Withholding G Fund Payments to Avoid the Debt Ceiling

The G fund is again being used as a stop-gap measure to avoid the federal government hitting the debt ceiling for the second time in a few months.

The federal government is suspending payments to the G fund as it continues to borrow more money and now rapidly approaching the latest debt limit of $15.194 trillion.

If this seems familiar, it is not your imagination playing tricks. This is a replay of an event that has occurred before, the most recent occurring in 2011. As our debt continues to spiral, using the G fund to prop up government spending is happening more frequently. (See The “Debt Issuance Suspension Period” and $186 Billion of Your Retirement and TSP Funds)

The Debt Ceiling and Your G Fund Investment

As we approach the new, larger debt ceiling, the Secretary of the Treasury has the authority to “suspend the issuance of additional amounts of obligations of the United States, if such issuance could not be made without causing the public debt of the United States to exceed the public debt limit.” This is where your Thrift Savings Plan comes into play; specifically, the G fund.

The “G” fund is invested in interest-bearing Treasury securities that comprise part of the public debt. In fact, this is the reason that the G fund is often described as an extremely safe, conservative investment for federal employees. The securities that are in the G fund are issued to that fund—the Treasury securities in the G fund are short-term securities that are not available to the general public. The G fund matures and is reinvested daily. Rather than reinvesting the full balance of the G fund, the Secretary can (and probably will) credit some or all of the balance of the fund to non-interest-bearing accounts in the Treasury.

In effect, the federal government is playing an accounting game to avoid the legal debt limit.

Will the Debt Ceiling Be Raised?

The debt limit will be raised again.

Under an agreement reached last August, the president has legal authority to veto any disapproval resolution that clears both chambers of Congress. House Republicans will adopt a resolution rejecting President Obama’s request to raise the debt limit by $1.2 trillion.  This resolution will be symbolic as it will die in the Senate or by presidential veto. That will allow Obama to lift the cap on his own after Republicans have gone on record against it and can use raising the debt limit to highlight their view government spending is too high in the upcoming national elections.

In the most recent budget ceiling increase request, the debt ceiling will go up to $16.394 trillion. Of course, $16.394 trillion will not be enough to last for a long time at our rate of spending. The Treasury Department estimates that the higher debt limit will be enough to fund the government only until late in 2012.

Your Money is Safe

At the end of December, the G fund had just under $148 billion accumulated. The reality is that your money is still as safe as it can be in a financial system that continues to rapidly accumulate more debt. In the past, and again in this instance, your G fund investments will be repaid.

This is a previous statement is from the Thrift Savings Plan:

“The make-whole provision means that TSP participants who have invested in the G Fund will not lose anything. The G Fund account balances would be exactly the same from day to day as if they were invested in Treasury securities. Furthermore, disbursements of TSP loans and withdrawals would not be delayed, nor would the amounts of those payments be reduced.”

So, your money will be returned and the government will continue to function normally. The bigger question, of course, is how much money can the federal government borrow and remain stable? No one knows the ultimate outcome. The federal debt now exceeds the amount of our gross domestic product. In short, the current federal debt now exceeds the total value of all goods and services produced in the United States each year.

No one is certain of the eventual impact of this massive debt on our economy or the economic well-being of our citizens. Regardless of the eventual dangers we will all face, officials will apparently continue to push the debt envelope for the foreseeable future.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47