Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Government Raids Pension Funds to Avoid Debt Default

Politics / US Debt Jan 17, 2013 - 03:37 PM GMT

By: Money_Morning

Politics

Diane Alter writes: The U.S. Treasury, in order to avoid default, has resorted to an eyebrow-raising move: it has borrowed from the federal employee pension fund as the country nears its debt ceiling.

The U.S. government stopped investing in the federal employee pension fund Tuesday "to avoid breaching the statutory debt limit," according to a letter Treasury Secretary Timothy Geithner sent to Congress.


Geithner said that the move will free up some $156 billion in borrowing authority, while policy leaders in Washington wrangle over raising the $16.4 trillion debt limit.

Geithner promised the fund would be "made whole once the debt limit is increased," and maintains that federal employees and retirees would not be affected by the action.

But an IOU from the federal government isn't very settling for those relying on the fund for retirement.

Using Pensions to Fund the Government
This is not the first time the government has dipped into pension funds to pay for its overspending.

The Treasury has suspended reinvestments in the federal pension fund, aka the G Fund, six times over the past two decades in order to keep the country under the legal debt limit. The most prolonged delay in raising the limit came in 1995 after congressional Republicans came into power during the Clinton administration.

The last time was Jan. 17, 2012, while a vote was pending to increase the debt ceiling by $1.2 trillion. The increase was approved, lifting the debt ceiling to its current $16.4 trillion limit, and a debt ceiling debacle like the one in August 2011 was averted.

The G fund, the Thrift Savings Plan's government securities fund, is a 401(k)-style program for federal employees and military personnel. It's different than other TSP funds that consist of stock index funds, bond index funds and target-date funds that mix investments.

Instead, the G fund is invested in interest bearing, "safe" short-term Treasury securities not available to the general public. The fund matures and is reinvested daily.

However, instead of reinvesting the full balance of the G fund, the Treasury Secretary is at liberty to credit part or all of the balance of the fund to non-interest bearing accounts in the Treasury. Or as we just witnessed, to lend it the government to fund operations and pay outstanding bills.

In effect, the federal government is playing an accounting game to avoid the legal debt limit.

The G fund program alerted participants in a message last week that the "disinvestment" could occur.

Washington's Dangerous Debt Ceiling Game
Taking money from pension funds is part of the Treasury's "extraordinary measures" used in order to avoid default on the nation's obligations. The nation hit the debt ceiling Dec. 31; now the government is simply buying time.

These measures include under-investing in certain government funds, suspending the sales of nonmarketable debt and trimming or delaying auctions of securities.

Tuesday's announcement came on the heels of Geithner's plea Monday to Congress to raise the debt limit. He cautioned that failing to do so would "impose severe economic hardship on millions of individuals and businesses."

In a letter to Republican House Leader John Boehner, Geithner wrote, "Threatening to undermine our creditworthiness is no less irresponsible that threatening to undermine the rule of law, and no more legitimate than any other common demand for ransom."

Republicans appear ready to let the country hit the debt ceiling unless steep spending cuts are enacted.

House Speaker John Boehner said Monday speaking for the GOP and apparently all of the country, "The American people do not support raising the debt ceiling without reducing government spending."

But Money Morning Global Investing Strategist Martin Hutchinson isn't so sure the GOP will be able to stay strong ahead of the debt ceiling debate.

"Looks to me that the GOP will wimp out of a debt ceiling confrontation, probably rightly," said Hutchinson. "They will get very little positive while President Obama is in office. They should instead concentrate on not losing the House in 2014."

Source :http://moneymorning.com/2013/01/16/u-s-debt-ceiling-government-borrows-pension-funds-to-avoid-default/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in