Thursday, February 23, 2006

"G Fund" Men

I'm not expecting to retire any time soon, not after this, anyway:

Although the Treasury Department will rely on the G Fund in the Thrift Savings Plan to buy some time to maneuver against the national debt limit, federal employees who invest in the fund will not suffer any losses, officials said.

Treasury Secretary John W. Snow told Congress last week that it had begun to use the TSP's government securities fund to keep from hitting the $8 trillion debt limit. He called on congressional leaders to increase the debt limit by mid-March, suggesting that was when the Treasury might not be able to meet its financial obligations.

Snow also indicated that TSP investors should not worry about his decision to suspend reinvestment of some TSP assets on a daily basis. In a letter to Capitol Hill leaders, Snow said G Fund participants "are fully protected and will suffer no adverse consequences from this action."

A 1987 law requires the Treasury secretary to make "complete restoration of all funds temporarily affected by this necessary action, including full and automatic restoration of any interest that would have been credited to the fund," Snow wrote.

The G Fund is one of the most popular investment choices for federal employees, in part because it provides steady returns (4.48 percent for the 12-month period ending Jan. 31). The fund, available only to government personnel, allows investors to earn rates of interest similar to those of long-term government securities without any risk of losing principal and with little volatility in earnings.

The G Fund has about $65.3 billion in assets, but a Treasury spokeswoman said officials "will just take what we need to get through each day." Treasury began suspending G Fund investments Thursday, according to Snow's letter.

By suspending G Fund investments, Treasury makes room on the government's books for more borrowing. Brookly McLaughlin , the department spokeswoman, said Treasury might resort to other methods to avoid bumping up against the debt limit. For example, she noted that the government closed a window Wednesday for lending debt securities to state and local governments.

Numerous federal employees object to the Treasury maneuver, contending that it amounts to a raid by the government into personal savings accounts. But officials noted that the G Fund has been used to avoid defaulting on the national debt several times, including during the budget showdowns of 1995 and 1996.

In a posting on the TSP Web site, the Federal Retirement Thrift Investment Board said a "make-whole provision" in the 1987 law "means that TSP participants who have invested in the G Fund will not lose anything."
Three things frighten me (four if you include clowns):

(1) The impending Federal Talent Crisis, outlined here (links on the site are broken, my bad, try this newsletter if you like a scrolling challenge).

When I've hinted at this in the past, it's been in light of the depletion of the talent pool, however, I have not touched on the financial implications of 900,000 federal retirees by 2010. I can't do math in my head right now, but my instincts tell me this is a lot of money. The immediate questions are, of course, how many retirees are going to be pulling their money out of the G Fund in the immediate future, how are those payments going to be covered, and how long will this last.

(2) In this administration, fiscal conservatism seems to be an oxymoron... like "military intelligence" or" Justice Scalia".

(3) I don't trust these yahoos, including John Snow. Given past performances, I don't think that these guys can tell this from this.

That is all.

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