Have you wondered how the Government can continue to operate after it hit the debt ceiling and could no longer borrow money. The answer is that it is filching money from Federal employees and retirees.
The Treasury Department is taking money that Federal retirees and employees have paid into their retirement fund and their 401K and using that money to fund Federal operations. Yes, you read that right. On May 16th, Secretary Geithner notified the House and Senate that, in order to keep the government operating Treasury would take money that has been and is currently being deducted from Federal employee paychecks for their retirement and use it to pay the Government's bills.
As everyone knows, last Saturday the Federal government hit its debt ceiling. It can no longer borrow money. We currently have to borrow one dollar of every three dollars we spend. When you can no longer borrow there are two options. Cut back on spending like Social Security checks, medicare, salaries and expenses of FBI agent, food safety inspectors, VA doctors and soldiers in the field, or interest payments on outstanding bonds. The second option is to take money that federal employees are paying and have paid over the years for their retirement.
As Geithner says, they chose the second option. The first action is to take money from the Civil Service Retirement Fund
I am writing to notify you, as required under 5 U.S.C. § 8348(l)(2), of my determination that, by reason of the statutory debt limit, I will be unable to invest fully the portion of the Civil Service Retirement and Disability Fund (“CSRDF”) not immediately required to pay beneficiaries. For purposes of this statute, I have determined that a “debt issuance suspension period” will begin today, May 16, 2011, and last until August 2, 2011, when the Department of the Treasury projects that the borrowing authority of the United States will be exhausted. During this “debt issuance suspension period,” the Treasury Department will suspend additional investments of amounts credited to, and redeem a portion of the investments held by, the CSRDF, as authorized by law.
But since that is only $785 Billion, Treasury is also taking money that employees have invested in their 401K,
In addition, I am notifying you, as required under 5 U.S.C. § 8438(h)(2), of my determination that, by reason of the statutory debt limit, I will be unable to invest fully the Government Securities Investment Fund (“G Fund”) of the Federal Employees’ Retirement System in interest-bearing securities of the United States, beginning today, May 16, 2011. The statute governing G Fund investments expressly authorizes the Secretary of the Treasury to suspend investment of the G Fund to avoid breaching the statutory debt limit.
Treasury is also doing two other things to keep paying the bills, notably suspend the issuance of State and Local Government Series Treasury Securities.
But the bulk of money is coming from Federal employees. Sure, the law says that this money is supposed to be repaid when the debt limit is finally raised. But in the meantime it is Federal employees and retirees who are floating the Government. So the same Federal employees and retirees who are reviled by Republicans in Congress are the ones saving the bacon of the Republicans who refuse to act responsibly and raise the debt limit.
Update. Some people think this is the same as Social Security Trust Funds. It is not. If it were we could avoid default for years.
Under normal circumstances all trust fund accounts, whether Social Security, Medicare, Highway Trust Fund, Civil Service Retirement Fund, et al., are invested in special issue Treasury instruments and are part of the national debt. They are under the heading of Debt Not Held By The Public.
But there is a law that applies only to Civil Service Retirement System funds that allows Treasury to cancel the instruments in the CSRS fund when it reaches the debt ceiling. Once those instruments are cancelled, the national debt is reduced by that amount and the money can be spent for expenses, like Boehner's salary. The law requires the money to eventually be paid back, but for now the instruments are gone. This debt cancellation cannot be done with the Social Security or any other trust fund.
The Thrift Savings Plan funds are totally different. It is a 401k administered by a separate board. Employees have many choices of where to invest their funds including, stocks, bonds, real estate and Government Securities. This law applies only to money in the G Fund and it allows Treasury to cancel those government securities and spend the money. Also new money designated for the G Fund can be directly spent. Again, the law says it must be redeposited later, but right now the debt is cancelled, and that is why it doesn't it isn't part of the national debt.