CBO Says Debt Limit Will Be Reached in October

The CBO says in a new report that the government will run out of money by October if the debt ceiling is not raised. Here is what this means for TSP investors.

The Congressional Budget Office says in a new report that it estimates the federal government will run out of money in early to mid October if the debt limit is not raised.

The debt limit (A.K.A. the debt ceiling) is the maximum amount of debt the Department of the Treasury can issue to the public and to other federal agencies. That amount is set by law and has been increased over the years in order to finance the government’s operations.

“Extraordinary Measures”

In order to avoid hitting the debt ceiling, the Treasury Department can take what it refers to as “extraordinary measures” and it has been doing so in recent months. However, CBO projects in its report that even with using these measures, the government will run out of cash in October.

Impact on the G Fund

One of these “extraordinary measures” the Treasury Department is using to offset the debt ceiling is to borrow from the Thrift Savings Plan’s G Fund. The government began doing this back in March.

As we have written in numerous articles before, this is an accounting gimmick the government uses to buy more time before hitting the debt ceiling. The Treasury Department suspends reinvestment into the G Fund (reinvestments normally happen daily) and the money is then put back into the G Fund (with interest) after the debt ceiling is raised. This has happened many times in the past when the government was bumping up against the debt ceiling.

The CBO report says that borrowing from the G Fund is one of the measures currently still available to the Treasury Department:

Suspend the investments of the Thrift Savings Plan’s G Fund. Otherwise rolled over or reinvested daily, such investments totaled $37 billion in Treasury securities as of May 31, 2017.

We receive many comments and emails from our users asking how the government is allowed to do this and expressing concern about the stability of the G Fund as a result.

The short answer is that, as mentioned previously, borrowing from the G Fund is one of the “extraordinary measures” available to the Treasury Department to avoid the debt ceiling. As it has happened many times in the past, the track record suggests that there is not much concern about ultimately losing money kept in the G Fund, and the TSP has also said in the past that “G Fund earnings are fully guaranteed by the Federal Government.” If the government were to default on its debt obligations, there would probably be numerous things to be concerned about beyond just the G Fund at that point.

For more information, check out these past articles we have published with information about the process of the Treasury’s use of “extraordinary measures” and the G Fund:

What Happens if the Debt Ceiling Isn’t Raised?

So what does all of this mean? What happens if the debt ceiling isn’t raised and the federal government cannot continue borrowing money to fund its heavy spending?

This is what the CBO report says:

…the Treasury will not be authorized to issue additional debt that increases the amount outstanding. (It will be able to issue additional debt only in the amount of maturing debt or the amounts cleared by taking extraordinary measures.) That restriction would ultimately lead to delays of payments for government programs and activities, a default on the government’s debt obligations, or both.

Federal Debt and the Statutory Limit, June 2017

About the Author

Ian Smith is one of the co-founders of FedSmith.com. He has over 20 years of combined experience in media and government services, having worked at two government contracting firms and an online news and web development company prior to his current role at FedSmith.