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T-Minus Two Months Until The $500 Billion Rolling Debt Ticking Timebomb Goes Off
07-02-2011, 11:31 AM,
Rainbow  T-Minus Two Months Until The $500 Billion Rolling Debt Ticking Timebomb Goes Off
T-Minus Two Months Until The $500 Billion Rolling Debt Ticking Timebomb Goes Off

Submitted by Tyler Durden on 07/01/2011 14:07 -0400

Debt Ceiling Fitch New Debt Issuance ratings Ratings Agencies Reality

Ever since the famous Stanley Druckenmiller Op Ed published in early May, which called for an outright default of the US, saying it would not be the end of the world, and in fact the US would emerge stronger as a result of finally taking the first steps to getting its fiscal house in order, there has been a visible shift regarding the US debt ceiling discussion, with republicans (so far) digging in and refusing to budge on the issue.

After all, on the surface Druckenmiller is absolutely correct: with interest rates near record lows for the past 3 years, interest payments would be manageable for a long time even if general rates were to surge due to the Treasury's fixing of low cash coupons over the past 3-4 years, amounting to about 20-30% of all annual tax receipts. There is however one very big problem with this argument, one which we pointed out back in April 2010 when we said that "What people don't realize is that...unless the UST can roll its debt not on a monthly but now weekly basis in greater and greater amounts, the interest rate doesn't matter.

All it takes is one semi-failed auction and it's game over as hundreds of billions in bills become payable." Enter the always forgotten maturing debt argument. And as a just released presentation by the Bipartisan Policy Center titled "Debt Limit Analysis" reminds us, aside from the actual deficit funding math, which is that in August there is a $134.3 billion cash shortfall that has to be funded with debt, there is a far greater risk. Or, put numerically, 467.4 billion far greater risks.

This is the amount of debt that matures through August 31, and has to be rolled over or the US is bankrupt... in every sense of the word. Once again, America's politicians and media get broadsided by the definition of gross versus net. Because, in reality, the inability to issue more debt post August 3 means a halt to all new debt issuance. Which, unfortunately because it means Geithner's scaremongering is actually correct, would imply the end for the debt ponzi.

Below is the maturity schedule in August from the BPC:

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