Treasury Announces Record Borrowing Needs For Current Quarter

Well there's a shocker. The United States Treasury just announced that is will need to borrow $361 billion for the April-June Quarter, higher by $196 billion that announced previously in February, and is miles more than the same period last year when the Treasury had to borrow "only" $13 billion. This is traditionally the cash heavy tax-receipt quarter in which borrowing needs should be the lowest. Not only that, but Treasury will need to borrow $515 for the subsequent, July-September, quarter. Indicatively, the all time high borrowed amount was $569 billion in the October-December period. In the last quarter, the Treasury borrowed $481 billion, and ended the quarter with $269 billion in cash.

During the April – June 2009 quarter, Treasury expects to borrow $361 billion of marketable debt, assuming an end-of-June cash balance of $245 billion, which includes $200 billion for the Supplementary Financing Program (SFP). The borrowing estimate is $196 billion higher than announced in February 2009. The increase in borrowing is primarily related to a continuation of the SFP, and lower receipts and outlays.

During the July – September quarter, Treasury expects to borrow $515 billion of marketable debt, assuming an end-of-September cash balance of $270 billion, which includes $200 billion for the SFP.

During the January – March 2009 quarter, Treasury borrowed $481 billion of marketable debt, finishing at the end of March with a cash balance of $269 billion, of which $200 billion was attributable to the SFP. In February, Treasury estimated $493 billion in marketable borrowing, assuming an end-of-March cash balance of $225 billion. The decrease in borrowing was related to lower receipts offset by lower outlays and adjustments in the cash balance.

The current borrowing limit of $12.1 trillion (increased by Congress in February) will likely need to be reevaluated yet again, as the national debt now stands at $11.1 trillion. Incidentally, there is $100 billion of UST supply in 2, 5 and 7 year notes over the next 3 days.

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U.S. Treasury Purchases Surprisingly Not Reliant on China

The Council on Foreign Relations has done a great independent analysis of who has been buying U.S. Treasuries in 2008. In a nutshell, the US managed to place $1.3 trillion of USTs with non-Chinese investors. We urge readers to read this article, but here are their conclusions:

China: bought $120 billion USTs in 2007, and $375 billion in 2008 (and a stunning $276 billion in the second half of 2008)

Central banks: bought $290 billion in 2007, and $650 billion in 2008 (a record)

Private investors: net sellers of USTs in 2007, added over $1 trillion in 2008!

The article assumes logically that central bank demand for USTs in 2009 will drop, as will Chinese purchases due to the drop in China's account surplus.

Bottom line: the majority of the tremendous 2009 fiscal deficit and the general US borrowing need will have to be financed by private investors. If China starts selling USTs or if private investors stop buying, say welcome to hyperinflation (ed. we tend to exaggerate on occasion, but do your homework... this is one scary subject). Sphere: Related Content

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