US Takes Preemptive Measures to Block June Default Risk... Additional Special Actions Implemented

Payments Suspended for Two Entities Including Federal Employee Pensions
Investment Halted in G Fund for Federal Employees
Speculation Grows That Trump Will Enter Debt Ceiling Negotiations

The U.S. government has decided to implement additional special accounting measures to prevent a debt default. There are concerns that the U.S. national debt could reach its legal limit in January, and without further measures to prevent this, the country could face a default crisis. Since the Trump administration's tax cut policies may exacerbate the U.S. fiscal deficit problem, it is expected that President Donald Trump will soon enter negotiations on the debt ceiling.

On the 23rd (local time), Bloomberg reported that the U.S. Treasury Department decided to implement additional special accounting measures to prevent breaching the federal debt ceiling earlier this month.

David Lebryk, Acting Treasury Secretary and Deputy Secretary of the Treasury, notified Congress of the newly added special measures. The newly added measure involves a complete suspension of investments in the Government Securities Investment Fund (G Fund) for federal employees. Deputy Secretary Lebryk stated, "The Treasury can no longer invest in the Government Securities Investment Fund for federal employees." The suspension of investments in the G Fund was anticipated. The Treasury had mentioned last week in a statement that the G Fund could be used as one of the special measures to prevent breaching the debt ceiling.

Another potential measure under consideration is the suspension of the Treasury's Exchange Stabilization Fund. The U.S. Treasury has already been implementing special measures since the 21st, temporarily suspending payments to two entities, including federal employee pensions. Earlier, Treasury Secretary Janet Yellen advised that existing measures are insufficient to avoid a U.S. default and that additional emergency measures are necessary.

If Congress does not raise or suspend the debt ceiling by June, when the effectiveness of these special Treasury measures is expected to expire, the U.S. government will fall into default. On the other hand, U.S. bond market experts expect the Treasury to continue emergency measures through the third quarter of this year and use cash balances to avoid breaching the debt ceiling.

The problem is that national debt could increase further if government spending rises due to large-scale tax cuts promised by President Trump. This is why there are expectations that President Trump will soon enter debt ceiling negotiations. Trump has strongly demanded the abolition of the debt ceiling since his candidacy.

The U.S. Congressional Budget Office (CBO) projected that the national debt will increase by $21.1 trillion over the next 10 years. If this projection holds, the U.S. national debt will reach a record high of 118% of the U.S. Gross Domestic Product (GDP). Warnings about the U.S. national debt continue unabated. Ray Dalio, founder of Bridgewater Associates and known as the godfather of hedge funds, recently warned in an interview with the Financial Times (FT) that the biggest challenge for a second Trump administration will be resolving the national debt issue. Dalio also stated last September that the U.S. still faces an enormous amount of debt and that regardless of who wins the presidential election, it is unlikely that debt pressures will ease significantly.