FAST FIVE: The Debt-Ceiling Impasse Has Meant Mini-QE Since May – Will Mean QT When Resolved
Authored by Bryce Coward via Knowledge Leaders Capital blog, When the US government gets near its statutory debt limit, congress must lift the debt limit in order for the Treasury to continue to issue debt to pay for government expenses.
The act of the Treasury drawing down its account at the Fed is kind of like a mini version of quantitative easing in that it adds liquidity to the system that otherwise would not have been there.
So far the Treasury has drawn down its checking account at Fed by a cool $200bn since May, or $100bn per month.
On the flip side, when the debt ceiling impasse is finally settled, and it looks like that is going to happen any day now per Treasury Secretary Mnuchin's comments, the Treasury will need to build back up its checking account balance at the Fed.
This means issuing enough debt over the next few months to not only cover ongoing expenses, but also enough to add back the $200bn it has withdrawn from its checking account so far.