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The liquidity cliff has been delayed as the US Treasury has not moved with its usual speed when the debt ceiling is lifted. It must restore accounts that it has raided under “extraordinary measures” to stay under the previous debt limit. And it normally moves to rebuild the Treasury account (TGA) to its target level, announced at the quarterly refunding announcement. In this case that’s $850 billion.
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That has meant an instant massive increase in Treasury supply announcements in the days immediately after the debt limit is increased. That hasn’t happened this time.
Here’s why. In past instances, the debt limit wasn’t raised until the TGA has effectively reached zero. The Federal Government actually ran out of money before Congress and the Administration could make a deal.
That wasn’t the case this year. Under the one-party state, the deal was done well before the TGA approached zero. Last week when the regime passed the debt limit increase, there was still $372 billion in the TGA. They had breathing room. There was no need to spook the markets with the announcement of hundreds of billions in new T-bill issuance. They still have breathing room. As of July 10, there was still $288 billion on hand.
You will note that that’s a drop of $84 billion in a week. At that rate, the money will run out in early August. Which is exactly where we projected the liquidity cliff (LC) to be prior to the deal getting done earlier than I expected.
What other curveballs might be in store?