Congress and the President first enacted a statutory limit on federal debt during World War I to eliminate the need for Congress to approve each new debt issuance and provide Treasury with greater discretion over how it finances the government’s day-to-day borrowing needs. With the Public Debt Act of 1941, Congress and the President set an overall limit of $65 billion on Treasury debt obligations that could be outstanding at any one time and since then have enacted a number of debt limit increases. Most recently, Congress and the President enacted the BCA, which established a process that resulted in debt limit increases in three increments—$400 billion in August 2011, $500 billion in September 2011, and $1,200 billion in January 2012—for a total increase of $2.1 trillion, raising the debt limit to $16.394 trillion. As shown in figure 1, the amount of reported outstanding debt subject to the limit has increased from $5,137 billion on September 30, 1996, to $15,730 billion on May 31, 2012. Debt subject to the limit includes both debt held by the public and intragovernmental debt holdings. Debt held by the public consists primarily of marketable Treasury securities, such as bonds, notes, bills, cash management bills (CM bills), and Treasury Inflation-Protected Securities (TIPS), which are sold through auctions and can be resold by Treasury also issues a smaller amount of whoever owns them.nonmarketable securities, such as savings securities and special securities for state and local governments. Debt held by the public primarily represents the amount the federal government has borrowed to finance cumulative cash deficits. Intragovernmental debt holdings represent balances of Treasury securities held in federal government accounts, such as the Social Security and Medicare trust funds. Intragovernmental debt increases when these accounts run a surplus or accrue interest on existing securities. The Secretary of the Treasury has several responsibilities related to the federal government’s financial management operations. These include paying the government’s obligations and investing the excess annual receipts (including interest earnings) over disbursements of federal government accounts with investment authority. To meet these responsibilities, the Secretary of the Treasury is authorized by law to issue the necessary securities to federal government accounts with investment authority for investment purposes and to borrow the necessary funds from the public to pay government obligations. normal conditions, Treasury is notified by the appropriate agency (such as the Office of Personnel Management for the Civil Service Retirement and Disability Fund (CSRDF)) of the amount that should be invested on its behalf, and Treasury then makes the investment. In some cases, the actual security that Treasury should purchase is also specified. When a federal government account with investment authority needs to make disbursements, Treasury is normally notified of the amount of securities that need to be redeemed. In some cases, Treasury is also notified to redeem specific securities. The Treasury securities issued to federal government accounts with investment authority count against the debt limit. If these accounts’ receipts are not invested, the amount of debt subject to the limit does not increase. The majority of securities held by federal government accounts are Government Account Series (GAS) securities. GAS securities consist of par value securities and market-based securities, with terms ranging from on demand out to 30 years. Par value securities are issued and redeemed at par (100 percent of face value), regardless of current market conditions. Market-based securities, however, can be issued at a premium or discount and are redeemed at par value on the maturity date or at market value if redeemed before the maturing date. Under normal circumstances, the debt limit is not an impediment to carrying out these investment responsibilities. However, when federal debt is near or at the debt limit, increasing the debt limit frequently involves lengthy debate by Congress. When delays occur, Treasury has to depart from normal cash and debt management operations to avoid exceeding the debt limit. In 1986 and 1987, after Treasury’s experiences during prior debt limit crises, Congress authorized the Secretary of the Treasury to use the CSRDF and the Government Securities Investment Fund of the Federal Employees’ Retirement System (G-Fund) to help Treasury manage federal debt when delays in raising the debt limit occur. Treasury has also taken other actions in the past to manage federal debt during such delays. Table 1 provides an overview of each action. We have previously reported on aspects of Treasury’s actions during the 2003 and 2002 debt issuance suspension periods (DISP), and the 1995- 1996 and other debt limit crises. In January 2011, Treasury determined that the debt limit of $14.294 trillion set in February 2010 would likely be reached by May 16, 2011. In May 2011, Treasury determined that it was necessary to use extraordinary actions to manage federal debt during the delay in raising the debt limit, which lasted through August 1, 2011. Treasury again determined that extraordinary actions were needed to manage federal debt in January 2012. Table 2 shows the significant events from January 6, 2011, through January 30, 2012, that relate to the debt limit. The extraordinary actions Treasury took during 2011 and January 2012 to manage federal debt when delays in raising the debt limit occurred were consistent with relevant authorizing legislation and regulations. These actions related to State and Local Government Series (SLGS) securities, and the CSRDF, Postal Service Retiree Health Benefits Fund (Postal Benefits Fund), G-Fund, and Exchange Stabilization Fund (ESF). For other major federal government accounts with investment authority, Treasury used its normal investment and redemption policies and procedures to handle receipts and maturing investments and to redeem Treasury securities. Treasury took the first extraordinary action on May 6, 2011, by suspending new issuances of SLGS securities. Prior to the suspension, the reported amount of SLGS securities outstanding was about $177.3 billion. This level declined to a reported amount of about $146.5 billion by August 1, 2011. On August 2, 2011, Treasury resumed the sale of SLGS securities. Treasury also converted SLGS demand deposit securities outstanding on May 6, 2011, to special 90-day certificates of indebtedness. On August 2, 2011, Treasury converted the special 90-day certificates of indebtedness back to demand deposits including accrued interest. Treasury maintained spreadsheets to track the certificates of indebtedness and the daily interest accruals. Treasury’s actions related to the SLGS demand deposit securities were in accordance with 31 C.F.R. Part 344.7 (b), which authorizes the Secretary of the Treasury to invest any unredeemed SLGS demand deposit securities in special 90-day certificates of indebtedness. Treasury did not use its authority to suspend new issuances of or convert SLGS securities during January 2012. The Secretary of the Treasury notified Congress that he had determined that a DISP existed for the CSRDF on May 16, 2011, after concluding that he would not be able to issue debt securities without exceeding the debt limit. On that day, Treasury redeemed certain investments held by the CSRDF earlier than normal and began suspending new investments of CSRDF receipts. Treasury did not use its authority to redeem or suspend investments of the CSRDF during January 2012. Subsection 8348(k) of title 5, United States Code, authorizes the Secretary of the Treasury to redeem securities or other invested assets of the CSRDF before maturity to prevent the amount of debt from exceeding the debt limit. The statute does not require that early redemptions be made only for the purpose of making CSRDF payments. Further, the statute permits early redemptions even if the CSRDF has adequate cash balances to cover such payments. However, the statute provides that the amount redeemed may not exceed the total amount of the payments authorized to be made from the CSRDF during the DISP. Treasury decided to redeem securities held by the CSRDF earlier than normal in accordance with subsection 8348(k)(1) of title 5, United States Code. To take such action, the Secretary of the Treasury must determine that a DISP exists and the length of the DISP. The statute authorizing the DISP and its legislative history are silent as to how to determine the length of a DISP. On May 16, 2011, the Secretary of the Treasury notified Congress that a DISP, as it relates to the CSRDF, would begin that day and would last through August 2, 2011. On May 16, 2011, Treasury redeemed about $17.1 billion of securities held by the CSRDF before maturity using its authority under subsection 8348(k)(1) of title 5, United States Code. The $17.1 billion redemption amount was determined based on (1) the length of the DISP (May 16, 2011, through August 2, 2011) and (2) the estimated monthly CSRDF benefit payments and expenses that would occur during that time.These were appropriate factors to use in determining the amount of Treasury securities held by the CSRDF to redeem early. From May 16, 2011, through July 31, 2011, about $11.8 billion of actual benefit payments and expenses occurred, leaving about $5.3 billion of uninvested principal from the $17.1 billion that had been redeemed early. On August 1, 2011, benefit payments were about $5.7 billion. As such, Treasury redeemed only the approximate $0.4 billion difference between the $5.3 billion uninvested principal amount and the actual amount of benefit payments to be made. Subsection 8348(j)(1) of title 5, United States Code, authorizes the Secretary of the Treasury to suspend additional investment of amounts in the CSRDF if the investment cannot be made without exceeding the debt limit. From May 16, 2011, through August 1, 2011, Treasury suspended about $86 billion of investments to the CSRDF.