How its Rigged : The Debt Limit & The Games the Treasury Plays to fool the Precariat

Over the past several months, numerous “right wing” outlets have reported that President Trump was the first President to see the national debt decline in generations and that the debt not going up was proof of MR Trump’s business acumen.

As President Trump would say “Fake News”.

The reason the national debt was not going up the past several months was not due to the Federal Government tightening their purse strings, but rather accounting gimmicks that the Treasury Department uses about this time every year.

 

For a full rundown of the chicanery the Treasury uses, look no further than their own website:  https://www.treasury.gov/initiatives/Documents/Description_of_Extraordinary_Measures_2017_03_16.pdf

In layman’s terms the government takes funds that should go to Federal workers pensions and retirement accounts and diverts those payments to paying ongoing bills.  Doing so saves about $6.9 billion per month by not investing those fund into the Civil Service Retirement System(CSRDF).  By not investing funds into the Postal Service Retiree Health Benefits Fund (PSRHBF), the treasury saves another $400 million in headroom.

Headroom refers to breathing room between the debt ceiling and current debt limit.  If you had a credit card max of $20,000 and had a balance on $19,950.  Creating $1000 of headroom would bring a new balance of 18,950 assuming no interest calculations.

If the government thinks the extraordinary measures will last for 3 months, they immediately clear up $21.9BN in headroom.  (All of this information can be found and sourced in the link above from the treasury)

In addition to suspending ongoing payments to retiree’s phantom pension accounts the treasury also employs 1 time tactics to clear up more headroom.

“On June 30, approximately $70 billion in CSRDF investments mature. In addition, an interest

payment of an estimated $13 billion is scheduled to  be made to the fund on that date. Ordinarily the

proceeds of the maturing investments would be reinvested and the interest payment would be

invested. If, however, a debt issuance suspension period is in place at this time, Treasury may

suspend these investments. Suspending these investments would free up and conserve a combined

total of approximately $83 billion in headroom.”

 

The PSRHBF is able to employ a similar tactic in June that would clear up $4BN in headroom.

 

 

THE G FUND

When the government needs to create serious headroom, they raid the G Fund.

“The G Fund is a money market defined-contribution retirement fund for Federal employees. The fund is invested in special-issue Treasury securities, which count against the debt limit. The entire balance matures daily and is ordinarily reinvested.

Congress has granted Treasury the statutory authority to suspend reinvestment of all or part of the balance of the G Fund when the Secretary determines that the fund cannot be fully invested without exceeding the debt limit. Using this measure immediately frees up headroom under the debt limit.

Because the G Fund balance is approximately $225 billion, using this measure can immediately create up to approximately $225 billion in headroom.

During the period of the investment suspension, payments from the G Fund continue to be made as long as the United States has not yet exhausted the extraordinary measures.

Once the extraordinary measures have been exhausted, however, the U.S. Government will be limited in its ability to make payments across the government.

After the debt limit impasse has ended, the G Fund is made whole. Therefore participants in the Thrift Savings Plan who contribute to the G Fund are unaffected by the actions described above.”

 

Basically the government takes the money market accounts of federal workers and uses their money to Congress’s bills.  Workers would only be effected so long as the extraordinary measures weren’t exhausted and Congress eventually lifted the debt ceiling.

 

I think it would be better if the government raided Congress’s pension instead.

 

 

Other things the government does is to suspend the Exchange Stabilization Fund, which helps clear up $22BN in Headroom and suspension of State and Local Government Series Treasury securities.

The latter measure doesn’t clear up any headroom but it does prevent $3Bn to $13BN of new issuances to be made, which counts against the debt ceiling.

 

All in all, the debt ceiling is a major charade that creates a manufactured crisis every 12 months.  Until we reconcile with the fact money is created from debt, and that it is impossible to pay off…we will be nothing less than high tech slaves on the government plantation.

Cheers,

Tim Picciott CFP(R) CRPC(R)

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