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by Causes | 3.5.19

The federal government reached its debt limit last week, so Treasury Secretary Steven Mnuchin has notified Congress that he will use the “extraordinary measures” available to his agency to finance government operations in the near-term until lawmakers vote to raise the debt limit.

The debt limit has been raised by Congress 78 times since 1960, and since then the national debt has grown from $286 billion to more than $22 trillion today. Failing to increase the debt limit would cause the U.S. to default on its debt and lead to “catastrophic economic consequences.” It had been suspended through March 1 by a bipartisan budget deal reached by the Trump administration and Congress in 2018.

What are the extraordinary measures the Treasury uses?

The Treasury has used all four of the extraordinary measures at its disposal to avoid defaulting on the U.S. government’s obligations when Congress has debated increasing the debt limit in recent years. Here’s a look at accounting tools available to the Treasury:

Suspending sales of state and local securities: Under normal circumstances, the Treasury issues government securities (things like bonds that give the gov't cash that must be repaid with interest at a later date) which count against the debt limit to state and local governments so that they can properly invest the proceeds of tax exempt bonds. The federal government is under no obligation to issue those securities, and by not doing so it slows down the rate at which it accumulates debt, usually by $4 to $17 billion monthly.

G Fund: This government account is invested entirely in securities that mature in one day before being reinvested as part of the Federal Employees’ Retirement System Thrift Savings Plan. Congress has given the Treasury the ability to stop reinvesting if doing so would exceed the debt limit. This doesn’t actually impact federal employee’s investments, which are protected because the G Fund is made whole plus interest once the debt limit impasse ends. The G Fund’s balance is around $150 billion.

Exchange Stabilization Fund: Much like the G Fund, the Exchange Stabilization Fund (ESF) account is invested entirely in one-day securities in order to allow the Treasury to buy or sell foreign currencies. The Treasury isn’t required to invest the ESF, so it can stop investing its balance of U.S. dollars — about $22 billion — at its discretion.

Civil Service Retirement and Disability Fund: This is one of the largest federal pension funds, and by declaring a \"debt issuance suspension period,\" the Treasury is able to redeem existing investments in the fund and stop making new investments. That can only occur once the Treasury has determined that continuing normal operations would cause the debt limit to be exceeded. Benefit payments would continue to go out as normal as long as extraordinary measures haven’t been exhausted, and once the debt limit is raised the CSRDF is required to be made whole with all money being returned with interest.

How long do extraordinary measures last?

That ultimately depends on how fast the federal government is spending money and the amount of financial breathing space that the Treasury can create through extraordinary measures.

In past debt limit standoffs, the extraordinary measures can keep the government running for 3 to 5 months. Mnuchin has asked for a debt limit increase as soon as possible, but Congress may not vote to raise the debt limit until after lawmakers return in September from their August recess.

— Eric Revell

(Photo Credit: Loren via Wikimedia / Public Domain)

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