The idea of a small rise in the federal debt limit to buy more time after August 2nd for a larger deal is starting to come up quite a lot. For example, the reporting on the Mitch McConnell fallback plan suggests that a $100bn rise in the debt limit would be made available immediately in order to buy time.
The trouble is that as soon as there is any space under the debt limit, the Treasury will be obliged to replenish the government trust funds that it has been borrowing from in order to stay under the limit for the last few months. The law is unambiguous: Read more
Freddie Mac, the second largest US mortgage finance company, said on Monday that it would need an additional $1.8bn from the US Treasury Department, as souring home loans continue to saddle it with losses. The company said it lost $6bn, or $1.85 a share, in the second quarter. That marked a sharp increase from the same period a year ago, when it lost $840m, but was improved from the first three months of the year.
Charles Hadelman, Freddie chief executive said, that the company “continues to support the still-fragile housing market by providing America’s families with access to affordable home financing and foreclosure alternatives” but that the market still faces real challenges. Read more
Finally, here is the Treasury report on international exchange rate policies.
Originally, the document had been scheduled to be released in mid-April, but it was delayed by the US government as it attempted to negotiate an appreciation in the renminbi while holding off mounting pressure to punish the Chinese from infuriated members of Congress.
As expected, the US is once again not naming China a currency “manipulator”, but only stating that its currency is “undervalued”. That outcome was a foregone conclusion since June 19, when China depegged from renminbi from the dollar, the first step towards appreciation.
In a statement yesterday, Tim Geithner, US treasury secretary, was cautious about the implications of the move. “What matters is how far and how fast the renminbi appreciates,” he said. Read more
As it turns out, the Federal Reserve System has about 20 times the number of economists as the US Treasury.
Tim Geithner, Treasury secretary, noted the diminishing number of US treasury economists under the Bush administration in testimony to the House appropriations committee today.
The Treasury entered this economic crisis with its professional ranks seriously depleted. We entered the worst economic downturn in generations with, just as an example, only 25 economists in the Office of Economic Policy, which is a third fewer than in 2000…Just to give you by comparison, similar offices at the Departments of Housing and Urban Development and Agriculture have 140 and 330 economists, respectively. The Federal Reserve System has over 500 PhD economists.
Other than the call for economic reinforcements, no major surprises in Mr Geithner’s testimony. Read more
Yesterday there was dampened interest in a $21bn issue of 10-year bonds. Today, as we await the outcome of the $13bn 30-year auction, there seems to be ever less interest in these longer-dated bonds: the spread between 2- and 30- year bond yields is at its highest for 17 years. Presumably investors are worried about inflation as the government deficit reaches a record $1,400bn. If this is the start of a trend, the US government will find it increasingly expensive to fund its debt-financed stimulus and bail-out packages.
Now the Treasury Department has increased pressure on the Fed’s untested techniques for exiting stimulus measures, should the Fed perform trial runs, asks Krishna Guha of the Financial Times Read more