFA flow at about $90B per month average so this is perhaps a good estimate for current system $NFA demand.
Based on a 20 day month that is about $4.5B per day. So Treasury should be utilizing the balances being made available to them through this intra-government UST redemption process to maintain this flow of $4.5B/day (or as close as possible) at minimum in order to maintain economic stability.
Past experience has indicated that if this flow is not maintained adequately, liquidation can start within the system and is not arrested until we get a substantial fiscal injection of $NFA, which politically does not seem very forthcoming at this point to say the least.
The key thing now seems to be if the rate of redemption of the $156B of USTs in the intra-government funds that Treasury has identified are occurring via at least a $4.5B/day rate that they can work with. If they are above that rate then at least it is mathematically possible to maintain the apparent minimum required $NFA flows for a while until soon the debt ceiling is raised, preferably by a substantial, multi-year amount.
Or I suppose they could "ask themselves" if it would be ok to redeem certain Treasury securities early on an as needed basis in order to free up some ceiling in order to make critical payments, if tax revenues do not provide for adequate balances in the Treasury account.