Yesterday evening there was a piece of news which created a stir even in these inflated times. So without further ado let me hand you over to the US Treasury Department.
During the April – June 2020 quarter, Treasury expects to borrow $2,999 billion in privately-held net marketable debt, assuming an end-of-June cash balance of $800 billion. The borrowing estimate is $3,055 billion higher than announced in February 2020.
I have to confess the numbers did not look right so I checked the February release.
During the April – June 2020 quarter, Treasury expects to pay down $56 billion in privately-held net marketable debt, assuming an end-of-June cash balance of $400 billion.
This was to be quite an improvement on where it was at the time.
During the January – March 2020 quarter, Treasury expects to borrow $367 billion in privately-held net marketable debt, assuming an end-of-March cash balance of $400 billion.
So we return to the concept of some US 3 trillion dollars being borrowed in a single quarter. As to the higher cash balance which is in the process of being doubled that looks as though it is simply because the US is spending at such a rate it needs more to avoid the risk of a cash crunch. Indeed the process is well under way.
During the January – March 2020 quarter, Treasury borrowed $477 billion in privately-held net marketable debt and ended the quarter with a cash balance of $515 billion. In February 2020, Treasury estimated privately-held net marketable borrowing of $367 billion and assumed an end-of-March cash balance of $400 billion. The $110 billion increase in borrowing resulted primarily from the higher end-of-quarter cash balance.
Where is the money going?
The US Treasury is light on some detail but the Paycheck Protection Program had spent some US $350 billion very quickly so we then saw this.
Washington (CNN)The Trump administration announced Sunday that 2.2 million small business loans worth $175 billion have been made in the second round of the Paycheck Protection Program……Treasury Secretary Steve Mnuchin and Small Business Administration Administrator Jovita Carranza said in a joint statement that the average size of a loan made under the second iteration of the program, which began Monday, was $79,000.
The original stimulus effort was described below by CNN.
Congressional lawmakers put the finishing touches on a $2 trillion stimulus bill to respond to the coronavirus pandemic, with cash and assistance for regular Americans, Main Street businesses and hard-hit airlines and manufacturers, among others……..Key elements of the proposal are $250 billion set aside for direct payments to individuals and families, $350 billion in small business loans, $250 billion in unemployment insurance benefits and $500 billion in loans for distressed companies.
We can see that like the small business loans the numbers are likely to have been climbing higher and higher. As to the new higher employment benefits they seem to be being paid to ever higher numbers.
The advance unadjusted number for persons claiming UI benefits in state programs totaled 17,776,006, an increase of 1,498,784 (or 9.2 percent) from the preceding week. The seasonal factors had expected a decrease of 648,558 (or -4.0 percent) from the previous week. A year earlier the rate was 1.1 percent and the volume was 1,647,874 ( Department of Labor)
I think we can figure out for ourselves what has been happening to tax revenues.
Treasury Bonds and QE
In ordinary times one might have expected this market to have cratered. I have worked through times when futures markets prices limits are employed ( it was initially 2 points and then moves to 3 points). But the surge in expected borrowing has provided nothing of the sort and these days eyes turn first to the US Federal Reserve and its Quantitative Easing programme. The emphasis below is mine.
To support the flow of credit to households and businesses, the Federal Reserve will continue to purchase Treasury securities and agency residential and commercial mortgage-backed securities in the amounts needed to support smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor market conditions and is prepared to adjust its plans as appropriate.
That is a sort of combination of “whatever it takes” and “To Infinity! And Beyond!” in my opinion. We saw purchases of US $75 billion a day in the height of the panic and we should not forget that in the heat of the “Not QE” phase some US $60 billion of US Treasury Bills were bought a month. So we see that it now owns some US $3.97 trillion of Treasury Securities which has risen by US $1.8 trlllion on the past year.
Thus although we are now seeing a much lower daily amount of QE purchases the surge of buying has anaesthetised the market. This week only US $8 billion a day is being bought and yet we see the benchmark yield for the ten-year Treasury Note if a mere 0.67%. The long bond ( 30 year) has responded a little but at 1.33% is less than half what it was this time last year.
Foreign Holdings
There is a long wait for such numbers but here is what the US Treasury thinks that they are.
The survey measured the value of foreign portfolio holdings of U.S. securities as of end-June 2019 to be $20,534 billion, with $8,630 billion held in U.S. equities, $10,991 billion in U.S. long-term debt securities [/1] (of which $1,417 billion are holdings of asset-backed securities (ABS) [/2] and $9,575 billion are holdings of non-ABS securities), and $913 billion held in U.S. short-term debt securities.
Comment
Remember the debt ceiling?
Congress has always acted when called upon to raise the debt limit. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents. Congressional leaders in both parties have recognized that this is necessary. ( US Treasury )
Anyway the total national debt was US $23.7 trillion at the end of March and is about to go on something of a tear. On the other side of the coin economic output as measured by GDP or Gross Domestic Product is about to plunge.
The WEI is currently -11.58 percent, scaled to four-quarter GDP growth, for the week ending April 25 and -10.86 percent for April 18; for reference, the WEI stood at 1.58 percent for the week ending February 29. ( New York Fed )
Or if you prefer.
The New York Fed Staff Nowcast stands at -9.3% for 2020:Q2.
Also the US Federal Reserve is about to get rather popular as we note how this trend will change in 2020.
In 2019, the Federal Reserve remitted a total of $54.9 billion to the Treasury, less than the $65.3 billion remitted in 2018, owing primarily to a decline in net income resulting from a decrease in average SOMA domestic securities holdings.
I guess both the US Federal Reserve and Treasury will be singing along with Prince for a while.
Money don’t matter to night
It sure didn’t matter yesterday
Just when you think you’ve got more than enough
That’s when it all up and flies away
That’s when you find out that you’re better off
Makin’ sure your soul’s alright
‘Cause money didn’t matter yesterday,
And it sure don’t matter to night
Notayesmanseconomics's Blog 
Hello Shaun,
Adam ant said it better …
Once is never enough
Never is never was
Here and now is all that counts
Here and now in large amounts
Be beautiful but shut up
The going can be real tough
You can keep your fancy bars
Clubby friends and fast cars
And when the going gets hard
You can eat your credit cards
I really tried to fight it
But what the hell I like it
hmm, popcorn is fresh , pull up a chair ..
Forbin
forbin
The world of economics like the “Mad Hatters Tea Party” and its getting beyond my comprehension. Both the US and the UK well and truly stuck in the mire, 25% of the UK workforce on furlough both economies are in dire straits yet life seems to be oblivious to the financial consequences.
https://uk.investing.com/news/economic-indicators/uk-economy-set-to-shrink-7-or-more-april-pmis-dive–ihs-markit-2111557
Both governments are telling the public they are ready to resume business soon, and things will start to recover.
There have always been times of national disaster and recoveries taken place but there has always been pain through the process, mass unemployment, default poverty, that is what history has taught us.
The world economy was already getting itself into a mess before the coronavirus the mathematics simply didn’t add up most of China’s growth was on borrowed money.
Assets wordwide had ballooned out of all proportion, when that happens normally the balloon should pop.
I am also sitting watching all this before my eyes and cannot believe what is happening.
A friend of mine was talking to some self employed plumbers the other day who were being paid 80 % of there normal money and were not really bothered whether they went to work again they were feeling better off not working.
Now I am not suggesting all of Joe Public has an attitude like that as the majority of the UK population finding things tight in any event and would prefer to be back to work for the company as well. Things wont be the same again however having a laugh and a joke in staff canteens, bars and restaurants, pubs and clubs look like they are ready for the scrapyard for some time to come.
I know all this is off topic but how on earth could a pub make money when going to the pub is a social event and the government thinking of restricting gatherings to a small amount of people like family and friends you know.
The only way to get back to some kind of normality is to test the whole nation and give a certificate/identity card to ensure other people know you have had the virus or clear.
Maybe the government will relax the rules knowing infections will still carry on but relax them enough just so the NHS is able to cope with the amount of infections.
But whatever happens, here in the UK the US, Europe and the rest of the world its going to knock the global economy with a huge shock wave for some time to come.
Just finished my reply to forbin and its now been announced that the furlough scheme to be wound down and could be cut to 60% of wages to encourage people to work.
https://www.thesun.co.uk/news/11553847/furlough-scheme-wind-down-chancellor-lockdown/?utm_medium=browser_notifications&utm_source=pushly
Now many would ask where are they to find work?
Well the Chancellor did mention a week or two ago some furloughed workers could be encouraged to work in the fields due a reduction of polish workers and I predicted that would happen!
25% of the UK workforce on 80% of wages was not sustainable for a long period of time, the amount of debt ballooning out of all proportions.
BA cabin crew and pilots pulling carrots….
now there’s a picture – from the 1930’s !
this will not end well
This wont end well and if the government not careful riots and crime will escalate.
there was this 2012 paper from HMG about a “what if” flu pandemic in the future after the 2009 one we had .
Many of the actions taken from that paper have been put into force – the notable problem was the effect on the economy. in that a 2nd wave was inevitable after a lock down that would effectively cripple the UK economy , thus hampering the effectiveness of dealing with the 2nd wave .
heavy use of anti-virals and anti-biotics was suggested too – this was not done with this virus for reasons unclear.
so it’s a political problem, fsck’ed now or fsck’ed later in the year
or it could be for SARS-COV2 that the initial fear was based on too little data and the first wave would not have been bad ( please note that SARS-COV2 is not flu , flu pandemics hit the young hard too – this virus has not – some affected yes but Flu has a U shaped morbidity curve )
we’re about to find out later this year .
Forbin
That’s free market capitalism for you people.
As someone who left school in 1991 when the recession was kicking off with companies failing, and once seemingly wealthy people forced to move from the 5 bed detached house at the top of the hill to a 3 bed terrace at the bottom. With it all happening in fairly slow motion.
I used this as a form of subliminal education to think its what will happen in the future when downturns happen.
Shows how wrong i was, can’t but help think that recession (the only actual recession in my life) was just a blip in the Matrix as real recessions all have billion/trillion soon to be a gazillion £$ bailouts at supersonic speed, and asset prices are pretty quickly forced up higher whether they want to go there or not … all to stop the useless businessman moving to the bottom of the hill.
let be honest – with no end to what can be “printed” at a key stroke
nothing can stop use now
Awesome video, Forbin. I like the inserted takes from “Mannequin” with lovely Kim Cattrall. She may be English born, but she grew up in Courtenay, British Columbia, so Canadians take pride in her too.
I don’t know about you guys but this new world of economics getting beyond me, according to this article markets could be paying the UK to borrow money:
https://uk.investing.com/news/economic-indicators/britain-borrows-325-billion-pounds-of-almostfree-money-2111810
But what is confusing my brain is who is holding all this billions of money to be lent to banks and governments when I thought most countries were in deficit?
Is it just rolling off printing machines to be lent to all and sundry at some stage this mickey mouse money must be come worthless and governments drown in their debt.
I simply don’t understand how the world economics can function like they are doing.
There must be a black hole somewhere in the financial system worldwide to my thinking.
For the US, the largest chunk of government debt is held by US-based non-bank investors followed by the governments of other countries.
Japan has the largest chunk of its debt held by its own central bank.
China has a huge swath of its debt owned by domestic banks, with the lion’s share controlled by state-owned banks.
hmm, whom to be worried about – apparently the US of A can pony up more debt and not be afraid no one will take it …..
Forbin
Peter,
Most of it will be bought by insurance companies, when they receive premiums they don’t just leave them sitting in the bank, they buy gilts(as they are considered risk free cash equivalents -hahahahah) and insurance companies and investment managers buy them for pension funds, for the same reason, obviously no sane person would buy them but when the brown stuff hits the rotating blades, they will not be blamed nor incur the losses, some poor sucker who worked hard all their lives and trusted their money saved in the pension scheme would look after them in their retirement will.
Also add in the monetistion factor whereby the treasury just issues gilts and they are returned to the Bank of England to be monetised i.e the so called “Ways and Means” facility – which was issued with the dreaded assurance that it would be TEMPORARY and paid back as soon as the virus crisis was over, so no worries there then(more insane laughter), the government is now paying 50% of the wages in the UK, and as a result you have a perfect Zimbabwe type inflationary collapse baked into the cake, anyone remember my predictions for a financial crisis to be created to ensure the collapse of sterling, oh no I’m sure it’s all a coincidence.(more insane laughter……..hahahahahahaha…………………………………)
Kevin
The future looks frightening and I don’t think Joe Public really understands the seriousness of the current global crisis.
Once Joe Public start to come off furlough and redundancies start to spike and businesses go bust fear will spread.
Even the retired could be hit if inflation increases and the triple lock ceases as has been suggested by some the last few months.
At some stage taxation had got to rise and the rich take the highest burden.
” and the rich take the highest burden.”
pluaaagh ! dammit, spilt coffee all over my key board……..
( bloody pigs have got jet engines….. )
Great blog as usual, Shaun.
The New York Fed Staff Nowcast of -9.3% for 2020:Q2 for the US economy is more optimistic than the BMO Capital Markets forecast (from a Canadian bank) of -40.0% at annualized rates or -12.0% if one adjusts to quarterly rates. For Canada the BMO is forecasting -13.5% for 2020Q2 once one adjusts to quarterly rates. From peak GDP in 2019Q4 to trough in 2020Q2, one thus gets an atrocious decline of 15.7% in Canadian real GDP versus only 10.4% in US real GDP if one uses the New York Fed projection, 13.1% if one uses the BMO projection. The BMO projection also forecasts a stronger recovery in Canada in 2020Q3, so that both economies are, somewhat suspiciously to my mind, exactly 4.9% below their 2019Q4 peaks in 2020Q3. However, they are the professional forecasters, and for sure there would be some scenarios where this might happen. It does seem odd though that the Canadian media exudes contempt for orange man’s inept policies when the US looks likely to experience a much milder recession than we will.
Now we have two Justins in Canada who are recording sensations:
hmm, definitely wet ,wet, wet,
he certainly needs friends — mostly therapy I think