Federal Government Reaches Debt Limit – Treasury Begins “Extraordinary Measures” to Avoid Default

On Thursday, the federal government officially exceeded its $31.38 trillion debt limit. This prompted the Treasury Department’s to start using its funds. “extraordinary measures” For the next few months, to prevent default on the national debt

In a letter to Congress last Wednesday, Treasury Secretary Janet Yellen stated that the U.S. will reach the debt limit Jan. 19, and that her agency would need to deploy two of the four. extraordinary measures it has at its disposal to continue making payments on the debt and avoid default.

“Once the limit is reached, Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligation,” She wrote.

Based on projections from the Treasury Department Yellen She noted that although there are uncertainties about the amount of time her agency can buy, “it is unlikely that cash and extraordinary measures will be exhausted before early June.” The federal government is now out of time to address the debt. Legislators will need to cooperate with the federal government. Biden administration To increase or suspend the debt limit, to avoid a default later in this year.

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Janet Yellen, Treasury Secretary (AP Photo / Jose Luis Magana / FILE / AP Newsroom).

The U.S. National Debt, now at $31.38 Trillion, was a result of bipartisan spending from presidential administrations and congressional majoritys from both sides. Due to the composition of Congress it will take some bipartisan compromise from both the Republican House or the Democratic Senate to resolve the debt limit before extraordinary measures are taken.

Extraordinary measures explained

Extraordinary measures can be used by the Treasury Department to use budgetary and accounting tools to avoid defaulting, until Congress acts on the debt limit that will allow the federal government to resume borrowing. They don’t last forever and the amount of government spending will determine how long they last.

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Congress will need act on the debt ceiling limit this year, before the Treasury Department’s extraordinary actions run out to avoid default on the U.S. National Debt. (iStock / iStock)

While there are four extraordinary measures, the Treasury Department is only going to use two of them for the initial phase of this debt standoff – the G Fund and delaying certain federal pension investments. Here are the details of these extraordinary measures:

The Government Securities Investment Fund (or the G Fund) is a fund that invests in government securities. 

The Government Securities Investment Fund (or the G Fund) is a money-market retirement fund for federal employees who are enrolled in Thrift Savings Plan. It invests in special-issue Treasury securities, which mature every day, and can be reinvested. The G Fund’s current balance was approximately $210.9 billion on December 31, 2022.

The Treasury Department can stop investing fully in the G Fund if the federal government exceeds the debt limit. To allow the Treasury to sell more debt securities, the agency would need to have $10 billion available under the debt limit.

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On Thursday, the federal government reached its $31.38 trillion debt limit. The Treasury Department was forced to use its resources. “extraordinary measures” To avoid defaulting on the nation’s debt in the coming months. (Reuters / Andrew Kelly / FILE / Reuters Photos

After the debt limit has been increased or suspended, the G Fund must be made whole with interest. This is so that federal employees and retirees, who invest through the TSP, are ultimately unaffected by any accounting maneuvers.

Pension adjustments for retirees and postal workers 

Treasury can also declare a “debt issuance suspension period” In order to make cash available for a certain time, the agency can delay some of its accounting actions. The agency can suspend any new investments during this time and redeem existing investments in a pair or federal pensions.

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It affects both CSRDF (Civil Service Retirement and Disability Fund), the main federal pension, and smaller Postal Service Retiree Health Benefits Fund PSRHBF (Postal Service Retiree Health Benefits Fund PSRHBF), which pays for the health care costs of retired Postal Service employees. Both funds are invested into special-issue Treasury securities.

In August 2021, the Treasury Department stated that each month of a debt suspension period allows for temporary headroom of approximately $7 billion from CSRDF and $300 million from PSRHBF. This is due to the early redemptions of investments in those funds. Because those securities will have matured by the time the suspension ends, the net budgetary increase ceases.