Treasury to Divert Money From Federal Retirement Fund to Stave Off Debt Default

Melina Wisecup
By Melina Wisecup
January 25, 2023US News

The Treasury Department will take additional “extraordinary measures” to temporarily delay the U.S. government “breaching the statutory debt limit,” Treasury Secretary Janet Yellen told congressional leaders in a letter on Tuesday.

The department will suspend “fully” investing in a securities investment fund known as “Fund G,” which is part of the Federal Employees’ Retirement System, so the government can continue to meet its bill payments.

Once “the debt limit is increased or suspended,” Yellen wrote, the G Fund will be “made whole,” with federal retirees and employees to be “unaffected” by the steps.

She went on to explain that the statute governing the employee retirement funds “expressly authorizes” her to take such action and that her predecessors have done so in similar circumstances.

Remaining debt still to be paid to the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund, will also be suspended until June 5, “in accordance with law,” Yellen said.

On Jan. 19, the Treasury Department announced that the nation had hit its current $31.4 trillion debt ceiling and outlined a series of actions called “extraordinary measures” to keep the U.S. government from defaulting on its debt and continue to fund critical legal obligations, such as Social Security and Medicare benefits, military pay, and tax refunds until early June.

The Treasury Department explains that these “extraordinary measures” do not “free up headroom under the debt limit,” but, rather, conserve headroom. In other words, they eliminate “increases in debt that would count against the debt limit if issued.”

Congressional Standoff

Despite Yellen urging “Congress to act promptly to protect the full faith and credit of the United States,” Congress remains at an impasse.

House Republicans are pushing for unspecified spending cuts as a condition for allowing an increase to the debt ceiling.

“Familes and businesses have to live within a budget,” House Speaker Kevin McCarthy wrote in a tweet on Sunday. “Washington must as well.”

However, the White House and Democrats are calling for a “clean bill” that is “without conditions.”

“When it comes to the debt limit, the debt ceiling, the President has been very clear,” White House press secretary Karine Jean-Pierre said in a press briefing earlier this week, “this should be done without conditions. That still stands.”

“I think this is something that people … need to understand,” she continued. “When you’re talking about the debt ceiling, you’re talking about not more, new spending. You’re talking about … the bill that Congress has racked up.”

“This is their basic duty, to deal with the debt ceiling,” she said.

Some House Democrats have even floated the idea of eliminating the debt ceiling altogether as a solution.

Democratic Rep. Bill Foster of Illinois has introduced a bill called “End the Threat of Default Act.” Cosponsored by 42 House Democrats, the bill would remove all limits on federal borrowing, allowing the government to borrow whatever it wants.

“Weaponizing the debt ceiling and using it as a pawn in partisan budget negotiations is dangerous and repeatedly brings our nation to the brink of default,” Foster said in a Jan. 20 statement about his legislation.

But some Republican lawmakers and experts argue that the economic troubles posed by the government’s $31.4 trillion debt outweigh the dangers of default.

At least one Democrat, Sen. Joe Manchin of West Virginia, has expressed openness to begin negotiations with Republicans.

“This is a democracy … a two-party system,” he told CNN over the weekend. “We should be able to talk and find out where our differences are.”

Congress last voted to raise the debt ceiling to its current $31.4 trillion in Dec. 2021.

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