If Mr. Smith went to Washington today and opened the public purse, he would find moths and lint. As part of its unprecedented stimulus efforts to rescue the economy from the Coronavirus pandemic, the U.S. government has spent trillions of dollars faster than you could say Horton Hears a Who!. In its endless quest to keep the spigot running for Main Street and Wall Street, the politicians have decimated the nation’s already deteriorating finances, poised to run a record-high budget deficit. But the Treasury Department may liberate the enslaved damsel in distress from the basic laws of accounting by tapping the pockets of private investors and foreign governments.
Treasury Island
The Treasury recently announced that it would borrow $3 trillion in the second quarter and at least $677 billion in the third quarter. The exact figure for the April-June period is $2.999 trillion. Perhaps Secretary Steven Mnuchin wanted to show off his wry sense of humor. They don’t call him Sexy Steve for nothin’!
Because we now deal with trillions more than billions, it can be difficult to fathom these numbers. To put them into context, the Treasury sold $84 billion in bonds in the third quarter in 2018. It borrowed more than $400 billion in the first quarter this year. In the fiscal year 2009, the federal government borrowed a record-high $1.8 trillion from financial markets,
So, what is on the table this time? To whet investors’ appetites, Mnuchin is reportedly auctioning inflation-protected securities, floating rate notes (debt instruments with variable interest rates), and nominal coupon auction-size increases. For the last three years, the Treasury has been ebullient in raising its maturity offerings on all nominal coupon debt to add a few bucks to the coffers.
The department said in a statement:
“The increase in privately-held net marketable borrowing is primarily driven by the impact of the COVID-19 outbreak, including expenditures from new legislation to assist individuals and businesses, changes to tax receipts including the deferral of individual and business taxes from April-June until July, and an increase in the assumed end-of-June Treasury cash balance.”
Officials also will reinforce support for many lending programs for the Federal Reserve. The central bank has been leveraging Treasury guarantees in its $2.3 trillion Main Street Lending Facility to shore up businesses, households, and state and local governments. Speaking of the Fed, will the Eccles Building be a significant buyer for these second-quarter Treasurys? It is possible. Chair Jerome Powell has unlimited quantitative easing as official Fed policy, plus he had been scooping up notes and bills before the coronacrisis became a thing.
During the May 5 trading session, the U.S. bond market was seeing green. The benchmark ten-year Treasury rose 0.033% to 0.668%, while the 30-year note edged up 0.039% to 1.335%.
A Stick of Dynamite
In two months, the national debt has exploded by $1.5 trillion, or 6.4%, to just under $25 trillion. The federal deficit had already been on target to exceed $1 trillion for FY 2020, but now it is projected to hit an all-time high of $4 trillion. If lawmakers heed the advice of Powell and approve additional spending measures to ensure the economy rebounds in the second half, the shortfall could easily eclipse these estimates. And there you have it: What started as a virus originating from Wuhan has metastasized into a chronic disease that eats away at the foundation of the U.S. economy. Vaccines and face masks might help mitigate COVID-19, but nothing will cure the coming Japanification, the zombification, and the greater centralization that will sweep the country. Thanks, bats and wet markets!
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Read more from Andrew Moran.
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