Hmm: U.S. Treasury suddenly planning for ‘loss of capital market access’

Hmm: U.S. Treasury suddenly planning for ‘loss of capital market access’

[Ed. – But, hey, all those foreign T-bond holders out there?  Russia?  China?  They like us, they really like us.  Flailing economy, lying federal-agency indicator reports, disruptive foreign policy and all.  Our leader is The One.  Emphasis in original.]

This is how the Treasury framed the discussion:

Pursuant to the Committee’s request at the April meeting that Treasury present a cash balance management framework that mitigates certain risks, DAS Clark began his presentation by reviewing Treasury’s current cash balance objectives.  He explained that Treasury’s main sources of cash are susceptible to risk, noting that Treasury has historically focused on risks associated with errors in fiscal forecasting.  Clark stated that several events had made it clear that market access and settlement risks could also potentially impair Treasury’s ability to fund government expenditures for several business days. 

A detailed discussion ensued amongst Committee members around the benefits and potential concerns related to holding a higher cash balance in order to mitigate the consequence of losing market access.  The Committee concluded that it would be cost effective and prudent for Treasury to hold a higher cash balance.  They suggested that Treasury should continue to analyze the details of maintaining a higher cash balance and present its findings at an upcoming TBAC meeting.

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In other words back in April, the US Treasury for reasons unknown, tasked the TBAC to consider levels of cash funding needs for the US treasury as a result of “certain risks.” …

Here is what the TBAC finds: “Historically, Treasury has only had enough cash to withstand a loss of market access for approximately 2 days.” …

But it is the TBAC’s punchline that is most important:

If Treasury lost market access for a short period of time, the U.S. government would face a substantial cash shortfall.

  • Since the beginning of the financial crisis, on average, Treasury would have faced an $28 billion cash shortfall if market access had been lost for 3 days.
  • This shortfall increases to $89 billion if market access had been lost for 5 days and $239 billion if market access had been lost for 10 days.

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