As expected, Treasury has announced that it will allow the $200 billion Supplemental Financing Program to run down to only $5 billion; that will save $195 billion of borrowing authority under the current debt ceiling:
Treasury Issues Debt Management Guidance on the Supplementary Financing Program
“Beginning on February 3, 2011, the balance in the Treasury’s Supplementary Financing Account will gradually decrease to $5 billion, as outstanding Supplementary Financing Program bills mature and are not rolled over. This action is being taken to preserve flexibility in the conduct of debt management policy.”
Treasury created the SFP in order to help the Fed expand its balance sheet without “printing money” (or, more accurately, “printing reserves”). Under the program, Treasury issues bonds, as usual, but it deposits the proceeds in an account at the Federal Reserve, rather than using them to pay the nation’s bills. The Fed then uses those deposits to purchase assets. Since the money ultimately comes from investors who own the new Treasury bonds, the SFP allows the Fed to expand its balance sheet without creating reserves out of thin air.
With the program winding down — at least until the debt ceiling gets raised — the Fed will have to ask its electronic printing press for another $195 billion if it wants to maintain its targeted portfolio.
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