Read More »"/> Read More »"/>
Whenever the U.S. government’s cumulative spending reaches the point where the national debt racked up to support it nears the nation’s debt limit ceiling, it creates problems for the U.S. Treasury Department, because it has to resort to playing a shell game with the accounts it controls to keep the nation’s debt under that limit, which has become a fairly routine event.
According to Reuters, they’re about to get started playing that shell game again:
(Reuters) – The Obama administration on Friday said it would start using emergency cash measures to allow the government to keep paying the nation’s bills once it hits the legal debt limit in about a week.
Congress is expected to face another contentious debate over raising the U.S. legal borrowing authority, which is due to expire on March 15. If it stretches to the final deadline, the timing would coincide with the debate over government agency funding for the new fiscal year, which starts Oct. 1.
The Congressional Budget Office said this week that if Congress does not raise the federal debt limit, the Treasury Department will exhaust all of its borrowing capacity and run out of cash in October or November, slightly later than a previous forecast.
The first step in the U.S. Treasury’s shell game will be to stop issuing “slugs”, or rather, state and local government series debt securities, which many state and local governments are required under U.S. tax laws and IRS regulations to “invest” in whenever they have surplus funds.
The next steps, which are likely to be taken later in the year, will be for the Treasury Department to suspend making cash interest payments to three different federal government employee retirement funds that it controls: the Civil Service Retirement and Disability Fund, the Postal Service Retiree Health Benefit Fund, and the Government Securities Investment Fund (G-Fund). (This last fund is a government-securities money market fund available only to federal employees through the federal government’s Thrift Savings Plan – the federal government’s version of a 401(k) retirement account, which it provides as an additional benefit for federal government employees in addition to its exceptionally generous traditional pension plan benefits and Social Security benefits.)
In place of these cash interest payments, the U.S. Treasury Department will issue I.O.U.s to these retirement funds. Once the debt limit ceiling is increased, the U.S. Treasury will rush out to borrow money to immediately repay these I.O.U.s, at which time, the U.S. national debt will surge to the level it would otherwise have reached if not for the U.S. Treasury’s shell game.
Of course, none of these so-called “extraordinary” measures would be necessary if the U.S. government reigned in its spending to sustainable levels.