The growing gap
The debate between President Obama and Republicans in Congress is getting more and more confusing. The graph above might help a little in understanding what the basis for the argument is. There is a large and growing gap between revenues and outlays. The deficit, or the difference between what comes in and what is paid out, is funded by selling U.S. Treasury bonds. We have reached the upper bound of what we can issue unless the Congress increases the debt limit. This has repercussions everywhere, including states. Reuters has an excellent overview of the effect on the states since they rely on the federal government for a significant portion of their funding.
A very good discussion of the larger issue is happening at Econbrowser: Data: Spending and Tax Receipts, 1967-2011.
Data in the graph comes from the Congressional Budget Office.
Another short-term loan for California
The uncertainty about a federal debt deal has California seeking a short-term loan in the private loan market. This will carry the state until it can issue short-term bonds or revenue anticipation notes (RANs) in the bond market in August. Bloomberg reports:
Facing market turmoil that could boost the state’s borrowing costs if he waited until August, [California State Treasurer] Lockyer instead will accept competitive bids from investment banks, commercial banks, credit unions and investment funds for a private $5 billion loan today.
California used a similar $6.7 billion bridge loan from JPMorgan Chase & Co. and five other banks in October, when a record 100-day budget impasse prevented Lockyer from issuing RANs. The state paid 1.4 percent on the October loan, or $6.7 million of interest, until it was repaid when Lockyer sold $10 billion of RANs at the end of November.
He will repay the new loan once he is able to sell RANs.
@PatrickMcGee_BB: Citi’s Friedlander: “Had direct retail not been active in past wk, $8.3B of new issues would’ve caused substantial upward jump in yields.
@Fixedology: Muni issuance $9 B last week – largest in 2011: market handled it well (July cash from coupons/maturities and positive fund flows)
@MillerTabak: extraordinarily large dollar prices are driving investors into the warm arms of “A” rated credits that have been overlooked – who is “AAA” ?
@Muni_Mkt_Advis: Trend in super downgrades (3+ notches) reflects updating of rating surveillance cycle not rapid credit erosion; trend is slowing
@munilass: Aaa-rated Maryland postponed refunding portion of its deal because the state faces risks investing proceeds in Treasuries. (Bloomberg)
CBO Director’s Blog: Estimated Impact of the Stimulus Package on Employment and Economic Output
Council of State Governments: Dodd-Frank, One Year Later: A Look at States’ Role in Financial Services Regulation under the Landmark Legislation
Mother Jones: Amazon’s Scorched-Earth War Against the Rest of Us
Bond Buyer: The Worst Of Times For 2 Cities
Marketplace Radio: Arizona takes a stand on Medicaid
St. Petersblog: Scott: ‘We’ll meet private prison deadline’
SIFMA: 3rd Annual Muni-Bond Summit