News

Suspension of the debt ceiling

May 31, 2017

The federal government’s debt is no longer increasing. This sounds like great news. The government isn’t borrowing any more money. But don’t get your emotions too high.

This is all an accounting sham, which could result in the debt increasing by hundreds of billions of dollars once Congress increases the debt ceiling.

For explanation purposes, I will take this to an individual level.  Let’s say when George reaches his credit card limit he takes money out of his children’s college savings accounts to pay for his expenses. Once the credit card company increases his limit, he takes out a cash advance and pays back his children’s college savings accounts.  As a result, his credit card balance significantly increases.

The federal government has reached its $19.9 trillion debt ceiling. Legally it can’t borrow any more money, but the Treasury Department is using “extraordinary measures” to pay for the government expenses. One of these measures is to take money from the federal employees’ retirement fund. Treasury can “borrow” all of this fund’s $225 billion balance.

Once Congress increases its own debt ceiling, the debt amount will immediately increase by possibly hundreds of billions of dollars, as the Treasury Department pays back the retirement fund and unwinds other extraordinary measures. The last time the debt ceiling was raised the debt increased by more than $339 billion in one day.

 
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