wabuffo

the dirty little secret is they don't even need to borrow it. why would be government need to borrow their own "money" in order to spend? It's a choice to issue treasury securities. Couldn't have said it better myself! You've mastered the concepts, gfp, and are no longer a monetary plumbing apprentice. Bill

If treasury is way more important than the Fed, why would Bessent want the Fed job? Ego. Who gets more press - the Fed Chairman or the US Treasury Secretary? Can you name the last 4-5 Treasury secretaries? But I bet you can name the last 4-5 Fed Chairs. Bill

we should expect surpluses for at least the next few months, correct ? No - deficits (maybe big ones in Jul, Aug). We'll see about September (see below). The structure of the US Treasury's cash flows are generally as follows: 1) You have spending every month that is more or less regular but growing a bit over time. 2) You have payroll taxes every month that are also more or less regular but also growing over time. The issue is that these payroll taxes, while supplying most of the receipts, only cover ~70% of monthly spending. 3) Finally, you have certain months where individual income taxes, estimated taxes and corporate taxes are due. This makes receipts lumpy. When there is a large amount of these taxes paid (like April of course), monthly surpluses occur. But you also have Jan, Mar, Jun, Sept where other taxes are due like estimated taxes and corporate taxes. Sometimes these are enough to put receipts over the top and these months produce small surpluses, sometimes not, and we get small deficits. This is where September will be (small surplus or deficit). Of course, a recession can spike unemployment, produce business losses and cause receipts to fall quickly and as a big percentage of what they were in a healthy economy. Bill

I don't think Warsh is going to get the job. He lost out to Powell the first time when Trump picked Jerome over him. I doubt his odds improve the second time around. To me, Bessent is the front-runner (if he wants the job). I think people vastly overstate the Fed's importance - so I view much of the hand-wringing about the Fed (and its independence) as much ado about nothing. The US Treasury (via Congress) is the 800-lb gorilla on all things monetary as it pertains to its impact on the US economy. If I could look into the future and I could be told either: 1) the rate that the Fed would set at each meeting for the next 5 years, OR 2) the size of the US Treasury deficit-as-a-%-of GDP. I'd pick #2 as much, much, much more important than #1 Bill

The Treasury Department noted that the month benefited from calendar adjustments, without which the deficit would have been $70 billion." It wasn't the US Treasury saying that - it was the Congressional Budget Office. And they were saying that before the month even closed. And of course, they're totally wrong. But other than that.... I would caution reading anything written by interns on the CNBC website.... Bill

Or is there someone you can recommend who's posted on this? Google Warren Mosler or L. Randall Wray and track down their writing or books. As long as you ignore their policy prescriptions and just focus on their description of the monetary plumbing, you're good. Also good, though not an MMT-er per se, is anything by Zoltan Pozsar. He's gone to an expensive subscription model, but his stuff when he published Global Money Notes as part of Credit Suisse are excellent deep dives into the US monetary plumbing as well. They are excruciatingly detailed but I learned a lot after reading them 3 or 4 times each. I think there are a few dozen issues and are floating around the internet. Bill

According to trading economics the consensus deficit for June was -$11B. May was higher than consensus . I think the positive June was due to changes in payment timing. No. The $27B surplus was AFTER timing adjustments and other non-cash adjustments were made. The actual "cash" surplus based on the change in the TGA (x-debt issuance) was $102.3B !!! Those adjustments are in "By Other Means". Another way to get to the actual, unadjusted surplus number is take the increase in operating cash (TGA balance) of $105.5B and subtract the "borrowing from the public" of $3.2B Bottom line - receipts are up and staying up in 2025. Mostly due to continued payroll taxes flowing into the US Treasury + strong quarterly individual estimated taxes and corporate taxes paid in June. Yeah - duties helped but they weren't as big a factor and are drawing too much of the headlines, IMHO in terms of reasons for the unusually large June surplus.

My contention is that as soon as some of the TGA reserve balance is deficit-spent into the private sector, it becomes the IOU of the government and then some of that newly created government IOU (private sector reserve balance) is swapped for a treasury security. You have it exactly right. The Treasury spending moves reserves from the TGA to the banking sector (in terms of Federal Reserve liabilities). This addition of reserves to the banking sector "lights up" corresponding bank deposits (so bank asset = reserve, bank liability = deposit). But for the private sector recipient of that deposit (say, a Social Security monthly direct deposit), it is an unencumbered financial asset. i.e. - MONEY. But the US Treasury spending can't be allowed to just pile up reserves in the banking sector, so Treasury security issuance removes those reserves (and corresponding deposits) with a T-bill/note/bond dollar-for-dollar. Here's the accounting debits-and-credits view of 1) The US Treasury spending $10m, and then 2) The US Treasury with the follow-on security issuance (bond). That's why I always say Treasury security issuance is always "pre-funded". There's no "crowding out" of private sector wealth or savings -- especially now that the operating regime is a floating exchange mechanism (rather than fixed-exchange). Deficit spending adds to that wealth or savings and then transforms the composition of that wealth/savings. In fact, the cumulative deficit spending over time = the net Treasury security balance outstanding in private sector hands. Private sector owned bank reserves pay a high rate of interest currently (4.4%), so "borrowing" actually saves significant money, under present conditions, if the treasury elects to "borrow" for 2-5 years. I tend to consolidate the Treasury and the central bank one one side (govt sector) and the banks/businesses/individuals on the other side (private sector). Your point is ok - but the reality is that the Fed's QE "unsaved" money because it took long-term fixed rate issuance by the US Treasury at 2% or lower during the pandemic and converted it to short-term variable rate borrowing by the Fed now at 4%. That's why there's a lot of nonsense around the terms "Quantitative Easing" and "Fiscal Dominance". Bill

Would tariff income be part of the "By other means"? No - tariff income comes in as receipts going into the TGA. Think of "By Other Means" as the reconciliation between cash (inflows/outflows to/from TGA) and "GAAP" (non-TGA adjustments made to the Monthly Treasury Report that don't flow thru the TGA). For example, in Sept 2022, the Biden Administration tried to do a large blanket forgiveness of student loans. That created a Monthly deficit of $429B - but that included a $373B adjustment to TGA in By Other Means. The forgiveness didn't affect any inflows/outflows in the TGA that month, but was, instead, a "writedown" of Federal govt assets (ie student loan balances). So the adjustment was more of a GAAP-y driven accounting adjustment than a true cash flow. Of course, that didn't fly and a year later - in August 2023, the Monthly Treasury report showed a monthly surplus of $89B of which $377B was in By Other Means as a "write-up of Federal govt assets" (ie, student loans). In other words, that previous writedown was reversed creating an accounting surplus but not a cash flow surplus for that month. For me, what counts is the deficit/surplus as measured by the cash accounting version which is the Deficit as Reported in the MTS less the By Other Means Column. This is basically the change in the balance of the TGA for the month (ex debt transactions). That's what the X-Check column does. It calculates the "real deficit" (Deficit as Reported - By Other Means) and adds the Public Borrow as a check that this X-Check calculation foots with the Change in the TGA balance for the month (which is called Change in Operating Cash in the MTS). Of course, its not really "cash" its a change in reserve balances in the TGA. Hope that helps, Bill

Circle seems like a short candidate to me. Bill

Heinz ketchup may be the only great brand of the bunch in my mind. Wouldn't disagree with the power of the ketchup business. But the rest of legacy Heinz is ho-hum at best. Bill

If it was me I would take the old Kraft business. A much stronger and bigger business. Sure, its not a growth company any more - but it is a very good business with a much stronger distribution presence in grocery than Heinz with more supply chain scale/muscle. Kraft has many more categories where it leads in market share than Heinz does. Just pull up a list of US brands from the Investor Relations website and check off which brands are Kraft brands and which are Heinz. And even of the Heinz brands on that chart, many brands are either tiny (Bagel Bites) or meh (Heinz Vinegar). My own 2-cents is that Heinz was very "fat" from an overhead/SGA perspective and thus very easy prey for the Brazilians' chainsaw when they took over. I mean they still had the overhang of expensive HQ costs from when Tony O'Reilly ran it (GIK). So they made good returns on it. Kraft is/was leaner relative to its larger volume of sales. 3G made the going-in error that they could achieve: 1) synergy between the two (ok), and 2) similar SG&A savings within the Kraft structure (nope). When they couldn't get to their cost cut targets at Kraft, they then made big mistakes in trying to reduce marketing & promotion spend at Kraft which hurt a couple of key categories. The issue at Kraft was that they way overpaid - not that it is a bad business. It's still a great business that was tortured by the boys from 3G. Don't make the mistake that because the Heinz investment worked and the Kraft investment disappointed that it reflects on the business quality of the two businesses. FWIW. Bill

Moody's warning on private credit as systemic risk In all seriousness, systemic credit risk generally happens when the whole US household/business sector is over leveraged vs assets/equity/income (as happened in 2007. That is just not the case today. Of course, there can be some types of lending and some banks that get into trouble - but no system risk today. Moody’s really having a bad run of trying to make headlines the past few weeks. Bill

Moody's warning on private credit as systemic risk

I prefer the clear-headed thinking of that great economist and Veep, Dick Cheney, who said: "Reagan proved that deficits don't matter". This was in the context of the United States and its role as the reserve currency provider to the rest of the world. The only constraint is inflation - the US Treasury is money good and the amount of securities will only go up because the US economy is generally always growing. Bill

I've gone through the logic of sectoral balances before - so I won't repeat myself. But here is the single most important table one needs to understand US Federal deficits, domestic private sector financial health and reserve currency status (foreign sector net exporting to the US in order to save in US dollar assets). Bill

Crack in the bond market: Spek - we already covered this upthread and my response to Jamie was: lol.

+1 for gfp. Bill

How about Stan Druckenmiller? Druck will run you over going the other way 15 minutes after a pronouncement of a trade he made just because the price action changed. He’s a great trader, maybe the best ever, but a mere mortal as an economist. Bill

the thing about the 20s is that it still ended in a depression. Another thing about the (19)20s was that the US Treasury ran a multi-year surplus and "paid down" Federal debt. Trying to reduce Treasury debt always leads to a depression, I say. No one should listen to me about macro policy, but no one should listen to Buffett or Dimon either (who are no better than a coin flip on their economic predictions). Both have a an exceptional circle of competence - Buffett on investing, Dimon on banking - but macro isn't in that circle of competence. Bill

I asked AI for an example of an evergreen bearish-sounding economic headline: AI Response: "Jamie Dimon issues economic warning!" Bill

He (we) is (are) getting paid a very subpar return. Big cash pools value safety (in terms of their counter-party), then liquidity and lastly, yield. There are annual polls that prove this. Its like 80% say safety is the no. 1 priority, 15% value liquidity and only 5% prioritize yield. When I say big cash pools, I'm talking about corporations, asset managers, forex desks, etc. As the depositors in SVB learned the hard way, you don't keep billions on deposit at a bank. That's why Buffett holds BRK's cash in T-Bills almost regardless of the yield he's getting. Bill

7% of GDP is 7% of GDP and is largely unprecedented in peacetime with full employment Its now running at 5.4% of GDP (US GDP = $30.5T). A booming economy is bring it down because of rising tax receipts. But who's counting, yah?

Current situation reminds me more and more of Liz Truss mini budget: Y'all have to be careful with the big numbers being thrown around in terms of the budget impact of this "big, beautiful" tax bill. The projected pro-forma deficit numbers presume that all of the 2017 individual tax cuts expire for a nanosecond, this establishes a new baseline for the bill and then get cut again (even though they are not in effect now). This "restores" $3.4 - $4.6 trillion in revenue which is totally fictitious and then adds this "lost revenue" to the fiscal impact of the bill. It makes no sense but this how the bill is scored. The real impact is closer to $1.8 trillion over 10 years = which is $180B per year. Not great - but not the disaster the bond vigilantes/inflationistas are heavy breathing about right now. I am not a fan of the overall bill - but there's some good stuff in there and overall pretty bullish for the US economy. If we could just put this tariff nonsense behind us - it will continue the path of the Roaring 20's v2.0 the US is currently on. Bill

The 20-year bond is a weird instrument - not sure who the natural buyer is for it (unlike the 10-year and 30-year). They only auction it every 3 months as opposed to the 10-year and 30-year which are auctioned every month. And those two auctions went great a couple of weeks ago. I'd hesitate to draw too much from one 20-year auction. I would also point out that the inflation expectations in the 10-year have hardly moved. It looks more and more like the 10-year yield hovers around 4.5% unless there is a growth scare when it drops in yield (like the summer of 2024 or the tariff liberation day). Bill