Extraordinary measures

Creating room under the limit

When the national debt reaches the debt ceiling, the Treasury cannot issue new debt that counts against it. But part of the debt is held by federal funds the Treasury itself manages. By temporarily reducing those holdings, it lowers the debt subject to limit and frees up room to borrow from the public instead.

The steps are authorised by law in advance and have been used during debt ceiling standoffs since the mid-1980s.

The main tools

• Suspending new investment by the G Fund, a government securities option in the Thrift Savings Plan for federal employees.
• Suspending new investment and redeeming existing holdings of the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund.
• Suspending reinvestment by the Exchange Stabilization Fund, which the Treasury uses for currency operations.
• Halting sales of State and Local Government Series securities, which municipalities use to invest bond proceeds.

Together these typically provide a few hundred billion dollars of headroom, depending on the time of year.

Nobody loses money

The affected funds are made whole. Once the limit is raised or suspended, the Treasury restores the investments and credits the interest they would have earned. Federal employees and retirees see no difference in their accounts or benefits.

Why they only delay the problem

Extraordinary measures do not reduce the government’s need to borrow; they only change where the borrowing is recorded. The deficit keeps adding to the debt, so the headroom is used up within months. When it is gone and cash runs low, the Treasury reaches the X-date.