On Sunday, the United States federal government yet again hit the debt ceiling. The Treasury Department has already confirmed that it will take “extraordinary measures” to make sure the government continues to pay its bills.
In a letter to Congressional leaders Monday, Treasury Secretary Jack Lew told lawmakers that he will begin to use the civil service retirement and disability fund and a similar retirement fund for postal workers – otherwise known as the Thrift Savings Plan (TSP) – in order to generate more borrowing funds until Washington votes to raise the debt limit. The Treasury will also cease the sales of State and Local Government Series non-marketable securities until further notice.
“The President has proposed detailed plans for reducing our fiscal deficits, and he stands ready to continue working with Congress toward this objective. However, those negotiations are separate from any debate over the debt limit,” Lew said in his Monday letter. “Therefore, I respectfully urge Congress to meet its responsibility to the nation by extending normal borrowing authority well before any risk of default becomes imminent. In order to avoid a repeat of the damaging brinksmanship that occurred in 2011, Congress should remove the threat of default by taking this action as soon as possible.”
The latest accounting measures show that there is $353 billion in the TSP, including $137 billion in the G Fund, an investment option in the TSP. “The G Fund is safe and that participants will not be harmed as the law requires Treasury to make the G Fund and all participants completely whole when the debt limit issue is resolved,” TSP spokeswoman Kim Weaver said in a statement to the Washington Post.
As soon as Lew begins to utilize the bookkeeping measures, he says it should be able to allow the government the sufficient funds to keep the doors of Congress open and prevent it from defaulting on the debt until after Labor Day weekend – other estimates from experts suggest it could forestall a default until about Thanksgiving.
Once Congress actually approves to raise the debt ceiling – something that might appear to be difficult at first, but will most likely occur as history has shown – the pension funds must be replaced with interest.
During the fiscal cliff negotiations earlier this year, Congress voted in January to suspend the debt limit, but it ended Sunday. Since the beginning of the postponement, the federal government has borrowed roughly $300 billion, which has made the national debt now stand at $16.7 trillion. The Congressional Budget Office (CBO) confirmed that the annual deficit for this year will be $643 billion, down from a little more than $1 trillion, because of enhanced revenues and mild economic growth – deficits are projected to soar above $1 trillion by 2016.
Meanwhile, foreign holdings of U.S. Treasury debt are up 0.7 percent at $5.76 trillion.
Analysts are urging legislators to address the issue to avoid a 2013 downgrade by rating agencies, similar to the first-ever downgrade of long-term Treasury debt in August 2011 by Standard & Poor’s.
“We will not negotiate over the debt limit,” Lew added in his letter. “The creditworthiness of the United States is non-negotiable. The question of whether the country must pay obligations it has already incurred is not open to debate.”
Furthermore, arguments are being put out there that negotiations over the debt ceiling are raising costs for the government. The Government Accountability Office (GAO) issued a report last year that showed the 2011 debt limit discussions cost American taxpayers an additional $1.3 billion in increased borrowing costs for the Treasury.
“To manage federal debt when delays in raising the debt limit occurred in 2011, Treasury officials estimated that [Office of Fiscal Projections] spent almost 15 staff hours per business day performing these tasks,” the report stated. “In addition, Treasury officials estimated that OFP expended about 200 staff hours in total to prepare for and manage the extraordinary actions taken in January 2012.”