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10/18/2013

The Debt Ceiling

With the debt ceiling fast approaching, I thought we’d take a look at the topic in general, regardless of whether it becomes an issue later in the week.

Treasury estimated a few weeks ago that its ability to borrow would be exhausted no later than October 17, leaving a cash balance of approximately $30 billion. The Congressional Budget Office (CBO) projected that the Treasury will exhaust all of the borrowing authority created by the Treasury’s extraordinary measures between October 22 and the end of the month.

So the following excerpts are from the CBO’s “Federal Debt and the Statutory Limit, September 2013” report:

What is the Current Debt Limit?

The debt ceiling at the beginning of 2013 was $16.394 trillion. Due to a congressional act, the limit now stands at $16.699 trillion.

What Makes Up the Debt Subject to Limit?

Debt subject to the statutory limit has two main components: debt held by the public and debt held by government accounts. Debt held by the public consists mainly of securities that the Treasury issues to raise cash to fund the federal government’s operations and pay off maturing liabilities that tax revenues are insufficient to cover. Such debt is held by outside investors, including the Federal Reserve System. Debt held by government accounts is debt issued to the federal government’s trust funds and other federal accounts for the government’s internal transactions; it is not traded in capital markets. Of the $16.699 trillion in outstanding debt subject to limit, roughly $11.9 trillion is held by the public and about $4.8 trillion is held by government accounts.

Federal Cash Flows

Certain large inflows and outflows of cash from the Treasury follow a regular schedule that directly affects the amount borrowed from the public, the largest component of debt subject to limit. Typical days and amounts for sizable government expenditures are as follows:

--Payments to Medicare Advantage and Medicare Part D plans – first of the month (about $17 billion);

--Social Security benefits – third of the month (about $25 billion), with subsequent smaller payments made on three Wednesdays per month (about $12 billion each);

--Pay for active-duty members of the military and benefit payments for civil service and military retirees, veterans, and recipients of Supplemental Security Income – first of the month (about $25 billion); and

--Interest payments – around the 15th of the month and on the last day of the month (with some variation).

So knowing the above, some of the key upcoming dates are....

Oct. 31 – payment of interest on Treasury securities (about $6 billion).

Nov. 1 – payments of Social Security benefits (shifted from the third of the month, which falls on a Sunday); payments to Medicare Advantage and Medicare Part D plans; pay for active-duty members of the military; and benefit payments for civil service and military retirees, veterans, and recipients of Supplemental Security Income (about $67 billion).

Nov. 13 – payments of additional Social Security benefits (about $12 billion).

Nov. 15 – large quarterly payments of interest on Treasury securities (about $30 billion).

Cash Inflows to the Treasury

Most inflows will be from remittances by employers of income and payroll taxes withheld from paychecks. Those remittances typically average about $7 billion per day but can vary significantly from one business day to the next.

So now we sit back and watch...it’s all we can do.

Source: cbo.gov

Wall Street History will return in two weeks.

Brian Trumbore



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Wall Street History

10/18/2013

The Debt Ceiling

With the debt ceiling fast approaching, I thought we’d take a look at the topic in general, regardless of whether it becomes an issue later in the week.

Treasury estimated a few weeks ago that its ability to borrow would be exhausted no later than October 17, leaving a cash balance of approximately $30 billion. The Congressional Budget Office (CBO) projected that the Treasury will exhaust all of the borrowing authority created by the Treasury’s extraordinary measures between October 22 and the end of the month.

So the following excerpts are from the CBO’s “Federal Debt and the Statutory Limit, September 2013” report:

What is the Current Debt Limit?

The debt ceiling at the beginning of 2013 was $16.394 trillion. Due to a congressional act, the limit now stands at $16.699 trillion.

What Makes Up the Debt Subject to Limit?

Debt subject to the statutory limit has two main components: debt held by the public and debt held by government accounts. Debt held by the public consists mainly of securities that the Treasury issues to raise cash to fund the federal government’s operations and pay off maturing liabilities that tax revenues are insufficient to cover. Such debt is held by outside investors, including the Federal Reserve System. Debt held by government accounts is debt issued to the federal government’s trust funds and other federal accounts for the government’s internal transactions; it is not traded in capital markets. Of the $16.699 trillion in outstanding debt subject to limit, roughly $11.9 trillion is held by the public and about $4.8 trillion is held by government accounts.

Federal Cash Flows

Certain large inflows and outflows of cash from the Treasury follow a regular schedule that directly affects the amount borrowed from the public, the largest component of debt subject to limit. Typical days and amounts for sizable government expenditures are as follows:

--Payments to Medicare Advantage and Medicare Part D plans – first of the month (about $17 billion);

--Social Security benefits – third of the month (about $25 billion), with subsequent smaller payments made on three Wednesdays per month (about $12 billion each);

--Pay for active-duty members of the military and benefit payments for civil service and military retirees, veterans, and recipients of Supplemental Security Income – first of the month (about $25 billion); and

--Interest payments – around the 15th of the month and on the last day of the month (with some variation).

So knowing the above, some of the key upcoming dates are....

Oct. 31 – payment of interest on Treasury securities (about $6 billion).

Nov. 1 – payments of Social Security benefits (shifted from the third of the month, which falls on a Sunday); payments to Medicare Advantage and Medicare Part D plans; pay for active-duty members of the military; and benefit payments for civil service and military retirees, veterans, and recipients of Supplemental Security Income (about $67 billion).

Nov. 13 – payments of additional Social Security benefits (about $12 billion).

Nov. 15 – large quarterly payments of interest on Treasury securities (about $30 billion).

Cash Inflows to the Treasury

Most inflows will be from remittances by employers of income and payroll taxes withheld from paychecks. Those remittances typically average about $7 billion per day but can vary significantly from one business day to the next.

So now we sit back and watch...it’s all we can do.

Source: cbo.gov

Wall Street History will return in two weeks.

Brian Trumbore