$10 Trillion Withdrawn From U.S. Treasury This Fiscal Year Alone, Treasury Says

September 6, 2012 - 6:14 PM

Timothy Geithner

Treasury Secretary Timothy Geithner (AP Photo/Evan Vucci)

(CNSNews.com) - Although the Congressional Budget Office estimates that the federal government will spend $3.563 trillion in fiscal year 2012 and the White House Office of Management estimates it will be $3.795 trillion, actual withdrawals from the U.S. Treasury have already exceeded $10 trillion.

In fact, as of the close of business Wednesday, withdrawals from the Treasury equaled $10,201,615,000,000 for fiscal 2012, which began on Oct. 1, 2011 and will end on Sept. 30.

According to the Daily Treasury Statement--the official daily accounting sheet for the federal government—withdrawals from the Treasury exceeded $10 trillion this year on Aug. 30, when they rose from $9.903 trillion to $10.035 trillion.

How can this be?

The answer: The federal government needs to churn through trillions of dollars each year above the level of current annual federal spending in order to maintain its $16 trillion debt—much of which is held in Treasury notes that mature in anywhere from 2 to 10 years and Treasury bills that mature in anywhere from a few days to less than a year.

The federal government has an interest—literally—in maintaining much of the debt in these short- and mid-term securities because it pays a lower interest rate on them than it does on Treasury bonds, which mature in 30 years.

The Monthly Statement of the Public Debt for July—which reported the composition of the federal debt as of July 31, 2012—indicated that at that time the total U.S. debt was $15,933,235,000,000. Of this $15,933,235,000,000 in debt, $4,810,953,000,000 was “intragovernmental” debt and $11,122,282,000,000 was debt held by the public.

Intragovernmental debt is money the government has borrowed from past surpluses in government trust funds such as those for Social Security and Medicare and that the government owes on paper to itself.

The debt held by the public is mostly made up of marketable Treasury securities, including Treasury bills, notes, bonds, and Treasury Inflation-Protected Securities. But it also includes non-marketable securities, such as Savings Bonds, the State and Local Government Series (which includes money state and local governments have raised through local bond sales and have temporarily deposited with the federal government for safe keeping), and the Government Account Series (which includes money taken from the paychecks of federal workers for their retirement savings program).

As of July 31, the $11,122,282,000,000 in debt held by the public included $533.919 billion in non-marketable securities and $10,588,362,000,000 in marketable securities.

Relatively little of this $10.588 trillion in marketable Treasury securities was in 30-year bonds. In fact, according to the Treasury, $1,578,693,000,000 was in short-term Treasury bills and $7,061,335,000,000 was in Treasury notes.

Indeed, only $1,165,650,000,000 was in 30-year bonds---less even than the $1,578,693,000,000 in short-term T-bills.

Another $782.6 billion was in long-term Treasury Inflation-Protected Securities.

So far this year—as of the close of business on Sept. 5, according to the Daily Treasury Statement—the Treasury has needed to pay out $4,813,007,000,000 to redeem short-term Treasury bills that have matured even though these bills only amounted to $1,578,693,000,000 of the debt as of the end of July. That is because the part of the debt held in these very short-term bills must be refinanced over and over again throughout the year.

Also, so far this year, the Treasury has needed to redeem $1,105,248,000,000 in Treasury notes, or almost 16 percent of the total of $7,061,335,000,000 in debt held in Treasury notes.

Where did the Treasury get the massive amounts of cash needed to pay off the massive number of Treasury bills and notes and other government securities that have matured so far this year? It simply turned around and borrowed more money.

According to the Daily Treasury Statement for Sept. 5, the Treasury has needed to redeem a total of $6,242,913,000,000 worth of its own securities so far this year. To do so and to raise the additional money needed to maintain ongoing government operations over and above what could be covered by the federal tax revenues that have been taken in, the Treasury needed to sell $7,362,452,000,000 in new Treasury securities.

The difference between the maturing securities the Treasury has redeemed ($6,242,913,000,000) so far this year and the new ones it has sold ($7,362,452,000,000) equals the net increase in the federal debt. As of Wednesday, that net increase was $1,119,539,000,000.

So far this year, according to the Sept. 5 Daily Treasury Statement, the Treasury has paid "only" $214.5 billion in interest on the government's debt. The word “only” is appropriate in front of this otherwise massive number because of the very low interest rates the government is now paying to borrow money.

In July, according to the Treasury, the average interest rate on Treasury bills was only 0.124 percent. However, the government paid more--2.031 percent--on its longer-term Treasury notes, and even more—5.418 percent—on its 30-year bonds.

On average, the Treasury paid an interest rate of 2.130 percent in July to borrow money by selling marketable securities.

That was quite a better deal than the government got back in January 2001. Then, according to the Treasury, it paid 6.059 percent interest on short-term Treasury bills, 6.096 percent on Treasury notes, and 8.450 percent on Treasury bonds. At that time, the federal government was borrowing money at an average interest rate of 6.620 percent.

If the government were forced to pay a 6.62 percent annual interest rate to finance the $11,201,615,000,000 in debt now held by the public (not counting the $4,750,157,000,000 in intragovernmental debt), the interest payments would hit $741.5 billion.

After the $6.242 trillion the government withdrew from the Treasury to redeem maturing securities, the largest single federal expenditure so far this year has been the $624.983 billion paid through Sept. 5 in Social Security benefits. At a 6.62 percent interest rate, the cost of financing the current level of publicly held debt would exceed the cost of the current Social Security program.