US Treasury activates another measure to avoid debt cap breach

In a letter notifying Congress of the move, Janet Yellen did not alter a projected deadline of hitting debt cap by June.

The US Treasury building
Last week the US government nominally reached the debt ceiling [File: Patrick Semansky/AP Photo]

US Secretary of the Treasury Janet Yellen activated another extraordinary cash management measure on Tuesday to avoid breaching the federal debt limit, suspending daily reinvestments in a large government retirement fund that holds Treasury debt, the department said.

In a letter notifying Congress of the move to access the Government Securities Investment Fund (G Fund), Yellen did not alter a projected early June deadline for when the Treasury may no longer be able to pay the nation’s bills without an increase in the $31.4 trillion statutory borrowing limit.

“The statute governing G Fund investments expressly authorizes the Secretary of the Treasury to suspend investment of the G Fund to avoid breaching the statutory debt limit,” Yellen wrote in the letter to House of Representatives Speaker Kevin McCarthy, a Republican, and other congressional leaders. “My predecessors have taken this suspension action in similar circumstances.”

Yellen last week suspended reinvestments in two other retirement and health benefit funds as the government nominally reached the debt ceiling. Republicans who now control the House have threatened to oppose a debt ceiling increase without spending reductions from the Biden administration.

The G-Fund manoeuvre is one of the largest tools that the Treasury can employ to reclaim borrowing capacity under the debt ceiling. The fund, part of the Thrift Savings Plan for federal employees, had net assets of $210.9bn at the end of 2021, according to its most recent annual report.

Normally, the money market-like retirement fund reinvests its entire balance daily into special-issue Treasury securities that count against the debt limit. Halting the reinvestments allows more normal Treasury bills, notes and bonds to be issued.

But the Treasury is required by law to replenish the fund, along with any lost earnings, once a debt limit impasse ends. Federal retirees and employees would be unaffected by this action.

“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,” Yellen wrote, repeating a regular line in her letters to lawmakers.

Source: Reuters