Friday, October 24, 2008

What's going on at Treasury?

We need to get something done as quickly as possible. US Treasury Secretary Paulson, on 9/29/08 after the House rejected his initial proposal

If you happened to watch any TV news or read any print over the past few weeks, you will likely recall many public officials citing the urgent need to pass the rescue package as quickly as possible.

After some horse trading and a bit of grandstanding, the package was passed.

You'd figure, given the cries about the urgency of the bill, that once passed, funds would be raised and allocated quickly. I assumed the same.

If you assumed as I did, you would be (partly) wrong.

As I'm about to show you, funds were raised, but, as best I can tell, most haven't been spent.

The graph below depicts the US Treasury's Total Operating Cash Balance.

Yes, as of Oct. 23, the US Treasury is sitting on US$716B in cash. If I were a "Gordon Gecko"-type corporate raider, I'd think the US Treasury looks about ripe for a take-over. Drain the cash and let it go bust.

The head scratcher to me is....if it was so urgent to pass the bill, why not put the cash to work? Was the intent simply to soak up lots of short term liquidity and prop up the US$?

Notice I used "short term" for that has been the chosen financing option for this rapid and substantial expansion of the public debt.

As of end August 2008, total US Treasury Securities Outstanding was $9.646T, of which $5.479T was held by the public and the rest was "intragovernmental" (i.e. social security, Medicaid, etc.). Of the roughly $5.5T held by the public, $1.2T was in the form of bills.

As of end September 2008, total US Treasury Securities Outstanding was $10.025T (a 1 month increase of $379B), of which $5.809T (a 1 month increase of $330B) was held by the public. Of the roughly $5.8T held by the public, $1.5T was in the form of bills.

As of October 23, 2008, total US Treasury Securities Outstanding was $10.524T (a 23 day increase of $499B), of which $6.25T (a 23 day increase of $441B) was held by the public. Of the roughly $6.3T held by the public, $1.9T was in the form of bills.

In sum, since the end of August, the Treasury has increased the public debt by $878B, most of which was raised from the public ($771B) in the form of bills (roughly $680B). Its coffers are full, but funds are not (as best I can tell) flowing. Meanwhile, the average duration of US debt has become perilously short.

Do the guys in charge think of the US Treasury as a going concern? The way it appears to be run, I have my doubts.

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