The TSP G Fund, one of the bargaining chips on the table that is used in budget negotiations, could end up having its investments suspended all the way through to the end of the year.
The CBO has issued revised projections about when the U.S. Treasury is expected to run out of cash. The earlier estimate was for the end of October, which was the deadline for Congress to end the stalemate and raise the debt limit.
The new projections show the U.S. Treasury managing to stay afloat till November end and possibly into early December. Lawmakers are obviously going to play chicken and wait until the last possible minute to do something about it, if at all.
This means that Thrift Savings Plan (TSP) investors in the G Fund will be left hanging way past the expected Oct 30 deadline which Treasury Secretary Jacob Lew had set for the debt issuance suspension period.
What’s the Connection Between the TSP G Fund and the Debt Limit?
The statutory debt limit of the United States is limited by law, and the Treasury can’t issue any more of it once it hits this limit. At such times, which are occurring increasingly faster because of stop-gap debt limit hikes approved by Congress, the Treasury is forced to take certain actions.
One of these actions the Treasury takes to manage its debt and find more cash for keeping the government open is by suspending investments of the TSP G Fund. This is because the G Fund is invested in short-term U.S. Treasury securities specially issued to the TSP.
It doesn’t impact your principal or interest as an investor, and your account balance will continue to function as if your contributions are still being invested in Treasury securities. Loans and TSP withdrawals are likewise unaffected.
It’s a piece of financial Kung-fu – you’re investing in treasuries without actually investing in treasuries.