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TGA bottoms at $117B

Summary:
Capture from Thursday's DTS showing TGA down to 7b that first day of the month of August... net B draw down of the account that day ... set a "debt ceiling!" low here previous low during the recent "debt ceiling!" interval was 9B set in late May which preceded the big June >6% rally in equity prices...Doesn't look like Treasury could have made it through September 1st or at least not safely unless govt didn't raise the debt ceiling Friday... hence Mnuchin/Trump sense of urgency on getting the budget deal done before summer recess....Treasury has said they want the TGA back up to 0B by end of September about 8 weeks from now...  so thats 0B of depository reserve asset reduction in the banking system by then.. about B of reserve reduction per week for 8 weeks...This rate

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Capture from Thursday's DTS showing TGA down to $117b that first day of the month of August... net $60B draw down of the account that day ... set a "debt ceiling!" low here previous low during the recent "debt ceiling!" interval was $139B set in late May which preceded the big June >6% rally in equity prices...

Doesn't look like Treasury could have made it through September 1st or at least not safely unless govt didn't raise the debt ceiling Friday... hence Mnuchin/Trump sense of urgency on getting the budget deal done before summer recess....

Treasury has said they want the TGA back up to $350B by end of September about 8 weeks from now...  so thats $230B of depository reserve asset reduction in the banking system by then.. about $30B of reserve reduction per week for 8 weeks...

This rate and monthly magnitude of reserve reduction is probably unprecedented... previous "QT" maximum rate of reserve reduction was about $50b per month...

Perhaps that is why the Fed stopped the QT the same 2 months earlier than planned ... lets hope so.  ... as that would have reduced total system reserves over the same period by another $70B...  might have created a situation where they reduced  depository reserve assets by $300b over 8 weeks...   again probably unprecedented and perhaps chaos inducing in bank regulatory processes and market for US Treasury securities...

TGA bottoms at $117B

It looks like we now get to see what happens to risk asset prices as depositories experience a perhaps unprecedented reduction in non-risk reserve assets of about $230B in 8 weeks...

Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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