Where is the “red line” and how many resources are needed to keep the U.S. federal government running smoothly?
The U.S. Treasury Department's reserves fell to $710 billion, down from $962 billion at the beginning of the month.
The red line is the stock of finances to balance liquidity gaps for at least one month.
The U.S. Treasury Department's annual spending is 6.7 trillion, an average monthly deficit plus or minus about $170 billion with an upward trend.
Factors Influencing Annual Spending
Right now, the main contributors to the growth in annual spending are interest expense, the defense budget, and spending to support the banking system.
This means that the potential for increasing the budget deficit is very significant, provided that the program of support for the population and anti-crisis programs is expanded, as it was in 2009 - 2011 and 2020 - 2021.
Minimum Funding Requirements
The minimum amount of funding needed to keep the government functioning properly for one month is at least 250 billion.
Revenues are uneven and expenditures are cyclical, so deviations of up to 250 billion within a month are typical. At the same time, the debt market may not always be fully accessible.
A comfortable funding level, given the Treasury's current needs, is about 750 billion (3 - 4 months to balance).
Borrowing Needs and Plans
From May through September 2024, the U.S. Treasury needs at least 1.1 trillion to finance the deficit (a realistic scenario is closer to 1.3 trillion).
The 1.1 trillion net borrowing plan was adopted in line with the potential deficit and the need to maintain a cache above 750 billion.
Conclusion
The “red line” for the U.S. federal finances is the minimum reserve needed to cover liquidity shortfalls for at least one month. Currently, U.S. Treasury reserves have fallen to $710 billion from $962 billion at the beginning of the month. Given annual spending of $6.7 trillion and an average monthly deficit of $170 billion, the government needs at least $250 billion each month to function properly.
For smooth operations, a comfortable funding level is about $750 billion, providing a 3 - 4 month buffer. From May through September 2024, the Treasury will need at least $1.1 trillion to finance the deficit, with a more realistic need of about $1.3 trillion. This borrowing plan is consistent with the potential deficit and the need to maintain reserves above $750 billion.