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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.

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Comment Preferences

  •  Tip Jar (8+ / 0-)

    Further, affiant sayeth not.

    by Gary Norton on Fri May 20, 2011 at 08:49:32 AM PDT

  •  Gary - it's just like SocSec (2+ / 0-)
    Recommended by:
    Gary Norton, nextstep

    "let's talk about that"

    by VClib on Fri May 20, 2011 at 09:01:12 AM PDT

    •  Yes and no. Federal employees also (3+ / 0-)
      Recommended by:
      HylasBrook, VClib, Eric Nelson

      pay into Social Security and medicare. Those funds are not being used and can't be used. This is like your employer taking funds that were deducted from your paycheck to go into your 401K and using them to pay the company's bills.

      Further, affiant sayeth not.

      by Gary Norton on Fri May 20, 2011 at 09:15:07 AM PDT

      [ Parent ]

      •  Actually, Treasury is borrowing the Funds (2+ / 0-)
        Recommended by:
        VClib, HylasBrook

        and in the pecular nature of government accounting, this is not included in the national debt.

        The other accounting oddity is that money the government borrows from itself (e.g. Social Security) is included in the Federal debt rather than just the public debt.

        So borrowing from retirement funds of Federal Employees are not included in the Debt calculations but borrowing form Social Security is included.

        The most important way to protect the environment is not to have more than one child.

        by nextstep on Fri May 20, 2011 at 09:49:27 AM PDT

        [ Parent ]

        •  It is more complicated (4+ / 0-)
          Recommended by:
          VClib, Eric Nelson, nextstep, exatc

          than that.

          Under normal circumstances all trust fund accounts, whether SS, Medicare, HFT Civil Service, et al., are invested in special issue Treasury instruments and are part of the debt, 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. The law requires the money to eventually be paid back, but for now the instruments are gone. This cannot be done with the SS 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.

          Further, affiant sayeth not.

          by Gary Norton on Fri May 20, 2011 at 11:04:28 AM PDT

          [ Parent ]

          •  Gary - thank you for your comment (2+ / 0-)
            Recommended by:
            Eric Nelson, Gary Norton

            I was just having some fun. However, thank your for providing us all with a very comprehensive and thoughtful answer so we all actually know the facts.

            "let's talk about that"

            by VClib on Fri May 20, 2011 at 11:26:07 AM PDT

            [ Parent ]

          •  I know you know, and I know… (1+ / 0-)
            Recommended by:
            Gary Norton

            …the subtleties of Federal Employeeism. I was one for nearly 30 years. What most people don't know is that the retirement system changed in the mid '80s, thus they may be unaware that not all Federal retirees (and none hired since about 1986—I don't remember the exact date of the changeover) are CSRS (Civil Service Retirement System) annuitants. Everyone hired after that date (and many earlier hires who were dumb enough to change) are covered under FERS (Federal Employee Retirement System).

            CSRS was a fully funded pension plan based on employee contributions and Federal matching funds, much like other old fashioned company retirement systems. There was no Social Security withholding for CSRS employees, and no SS component based on CSRS employment.

            FERS, on the other hand, is wholly based on SS and a 401k-like employee contribution (TSP—Thrift Savings Plan) with some Federal matching funds, but not nearly as comprehensive as CSRS was. SS struck me at the time as a potentially volatile gamble and between it and the current economic impact on 401ks look how prescient I was.

            The distinctions are why a lot of people won't understand why the CSRS funds and the TSP funds are almost wholly unconnected (I say "almost" because CSRS employees were able to contribute to TSP from the beginning of the FERS implementation). TSP was the sole advantageous component of FERS.

            As important is to understand how few CSRS employees are still working. In my field in the FAA, I would guess virtually none, because all ATCs hired after about 1973 are age limited and must retire by age 56 or with 25 years of service (as I recall—being a much earlier hire, I could still be working). 1986 was 25 years ago.

            I'll have to see if my check is deposited whole in a couple of weeks.

    •  No, They already borrowed the social security fund (2+ / 0-)
      Recommended by:
      Gary Norton, VClib

      They've already borrowed the SS fund.  They can't lend themselves the money twice (I hope).

      In God we trust, All others we monitor -AFTAC (-2.75, -2.67)

      by lcs on Fri May 20, 2011 at 09:49:18 AM PDT

      [ Parent ]

  •  Stupid move buy Giethner & the Admin (4+ / 0-)

    When the debt ceiling was hit, the US Gov't should of shut down and the Republicans should have been blamed.

    Instead, the point at which the shut down occurs will be determined by Geithner and the Obama Admin; therefore guess who gets the Blame.

    Notice: This Comment © 2011 ROGNM

    by ROGNM on Fri May 20, 2011 at 09:04:34 AM PDT

    •  Agree, but the timing will (2+ / 0-)
      Recommended by:
      ROGNM, Eric Nelson

      end up working to our benefit. The flim flam will stop on August 2, which is when the August recess will soon start.

      Further, affiant sayeth not.

      by Gary Norton on Fri May 20, 2011 at 09:16:47 AM PDT

      [ Parent ]

    •  Also--No More Borrowing Doesn't Equal "Default" (2+ / 0-)
      Recommended by:
      HylasBrook, VClib

      Does anyone really think Obama and Giethner would ever stop paying interest on our debt, before they stopped evey other federal payment first?  

      Seriously, all this talk about how the U.S. government will "default" if it can't borrow any more is "Shock Doctrine" bullshit.  Where have we heard this before--"We must do [insert policy the owners of this country want here] or the country and the country will collapse."  

      Granted, it's currently aimed at the teabaggers and the GOP, but it's bulshit none the less.  But it will be aimed at Democrats when the GOP says that we need to cut trillions from progressive social programs or they won't vote to raise the debt limit.  Then, we will all hear, "We must agree to all these trillions dollar cuts to social programs, or the country and economy will collapse."  

           

      •  TimmyB - you are right (2+ / 0-)
        Recommended by:
        Gary Norton, TimmyB

        Paying interest on Treasury notes and bonds and redeeming notes and bonds that mature will have the first priority in the Obama administration, just like any other administration will ever do. Given that our revenues to the federal government are many times higher than the interest and redemption costs people should understand one simple thing - WE ARE NOT GOING TO DEFAULT, EVER even if the gopers don't raise the debt limit. The Obama administration is not going to state this publically because it's part of the negotiation dance. The result of no new debt limit is not default, it is a dramatic budget cut.

        "let's talk about that"

        by VClib on Fri May 20, 2011 at 12:12:39 PM PDT

        [ Parent ]

        •  "Default" is not just debt (0+ / 0-)

          default. The issue is not interest on bonds. The government has hundreds of billions in contract obligations that are in jeopardy, statutory obligations from SS to Medicare to Farm payments. Investors know that. The reason why the markets will go crazy is because once the US government shows it is politically dysfunctional there will be no faith in anything we do or any dollar denominated instruments or commodities.

          Further, affiant sayeth not.

          by Gary Norton on Fri May 20, 2011 at 12:34:22 PM PDT

          [ Parent ]

          •  Gary - you make a valid point (1+ / 0-)
            Recommended by:
            Gary Norton

            However, the impact will be gradual and at some point the political pain will he high enough, on both parties, to make a deal.  There is no political pain now and there will not be until early August or later.

            "let's talk about that"

            by VClib on Fri May 20, 2011 at 12:46:28 PM PDT

            [ Parent ]

            •  In August-- the Pain Will Also be Much Worse (1+ / 0-)
              Recommended by:
              VClib

              Currently, one third of our yearly budget comes from debt.  But we will not be issuing debt from May to August.  So, no debt for four months.  If the debt limit isn't raised, then the spending for the remainder of the fiscal year, only two months, will need to reflect this.  It will be grim.  

                 

          •  You Can Only "Default" on Debt (1+ / 0-)
            Recommended by:
            VClib

            It is true that the government may or may not violate the terms of contracts with vendors, but that situation isn't called a "default."  It's called "breach of contract."  Default has a specific meaning, and here it refers to debt.

            And our statutory obligations?  Big deal--statutes can be changed.  Those payments may not be made, but there is no penalty to the government for not making them.                        

            Concerning your claim that the sky will fall, then the sky should have fallen already.  The entire world already saw our political dysfunction when our government had to resort to accounting tricks because the debt ceiling wan't raised.  

                   

  •  This isnt good for Fed. worker but there may be a (3+ / 0-)
    Recommended by:
    Gary Norton, Knarfc, HylasBrook

    tactical advantage that helps Democrats.
    Red (welfare) States are more dependent on Federal Funds and this could work as a lever.

    In a letter to Congress, Geithner detailed the first of these: “On Friday, May 6, Treasury will suspend until further notice the issuance of State and Local Government Series (SLGS) Treasury securities,” he wrote. I’m not going to pretend to be an expert in SLGS securities, but their basic point is to help state and local government smooth out their finances. As Geithner writes, suspending them “is not without costs; it will deprive state and local governments of an important tool to manage their outstanding debt expenses.” Sucks for them.
     - emphasis added

    Ezra Klein

    Not that the Republicans (see: Wisconsin/Walker et. al) give a shit about their constituents. But the constituents vote, something the Republicans can't stop, even with their latest voter suppression efforts. The Gop is desperate. Let this tightening of their state budgets "trickle down" straight to the voting booth.

    Good lookin out Gary Norton

  •  Does this affect Republican party (2+ / 0-)
    Recommended by:
    Gary Norton, Eric Nelson

    members who are federal employees or retirees?

    If so, have they commented on the apparently decreasing benefits of being a federal government employee?

  •  Who Knew That The 6% Withheld From My (2+ / 0-)
    Recommended by:
    Gary Norton, Margd

    paycheck each and every month for the past 40 years is now the only source of funds the government has to stay afloat?  

    I was forced to "donate" 6% of my paycheck.  It was mandatory.  While year after year, the government didn't fund their agreed-to portion into my retirement account.   They didn't have the money, they said at the time.  It was needed to give tax breaks to corporations they said to keep the economy going.  They did this year after year.  Now they have decided to take part of my retirement account away because there are just no other funds.  

    If you have a retirement account, assume it is just pretend because it can be taken away at any time, even after you have retired.

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