A $1 Trillion Borrowing Binge Looms After Debt Limit Standoff

The Treasury Department narrowly missed running out of cash before President Biden signed a bill allowing it to borrow money to pay the bills. As a result, the government is expected to borrow around $1 trillion by the end of September, pulling cash from banks and other lenders into Treasury securities. Higher borrowing costs for the government could raise costs for banks, companies, and other borrowers, creating a similar effect to roughly one or two quarter-point rate increases from the Federal Reserve. The deluge of Treasury debt also amplifies the effects of another Fed priority: the shrinking of its balance sheet. The cash balance at the Treasury Department’s general account fell below $40 billion last week. Refilling the government’s cash coffers is more complicated than restoring investments in retirement funds for postal workers and civil servants, which is an accounting fix. The Treasury Department said on Wednesday that it hoped to borrow enough to rebuild its cash account to $425 billion by the end of June, but it will need to borrow much more than that to account for planned spending. The supply floodgates are now open, said an interest rate strategist at Bank of America. A Treasury Department spokesman stated that when making decisions on issuing debt, the department carefully considered investor demand and market capacity. Some banks may find themselves short of cash when their reserves decline, while investors and others may not be willing to lend to institutions they see as troubled.

Author: OpenAI