[New post] TGA Drawdown, July Tax Record, Reverse Repo and Debt Ceiling
User ID posted: " https://www.youtube.com/watch?v=IhHj0GODT74 TGA Drawdown, July Tax Record, Reverse Repo and Debt Ceiling by Joseph Brown The Treasury General Account has finally gotten back down to its pre-covid levels, which is where the treasury had targeted at th"
The Treasury General Account has finally gotten back down to its pre-covid levels, which is where the treasury had targeted at the beginning of the year. The problem is the Federal Government cannot issue any new debt until the debt ceiling is either suspended or raised, and so the TGA may go all the way to zero. But record tax inflows are assisting with delaying this, potentially longer than expected.
I am not a CPA, attorney, or licensed financial advisor and the information in these videos shall not be construed as tax, legal, or financial advice from a qualified perspective. Linked items may create a financial benefit for Heresy Financial.
What's up everybody my name is Joe Brown and this is Heresy Financial. A couple of things going on number one the treasury general count has gotten back down to the level that the treasury set was its target at the beginning of the year number two reverse repo usage has been exploding you know that you've been following along many people have been talking about that well above a trillion dollars now looks like it's probably not even going to come back down that was a ceiling now it's a floor type of thing and so we're going to talk about that because that's related to the treasury general account in addition to the tax revenues hitting an all-time July record with one caveat that I'll talk about all three of these things are interconnected to the postponement of resolving the debt ceiling issue as default towards our national debt gets a little bit closer ready let's dive in okay first chart we're gonna look at is the treasury general account you know I've talked about this many times this is the Federal government's checking account it's an account held at the Federal Reserve so when the Federal government gets money in taxes it goes into this account when the Federal government spends money when they give people their paychecks politicians military when they paid contractors when they pay businesses every al every dollar that the government spends comes out of this account this is basically just their checking account during Covid they issued a ton of new debt in order to pay for all that stuff all that spending so all of that new money came in blew up the treasury general account to sky high record high I think 1.8 trillion was the peak and they were also continuously bringing in tax revenue at that time as well and so since then since January really the treasury has said okay we're not going to borrow as much right now because we already borrowed a lot and so we're just going to spend what we already borrowed and keep in mind this borrowing wasn't like normal borrowing where it comes from the economy and pulls money out of the economy in order to then spend it in a different way this borrowing came from the Federal Reserve this was monetized by the Federal Reserve indirectly but still it was basically absorbed by the Fed's balance sheet so all of this money is basically new money that came into circulation into the economy wasn't extracted out first and then put back in kind of like taxes are the plan was to take this back down to 400 billion or so that was the level it was at right before this massive explosion before Covid and we have now hit that so now it's kind of like a ticking clock where we're kind of wondering how far will a treasury have to take this account down before they have to resort to pulling funds from other areas because right now they can't issue any additional debt they're only able to use extraordinary measures because that debt ceiling was passed up two years ago when that happened they just suspended the debt ceiling and that suspension expired in July of this year and so the politicians right now battling it out trying to figure out who's going to vote for it who's not going to vote for it essentially it's going to get done nobody no none of the politicians are actually willing to risk default on the national debt but they've got until October maybe even November in order to resolve that come to a solution on that and so because of that republicans are basically saying hey right now democrats you can do it without us so we don't want to vote for it none of us are going to vote for it because if we do vote for that then that'll potentially make it more difficult for us to get reelected so since it has to happen and since you can do it without us we're not going to participate even though if it was an anonymous vote it would probably be unanimously voted for raising the debt ceiling so it's all theater but that's what's going on right now so they're drawing down on this treasury general account now one of the other wild cards that's coming in that makes it difficult to anticipate will the emergency money last until October or November is the tax revenue and in July for 2021 we saw another record in tax revenue for our dear old Uncle Sam he got a raise from Covid got a raise after covet and it looks like that additional income will continue into the future so you'll notice here July they pulled in Federal government pulled in 261 almost 262 billion dollars which for the month of July is an all-time record besides July of 2020. Now why does that matter because that is when taxes were due for when they delayed them during 2020 because of covet so obviously since all of the taxes that you know were delayed for 2020 until they were you know due in July that's going to be a spike you're going to have the biggest peak there when you discount that because all of the tax revenue from tax season for this year vastly exceeded the tax revenue that they pulled in in 2020 when you look at this number for July the fact that 262 billion that's more than any July in previous years now you might be looking at this chart and thinking well they're not making that much more money but it really comes into what good light when we look at the quarterly numbers so if we switch over here to the quarterly numbers you can see there's a big spike going on right now last year they got raised big spike in income this year even more and so this is basically what happens when governments spend money into existence they increase their own revenue and that's part of what they're trying to do even though it's kind of like there's a Catch-22 it's like a snake eating its own tail if you expand the money supply in order to pay for your additional debt and then you take all that new debt and then you spend that money into the economy you're going to bid up prices those bid up prices cause an increase in tax revenue because if wages go up prices go up capital gains taxes increase the number you don't even have to change the tax rates but because prices of everything go up that means the tax income goes up as a result of that and if that tax income goes up then that can help you pay off that debt or at least service the debt but one of the problems that you run into is that the additional income that you get if you're doing this as a central government can very very quickly turn into a negative return when considering the increase in debt service costs so you increase your debt service burden like this and then maybe the additional income comes to here and so on net you're making it harder on yourself even though you do have this increase in tax income now one way around that is to have the Federal Reserve or your central bank monetize it all because usually the central bank profits are swept back into the treasury and that's the the way that it works in the united states so any debt that is owned by the Federal Reserve has interest paid to it right and so the Federal Reserve pays for all of its expenses and then any profits that are left over get swept back to the treasury and so ultimately if the if they wanted to if they could get the rest of the world to sell all of their treasuries so that the united states government could owe all of its debt to just the Federal Reserve their debt service cost would essentially be zero because all of the profits from the Fed are swept back to the treasury basically what you would have in that case is a case where you don't actually have a government or an economy run on national debt that's just an accounting gimmick basically what you have at that point is the government in control of the printing press and you have the all of the spending financed by the printing of money the expansion of the money supply and finally since we're in a situation right now where the Federal government is not issuing new debt in order to pay for its expenses basically it's spending a bunch of cash dollars into the economy without producing any new treasuries that are offsetting that cash that means that banks the banking system has to absorb a lot of new cash into the system and they're not able to receive any new treasuries into the system to counteract that because remember for a bank a bank when they when somebody makes a deposit out of bank that's a liability for the bank because they have to be able to return that money to that person at any time there are requirements on how much a bank has to hold in reserves in order as capital as collateral depending on how much they have in liabilities for banks usually they hold treasuries as their collateral well their deposits are exploding which means their liabilities are exploding and the government isn't feeding any new collateral into the system right now and in fact the Federal reserve is still buying 120 billion dollars worth of assets which are treasuries and mortgage-backed securities every month and so the number the amount of collateral in the system is is being drained at the same time as liabilities in the system are increasing for banks and so the Federal Reserve has had to use this reverse repo facility where banks can park cash overnight in return for collateral in order to meet these requirements the collateral requirements for all their liabilities so this reverse repo facility will continue to be used until the Federal government fixes its debt ceiling issue and starts issuing a ton of new debt again into the economy and that's when the reverse repo facility will stop being used and probably very quickly go down to zero almost nothing basically where it was before at that point we're going to be back into the situation where instead of seeking collateral they'll be seeking cash again and the repo market will be used as normal now I've explained this in detail in another video but it's possible this is overdone which is why the Federal Reserve announced that they're making standing repo facilities so that banks don't have to and financial institutions don't have to go to each other in the repo market and potentially have those repo rates go up once banks need cash again and so that's why they opened up the standing repo facilities so that all financial institutions have direct access to the Fed so the Fed can definitely keep a real hard cap on those repo rates so that if the financial institutions don't have enough cash to loan to each other overnight they all have access to the Fed so the Fed can make sure that rates don't go up they can keep lit on rates because they can just print as much cash as they need yes it's a pawn shop yes it's smoke and mirrors and don't pay any attention to the man behind the curtain because they don't want you to know how this stuff operates because once you start to see how they work things you see how fragile everything is and on one error in economic policy monetary policy fiscal policy one I don't know record drop in US consumer sentiment it could all come crashing down and they don't want you to think that there's a possibility it could all come crashing down because if you think there's that possibility you might prepare by preparing you're gonna save withdraw your spending and god forbid anybody save and stop spending because that could contribute to a collapse in prices deflationary death spiral so we just want you to think everything's good because if you think everything's good you'll just keep on acting that way and that will make everything good and that's why I do what I do I'm only trying to pull back the curtain show you who's actually pulling the strings so that you can make a better educated decision for yourself about how to prepare for the future as always I really appreciate you guys thank you so much for watching have a great day
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