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Uncle Sam's Borrowing Needs
Daily Data: A rapacious borrower meets a timorous lender
Uncle Sam is still planning to hog all the liquidity, and I still don’t get how it’s supposed to work.
Everything reads better in your browser or in the app. The footnotes especially, and Random Walk is really leaning into the footnotes. Plus, if you have the app, you can set delivery to “app only” and then my daily barrage will feel less like a barrage. Unfortunately, substack does not yet have a “Weekly Digest” option, but I’m hectoring them aplenty.
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Uncle Sam’s Borrowing Needs (reprise)
Random Walk continues to wonder how Uncle Sam is going to get all the money it needs (and what the consequences might be if it does).
Consider, again, that the amount of refinancing Uncle Sam needs continues to grow, with more than $8T of debt maturing in the next 12 months:
As per Mr. Costa, that’s:
1/3rd of what’s outstanding,
3.5X more than the net-new issuance this year, and
doesn’t account for the ~$2T of net-new issuance necessary to cover next year’s widening deficit.
That’s a whole lot of borrowing at precisely the time when central banks, especially ours, have said “borrowing money is going to be hard and expensive.”
If you need liquidity, you’re going to have to find it from someone other than a central bank:
Banks have shrunk their share of debt to 35% of global GDP, which is substantially lower than peak-pandemania, but still higher than pre-pandemic.1
So it’s investors who are going to be responsible for funding this (in theory).
And how do you get money from investors?
Well, if you’re a private company, you’re deadset on improving your bottom line, increasing profitability, and reducing your borrowing needs. Otherwise, investors won’t touch you with a 10ft poll.
That’s how you survive.
So how does Uncle Sam survive?
Take a look at this fantastic viz fromand remind me again which part of Uncle Sam’s bottom line is going to get better:2
The deficit grows, so borrowing grows, so the interest expense grows, so the deficit grows, so the borrowing grows, and around and around we go.
Borrowing costs as a share of revenue get ever-higher, which only drives borrowing costs higher.
Up and to the right is not the direction we want to be moving in.
I don’t get it.
How does this end without either a central bank intervention (so long “War on Inflation”) or just Uncle Sam eventually gets all the money?
Is the theory that we soft-land, so rates go down again, and then . . . it’s fine?
Maybe that’s it.
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It’s also interesting to see that tightening, or attempted tightening, actually began back in 2018, which people are wont to forget.
Full post is here