Capitol Hill (CNN) – How exactly is the Treasury Department keeping the U.S. going, after the country has hit the national debt limit? A debt limit means no additional net borrowing - at a time when the federal government pays roughly 40% of its bills precisely through borrowing.
Treasury Secretary Tim Geithner calls the answer "extraordinary measures". Financial juggling is another way to say it.
This week, American Sauce lays out exactly what the Treasury is doing to limbo under the debt limit and buy Congress about two months of time to find an answer.
Comment below. Listen here:
Or keep reading for the bullet points in print:
- SLGS: Policy folks call them "slugs". You should too. It's cool. These are debt instruments that the federal government sells to State and Local Governments. (SLGS)
Suspending them is one of the first things Treasury does when nearing the debt ceiling, but it does not give the federal government more buying power. Instead, this freezes an unpredictable debt measure (states put money in and out as they need, not in predetermined amounts). Freezing SLGS gives the Treasury a more stable sense of cash flow.
On the down side, this temporarily halts a program that states and local governments use to help manage their own debt.
- Federal Retirement Funds: This is the biggie. Treasury can temporarily manipulate two large retirement funds for federal employees in order to stay under the debt ceiling. (For super wonks, they are the Civil Service Retirement and Disability Fund, an older, more traditional pension plan, and the G-Fund, a voluntary 401K-type program.)
What does Treasury do with these?
Simplistic version: Treasury stops selling debt to these retirement funds (the funds buy the debt as an investment). But, this is temporary. Treasury must later repay the precise interest those funds would have made otherwise.
- Exchange Stabilization Fund: Here's one to bring up at a party. (A party for big-time money nerds.) The U.S. has a reserve fund, called the Exchange Stabilization Fund, that it keeps handy to make payments in or buy foreign currencies. The idea is to keep a reserve in case of unpredictable fluctuations in currency values.
That money is invested in U.S. debt, the same concept as the retirement funds. To get some more headroom under the debt ceiling, Sec. Geithner can freeze those investments, thereby bringing down the amount of U.S. debt out there.
One difference, just in case you really do bring this up at a meeting of the "Financial Minutia Club", is that Treasury does not have to repay the interest the ESF would lose. The fund simply takes the hit in lost interest.
- Federal Finance Bank: We'll cut to the chase – this has been an option in the past, but is not a significant factor this time around.
The Federal Finance Bank can loan money between agencies. But here's it's superpower: it can issue up to $15 Billion in debt that is not subject to the national debt limit. But which the Treasury can use.
However, much of that $15 Billion ability has been used up. There is not a significant amount remaining (somewhere around $4 Billion) and using it is not simple.
What do you think of these things Treasury is doing? This financial contortion to stay under the debt limit (by the slimmest amounts)?
Listen to the podcast here.
It also includes a rare look at the small group of people who actually calculate the national debt to the penny. And whose lives are hell right now.
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