Treasury Secretary Timothy Geithner said that the government has begun borrowing from the federal employee pension fund (the G fund) to keep operating without passing the approaching debt limit.
The move will free up $156 billion in borrowing authority while the debt limit debates proceed in Congress. Geithner said that he will replace the money in the fund after the borrowing limit is raised. That of course assumes Congress comes to an agreement soon and does, in fact, raise the debt ceiling.
Geithner’s letter to House Speaker John Boehner reads:
Dear Mr. Speaker,
I am writing to notify you, as required under 5 U.S.C. 8438(h)(2), of my determination that, by reason of the statutory debt limit, I will be unable to invest fully the Government Securities Investment Fund (G Fund) of the Federal Employees’ Retirement System in interest-bearing securities of the United States, beginning on Tuesday, January 15, 2013. The statute governing G fund investments expressly authorizes the Secretary of the Treasury to suspend investment of the G Fund to avoid breaching the statutory debt limit. Both my predecessors and I have taken this suspension action during previous debt limit impasses. By law, the G Fund will be made whole once the debt limit is increased. Federal retirees and employees will be unaffected by this action.
Timothy F. Geithner
Geithner also sent a letter to Congress this week detailing measures the Treasury has taken to avoid default and urging Congress to raise the debt ceiling so the government can keep spending on all of the various programs money flows to each month (a copy of Geithner’s letter is included at the end of this article).
The TSP recently said in a letter to participants that it was likely the government would delay issuing new securities for the G fund to offset the debt limit, but assured investors that they would be unaffected by the process. For more detail on this, see Using the G Fund to Help Fund Federal Expenses.
If this all sounds familiar, it’s because it has happened before. In 2006, we published an article about the Treasury secretary and the TSP director reassuring federal employees at that time about the government borrowing from their retirement funds to pay its bills. An informal survey we conducted indicated that our users were not satisfied despite these reassurances; in fact, FedSmith.com readers have said before that they are worried about the future stability of their pay and benefits in light of the runaway government spending.
Have your thoughts on the matter changed? Feel free to share your thoughts in the comments below or join the debate on our Facebook page.
The Honorable John A. Boehner
U.S. House of Representatives
Washington, DC 20515
Dear Mr. Speaker:
I am writing to provide additional information regarding the extraordinary measures Treasury has undertaken in order to avoid default on the nation’s obligations.
Treasury currently expects to exhaust these extraordinary measures between mid-February and early March of this year. We will provide a more narrow range with a more targeted estimate at a later date. Any estimate, however, will be subject to a significant amount of uncertainty because we are entering the tax filing season, when the amounts and timing of tax payments and refunds are unpredictable. For this reason, Congress should act as early as possible to extend normal borrowing authority in order to avoid the risk of default and any interruption in payments.
If the extraordinary measures were allowed to expire without an increase in borrowing authority, Treasury would be left to fund the government solely with the cash we have on hand on any given day. As you know, cash would not be adequate to meet existing obligations for any meaningful length of time because the government is currently operating at a deficit.
The U.S. government makes approximately 80 million separate payments per month. These include payments for Social Security; Supplemental Security Income; Medicare; Medicaid; national security needs, including military salaries, military retirement, veterans’ benefits, and defense contractors; income tax refunds; federal employee salaries and retirement; law enforcement and operation of the justice system; unemployment insurance; disaster relief; goods and services sold to the government under contracts with small and large businesses; and many others. If Congress does not act to extend borrowing authority, all of these payments would be at risk. This would impose severe economic hardship on millions of individuals and businesses across the country.
It is important to point out that extending borrowing authority does not increase government spending; it simply allows the Treasury to pay for expenditures Congress has previously approved. Failure to meet those obligations would cause irreparable harm to the American economy and to the livelihoods of all Americans. Even a temporary default with a brief interruption in payments that Congress subsequently restores would be terribly damaging, calling into question the willingness of Congress to uphold America’s longstanding commitment to meet the obligations of the nation in full and on time. It should also be noted that default would increase our borrowing costs and damage economic growth and therefore add to future budget deficits, not decrease them. This is why no President or Secretary of the Treasury of either party has ever countenanced even the suggestion of default on any legal obligation of the United States.
Protecting the full faith and credit of the United States is the responsibility of Congress because only Congress can extend the nation’s borrowing authority. No Congress has ever failed to meet that responsibility. It must be understood that the nation’s creditworthiness is not a bargaining chip or a hostage that can be taken to advance any political agenda; it is an essential underpinning of our strength as a nation. Threatening to undermine our creditworthiness is no less irresponsible than threatening to undermine the rule of law, and no more legitimate than any other common demand for ransom.
In an address to the nation in 1987, President Reagan said, “Unfortunately, Congress consistently brings us to the edge of default before facing its responsibility. This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket. Instability would occur in financial markets and the federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well-earned reputation for reliability and credibility – two things that set us apart in much of the world.”
President Obama has put forth detailed proposals to restore fiscal responsibility to the federal budget, and he strongly believes Democrats and Republicans should join together to reduce our deficits. In the meantime we must protect America’s creditworthiness by ensuring that our government can pay the bills it has already incurred. Therefore, I respectfully urge Congress to meet its responsibility to the country by extending normal borrowing authority well before the risk of default becomes imminent.
Timothy F. Geithner
Identical letter sent to:
- The Honorable Nancy Pelosi, House Democratic Leader
- The Honorable Harry Reid, Senate Majority Leader
- The Honorable Mitch McConnell, Senate Republican Leader
- cc: The Honorable Dave Camp, Chairman, House Committee on Ways and Means
- The Honorable Sander M. Levin, Ranking Member, House Committee on Ways and Means
- The Honorable Max Baucus, Chairman, Senate Committee on Finance
- The Honorable Orrin G. Hatch, Ranking Member, Senate Committee on Finance
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