A new report from the Congressional Budget Office says that unless the debt ceiling is raised soon, the government will run out of money by next spring, even with the use of “extraordinary measures.”
According to the report, there is no statutory limit on the issuance of new federal debt because the Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017 (Public Law 115-56), enacted in September suspended the limit through December 8, 2017. However, beginning December 9, the debt limit will be reset, at which time the Treasury Department will have to begin taking its usual “extraordinary measures” to keep up the government’s frenetic pace of borrowing money.
“Extraordinary Measures”
G Fund
One of these measures that is always of interest to federal employees involves borrowing money from the G Fund inside of the Thrift Savings Plan.
The CBO notes in its report that this is indeed one of the measures likely to be taken come December if the debt ceiling is not raised. When this occurs, the Treasury Department suspends reinvestments in the G Fund which are otherwise reinvested daily. Once the debt ceiling is raised, the money is put back into the G Fund, with interest. It is effectively an accounting gimmick used to buy more time until the debt ceiling is raised by Congress and has been done numerous times in the past (for reference, some of the more recent articles we’ve published about this are included at the end of this one).
The TSP has a “make-whole” provision which stipulates that TSP participants invested in the G Fund will not lose anything when this occurs. This is a quote from the TSP that was issued one of the times in the past when the Treasury Department took this action:
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.
Retirement Annuity Funds
Another measure involves the Civil Service Retirement and Disability Fund (CSRDF) and the Postal Service Retiree Health Benefts Fund (PSRHBF).
The CBO report notes that with this measure, the Treasury Department would suspend issuance of new securities for both funds which total about $3 billion per month. It would also suspend semiannual interest payments for the funds, which are expected to total $15 billion on December 29, 2017.
Lastly, it would redeem, in advance, securities held by the CSRDF and the PSRHBF in amounts equal in value to benefit payments that are due in the near future. Such payments are valued at about $8 billion per month.
The CSRDF provides defined benefits to retired and disabled Federal employees covered by the Civil Service Retirement System (CSRS).
This fund invests in special-issue Treasury securities, and these securities count against the debt limit.
The Treasury Department is authorized to suspend investing money received by the CSRDF. This authority can be used when the Secretary of the Treasury determines that additional investments cannot be made without exceeding the debt limit. Also, the Treasury can redeem existing investments held by the CSRDF when the Secretary of the Treasury determines a “debt issuance suspension period.”
What Happens if the Debt Ceiling is Not Raised?
The real answer, as a practical matter, is that nobody knows for sure since it’s not happened before. However, the CBO report said this:
If the debt limit is not raised above the amount established on December 9, 2017, the Treasury will not be authorized to issue additional debt that increases [equal to] the amount outstanding. (It will be able to issue additional debt only in amounts equal to those resulting from maturing debt or cleared by taking the extraordinary measures.) That restriction would ultimately lead to delays of payments for government activities, a default on the government’s debt obligations, or both.
CBO Debt Limit Report, November 2017
