U.S. Treasury forced to temporarily suspend investing in securities fund to keep debt in check

<p>WASHINGTON – Fearful of reaching the government’s $5.950 trillion statutory debt cap and Congress’ reluctance to raise that ceiling, the U.S. Treasury said it will temporarily suspend investing in the agency’s government securities investment (G-Fund), which is one of five funds in the Federal Employees Retirement System (FERS). The investing suspension will take place between April 4 and end on or about April 18, said Treasury Secretary Paul O’Neill, and investors need not worry about the impact, he emphasized. “G-Fund beneficiaries are fully protected and will experience no adverse consequences from this action,” O’Neill wrote in a letter to Congressional leaders. Since December, O’Neill has asked Congress three times to increase the statutory debt limit but to no avail. The Secretary will recredit the G-Fund once the Treasury can do so without exceeding the public debt limit on or about April 18. Any interest that was not credited during that period will be immediately credited to the Fund. Likewise, credit unions should not be significantly impacted by the suspension, said Jeff Taylor, NAFCU economist, who added that Treasury might have to face a similar situation this summer if Congress doesn’t raise the debt cap. “This is more political than anything,” Taylor said. “Credit unions are typically not into marketing treasuries and securities unless they’re corporates. I don’t think credit unions are going to be worried about losing two basis points here or if there will be a massive dumping of Treasuries.” Each year, Treasury faces seasonal cash shortages in early April in advance of tax receipts in mid-April, O’Neill said. To bridge this period, the agency needs to issue short-term cash management bills (CMBs) as an offset. Because there is insufficient room under the current debt limit to issue the needed CMBs, O’Neill said Treasury must look for alternatives to fill that void. Beginning on April 4, Treasury will exchange between $5 and $35 billion of the $40 billion in non-marketable Treasury securities in the G-Fund for the same amount of credit balances. During the first week of April, recurring monthly federal benefit payments and other disbursements will exceed collections by $45 to $50 billion, Treasury reported. Monthly recurring benefit payments totaling more than $45 billion will be made for programs such as Social Security ($27 billion), Medicare, and civilian and military payroll and retirement. Tax refunds ($10 billion) and other disbursements are expected to total more than $35 billion. Tax receipts from individuals and corporations are only expected to total about $35 billion. As of April 1, the G-Fund has investments of $40 billion in overnight non-marketable Treasury securities. Other FERS funds are invested in corporate bonds, S&P 500 equities, small cap equities, and foreign equities. This is not the first time Treasury had to suspend investing in the G-Fund. Former Treasury Secretary Robert Rubin did so in November 1995. -</p> <p>[email protected]</p>