After debt-ceiling negotiations, America faces a debt deluge

Having flirted with madness, Congress decided to avert a sovereign default and allow the government to resume borrowing. But although the debt-ceiling negotiations are over, their aftershocks will ripple through financial markets for months to come. In order to stave off disaster, the Treasury spent much of the past six months running down its cash holdings, eventually reaching the point where it had almost nothing left. Now it must scramble to replenish its cash, creating a potential hazard for the economy.The Treasury general account—the government’s main account at the Federal Reserve, used for official payments—fell to just $23bn at the start of June, far less than the amount of net spending on a typical day. Normally the Treasury tries to maintain a balance of at least $500bn, enough to cover about a week of cash outflows. Thus its task is to rebuild buffers by selling bills and bonds (it will mostly rely on bills, because it is easier to raise cash quickly via short-term debt sales). At the same time, it will have to sell even more paper to finance the government’s deficit. The result will be a surge in issuance. Mark Cabana of Bank of America forecasts that the Treasury will issue more than $1trn in bills over the next three months, roughly five times its total in an average summer.