Good morning, all. It's one day closer than yesterday to a potential government shutdown. Fasten your seat belts -- and enjoy today's reads.
Jack Lew's 'Dear John' letter
Treasury Secretary Jack Lew wrote to House Majority Leader John Boehner yesterday to deliver the bad news. By Oct. 17, the Treasury will be out of options -- shifting money between government accounts -- to pay its bills. The $30 billion on hand at that point will be "insufficient" to meet its obligations, which on some days can amount to $60 billion, Lew writes. So please stop monkeying around with riders to defund Obamacare and pass a clean bill to increase the debt ceiling. Many thanks and much love, (curlicue signature).
A bubble in tax receipts?
States took in a record $260 billion in tax revenue in the second quarter, a 9.4 percent increase from the same period in 2012. Don't expect the money to keep flowing, writes Bloomberg's Vince Golle on the Political Capital blog. The surge in receipts was driven by personal income taxes as individuals shifted income into 2012 to avoid a year-end tax increase. (Taxes for the previous year are due in April 2013.) It would be a big mistake for states to view the revenue haul as a pot of gold and look for new ways to spend it.
The Fed released its quarterly Flow of Funds report yesterday -- renamed the Financial Accounts of the U.S. -- and here are some highlights. Household net worth, or assets minus liabilities, rose by $1.3 trillion in the second quarter from the first to a record $74.8 trillion. Net worth is now $5.8 billion above its pre-recession peak. (The Fed makes no adjustment for inflation or population). Federal government debt rose 2.5 percent, the smallest increase in six years. And home mortgage debt is still contracting as it has for the past five years.
A quasi-natural experiment in monetary policy
There is no such thing as a control study in economics, because it's impossible to hold everything else equal to evaluate a single variable. But sometimes an opportunity presents itself to conduct something close to it, which is what economist David Beckworth did using Japan, the U.S. and Euro zone to test the effectiveness of monetary policy at the "zero-bound." In the case of the U.S., a decline in the structural budget deficit (fiscal policy tightening) since 2010 has had no observable effect on aggregate demand. Why? The Fed has been able to offset it with monetary policy. (Don't tell Paul Krugman.) You can see the rest of the experiment and charts on Beckworth's blog.
Corporations rush in
September could turn out to be a record month for investment-grade bond issuance, according to the Financial Times. A rally in Treasuries following the Fed's no-taper announcement last week, plus potential financial-market gyrations as a result of Washington gridlock were apparently adequate motivation for companies. Verizon's $49 billion bond sale helped push total volume, including announced deals, over November 2012's $136.6 billion record.
(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)