The Treasury Department has said that starting this week it will “disinvest” the TSP’s government securities G fund as part of financial maneuvers to avoid hitting the debt ceiling.
In disinvestment, the Treasury in effect takes the G fund off the government’s books as debt owed, freeing up an equivalent amount of money. In a letter to Congress, Treasury Secretary Janet Yellen said she was using that authority, as well as maneuvers involving the civil service retirement fund and others, to “temporarily provide additional capacity for Treasury to continue financing the operations of the federal government.”
During a disinvestment period, G fund account balances continue to accrue earnings and are updated each business day, and loans and withdrawals are unaffected; after the debt limit impasse has ended, the G fund is made whole.
Regardless, many TSP investors resent the actions since the G fund is their money, not a government trust fund. As of the end of November, the G fund held nearly $300 billion of TSP investor assets, about 40 percent of the total.
Although the maneuvers are officially termed “extraordinary measures” they have been used about a dozen times over the last 25 years by administrations of both parties in similar situations.
Yellen said that Treasury cannot predict when the funds freed up by those maneuvers will themselves be exhausted but does not expect that to happen before June. The new Republican majority in the House has indicated that it will use that deadline as leverage to hold down federal spending, with predictions already arising of a default with unknown but likely severe consequences for the economy.