Federal Gov't Reaches Debt Limit, Treasury Takes "Extraordinary Measures" to Avert Shutdown

The U.S. reached its debt limit on Wednesday, meaning that the federal government no longer has the authority to continue borrowing money to finance its operations. Congress will now face a vote in the near future to raise the debt limit for the first time since November 2015, when the Republican controlled Congress and then-President Barack Obama reached a deal that lifted the limit through March 15, 2017.

The Treasury Secretary Steven Mnuchin sent Congress a letter last week which said the Treasury will be able to take what are known as "extraordinary measures" to continue to fund the government’s operations in the near-term, so a government shutdown isn’t imminent. But votes to increase the debt limit are politically unpopular given that the national debt exceeds $19.9 trillion, so lawmakers will let those measures play out to buy themselves time. We’ve explained some of the obscure accounting gimmicks that let the federal government keep spending after the debt limit is reached below:

What are the "extraordinary measures" the Treasury uses?

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

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 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, so lawmakers in Congress will have to raise the debt limit before they leave for their summer recess in August.

Congress is considering bills to require the Treasury to have a plan to pay down the national debt before raising the debt limit and allowing it to continue to borrow to pay for Social Security. You can tell your reps how you feel about those bills or the national debt generally using the "Take Action" button.

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— Eric Revell

(Photo Credit: Loren / Public Domain)