Wednesday, December 31, 2008

Stimulus: How the Hell is the Treasury Going to Sell an Extra Trillion of Debt?

From Across The Curve:

Funding the Deficit

The incoming Obama Administration and its acolytes in Congress have floated various trial balloons regarding the size of the next stimulus package. Most of the press reports on the topic place the size of the package at something in the neighborhood of $750 billion. That is an enormous sum of money and will place significant stress on the capital markets.

I think that the Treasury will be hard pressed to raise that amount of money without some novel financing ideas. In my opinion, the amount to be financed is so massive that I think that they will raise the preponderance of the money in the coupon market rather than the bill market. This bill is so large that they will not relish the prospect of facing continuous roll overs for this new round of debt.

That raises of the new and troubling question of how to raise that much money. Existing issue sizes are already large. The most recent 2 year and 5 year duet raised $38 billion and $28 billion, respectively.

The new monthly 3 year note raised $25 billion at its debut in November but was quickly bumped to $28 billion in December....MUCH MORE

And in the comments:

By Kevin Mackey on Dec 29, 2008

Is the more relevant question, “How much is the deficit funding going to cost?” compared to the question of “How are we going to fund the deficit?”

They both have ties to one another, but in the event that we are forced to turn to monetization, the peripheral effects on the dollar and the cost of inflation, in my opinion, outweigh all other concerns....