The Debt Limit: A Note on the G Fund and the Exchange Stabilization Fund

The G Fund is one of the funds offered to federal employees as part of the Thrift Savings Plan, the federal employee equivalent to a 401(k) plan.  This fund is invested in one-day non-marketable Treasury securities with an interest rate determined monthly. There is a special provision in the law creating the Thrift Savings Plan that makes the G Fund whole if the Secretary of the Treasury decides to disinvest it entirely or partially due to a debt limit problem once the debt limit issue is resolved. The nonmarketable Treasury securities in the G Fund count against the debt limit, thus, disinvesting the G Fund makes room under the debt limit for the Treasury to issue marketable Treasury securities in order to raise needed cash.

The G Fund is included in intragovernmental accounts. As of the end of December 2022, its assets were $210.9 billion.

The Exchange Stabilization Fund (ESF) is a fund managed by the Secretary of the Treasury. It is primarily used for foreign exchange operations. Here is the Treasury’s brief description of the ESF.

As of November 30, 2022, the ESF had $210.3 billion in assets, of which $17.6 billion were in non-marketable Treasury securities. When the ESF is disinvested because of a debt limit problem, the Treasury does not have the authority to make it whole once the debt limit impasse is resolved.

The Bipartisan Policy Center (BPC) has a description here of what it calls “the big three” extraordinary measures. These are the G Fund, the ESF, and federal employee retirement funds.

Interestingly, Jerome Powell, before he was nominated by President Obama and confirmed to be a governor of the Federal Reserve, worked at BPC. He took a particular interest in debt limit issues, which he knew first hand as an Under Secretary of Treasury for Domestic Finance in the George H. W. Bush Administration. (He was for a time my boss at Treasury.) Probably his efforts at lobbying Republicans in Congress on the debt limit while at BPC during the Obama Administration was a factor in his nomination to the Fed Board.