December 26, 2012

Another year, another $1.3 trillion in debt. The Secretary of the Treasury informed Congress by letter that the U.S. will reach its statutory $16.394 trillion debt limit on December 31. The letter indicated that one of the four options available to postpone default on U.S. obligations pending Congressional action is the suspension of payments to the G Fund:

“Once the debt limit has been reached, Treasury may also suspend the daily reinvestment of the Treasury securities held by the Government Securities Investment Fund (G Fund) of the Federal Employees’ Retirement System Thrift Savings Plan… Congress has granted Treasury the statutory authority to suspend reinvestment of all or part of the balance of the G Fund when the Secretary determines that the fund cannot be fully invested without exceeding the debt limit.”

Most readers have vivid memories of the months-long talks in the spring and summer of 2011 on raising the debt ceiling from $14.29 trillion – which itself was determined by legislation passed in early 2010 – to the current $16.39 trillion. The deal raised the debt ceiling in two installments, and it included a poison pill of across-the-board budget cuts if congressional negotiators could not come up with $1.2 trillion in additional deficit savings on top of the $917 billion in spending cuts over the next 10 years as part of the August 2011 agreement. Negotiators were unable to finalize additional deficit savings by the end of 2011, thus automatically granting the second $1.2 trillion extension of the debt ceiling and causing automatic spending cuts across government to kick in starting from January 2013.

Recall that the final vote to pass the legislation came one day before default on the U.S. debt – an unprecedented prospect until then. One result of the prolonged discussions was a downgrade of U.S. debt from top-rated AAA to AA-plus by Standard & Poor’s, a major debt ratings agency.

Prior to an agreement on the debt ceiling in 2011, the Treasury Secretary suspended daily reinvestment in the G Fund to postpone default as long as possible. The suspension began on May 16, 2011, and continued until after legislation was passed in early August. According to the Secretary’s August 24 letter to Congress, the G Fund was made whole at that time.

After last year’s prolonged discussions on raising the debt ceiling, and with the current impasse on the so-called “fiscal cliff,” a quick resolution to these issues could be some months away.

As an aside, it is interesting to note that according to Office of Management and Budget (OMB) figures, in 2007 – the year before the financial crisis – U.S. Government receipts totaled $2.568 trillion, while outlays totaled $2.728 trillion. Five years later, estimated receipts for 2012 totaled $2.468 trillion – about $100 billion less than in 2007. Outlays, however, totaled $3.795 trillion, over $1 trillion more than in 2007. (The full figures can be accessed at

We can only hope that outlays and receipts are brought more inline with each other without detrimentally impacting the U.S. economy in the near future, to avoid the now-yearly disruptions of debt ceiling discussions – and to avoid disruptions to investing in the TSP.

Related topics: g-fund