Using the G Fund to help Uncle Sam

If someone told you that they borrowed money from an account that you were using for future retirement income without your consent or knowledge, most of us would be very upset. If your money was in a large financial institution and that company informed you that it was temporarily short of funds and had to pay its expenses, then it was borrowing from your investment accounts, lawsuits would increase and the company could end up going bankrupt when the public lost confidence in the safety of their investments there.

But what if your money is invested in Thrift Savings Plan fund G? Can the government borrow this money or borrow against it to pay its bills? Do you feel better if the money is not used for a long time and it will be paid back, with interest, when the government has more money?

I doubt there are any circumstances where a private company could legally take action like this. The federal government can take these steps, however, and uses Fund G as a crutch when there is a short-term cash shortage.

Extraordinary measures, G funds and public debt

The Treasury Department is now taking “extraordinary measures” to “prevent the United States from defaulting as Congress deliberates on increasing the debt limit …”.

These extraordinary measures may involve part of your money in Fund G.

The extraordinary measures currently available are:

  • Suspend sales of State and Local Government Series Treasury securities;
  • Redeem existing investments and suspend new investments from the Civil Service Retirement and Invalidity Fund and the Postal Service Retirees’ Health Insurance Fund;
  • Suspend the reinvestment of the Investment Fund in government securities; and
  • Suspension of reinvestment of the Exchange Stabilization Fund.

According to Congress Budget Office (OBC):

Unless legislation is enacted to increase or suspend the debt ceiling, the Treasury must take extraordinary steps to continue funding government activities after August 1, 2021. Even then, such measures will only be available. for a limited time.

Legislation to increase the debt limit was not passed as of August 1, 2021.

The debt ceiling, which is currently about $ 22 trillion, is the limit on the amount of debt the federal government can borrow. It applies to both the $ 16.2 trillion held by the public and the $ 5.9 trillion owed by the government. If the debt ceiling is not raised or suspended, the federal government can no longer issue debt. Indeed, the government is short of money because it can no longer borrow to pay its expenses.

According to the CBO:

The CBO estimates that unless the debt ceiling is increased, the Treasury, after using all available extraordinary measures, will likely be unable to make its usual payments from the first quarter of the new fiscal year, most likely in October or November, although an earlier or later date is possible.

Why is this problem happening now?

In 2019, former President Trump suspended the country’s borrowing limit for two years. This suspension expired on July 31, 2021. Congress has taken no action to increase or suspend the debt ceiling. As a result, the Treasury Department is now taking what it calls “extraordinary measures” so that the government can continue to pay its obligations.

Will the debt ceiling be raised?

We don’t know when the debt ceiling will be raised. There is no doubt that it will be raised because the federal government continues to spend far more money than it receives in revenue.

In the past, the debt ceiling has always been raised. In the current Congress, neither of the two political parties has a large majority. The Senate is divided 50-50. The vice president can vote to break a tie, giving Democrats an advantage.

In the House of Representatives, there are now 220 Democrats and 212 Republicans. There is an advantage for Democrats, but it is a very limited advantage.

In the meantime, the resentment between the parties is fully exposed to the public. Recently Speaker of the House Nancy Pelosi referred to the Republican House leader as a “moron.” After that, Republican leader Kevin McCarthy declared, “It will be hard not to hit her (Nancy Pelosi) with (a hammer) but I’ll hit him” if he becomes president after the 2022 election.

No doubt, public jabs are less virulent than what is said in private.

Obviously, parties do not work well together in Congress. This can mean considerable delay and difficulty in pushing through an increase in the debt ceiling.

Even though they may not know it, many federal employees help fund the operations of the federal government. As noted above, this is because the assets of Fund G in the TSP are used by the federal government to help cover expenses.

In addition, the Public Service Retirement and Disability Fund provides benefits to retired and disabled federal workers covered by the public service pension system. This money is invested in special issue treasury bills. The federal government also borrows money from this source to run the government.

The good news about this congressional ritual is that federal employees and retirees are always “back on track” after the debt ceiling has been raised or the debt ceiling has been suspended.

Make G Fund investors nervous

Without a doubt, this situation makes many G fund investors nervous. Fund G is one of the largest funds in the TSP. When the Treasury Department takes this action, the investments in Fund G are still protected and the income of Fund G is guaranteed under the Thrift Savings Plan Investment Act of 1987. Fund G continues to accumulate income and income. are updated every working day.

Loans and withdrawals from Fund G are not affected.

At the end of the “disinvestment” period, the securities of fund G are reconstituted as if the suspension had never taken place. In other words, fund G is being used as an accounting trick to give the federal government more time to deal with the debt ceiling problem.

Presumably, the debt ceiling will be raised again before the government defaults. This makes some G fund investors uncomfortable even though in the long run it made no difference to the value of the investment on previous occasions when it was done.

© 2021 Ralph R. Smith. All rights reserved. This article may not be reproduced without the express written consent of Ralph R. Smith.

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