The U.S. Treasury, in order to avoid default, has resorted to an eyebrow-raising move: it has borrowed from the federal employee pension fund as the country nears its debt ceiling.

The U.S. government stopped investing in the federal employee pension fund Tuesday "to avoid breaching the statutory debt limit," according to a letter Treasury Secretary Timothy Geithner sent to Congress.

Geithner said that the move will free up some $156 billion in borrowing authority, while policy leaders in Washington wrangle over raising the $16.4 trillion debt limit.

Geithner promised the fund would be "made whole once the debt limit is increased," and maintains that federal employees and retirees would not be affected by the action.

But an IOU from the federal government isn't very settling for those relying on the fund for retirement.

Using Pensions to Fund the Government

This is not the first time the government has dipped into pension funds to pay for its overspending.

The Treasury has suspended reinvestments in the federal pension fund, aka the G Fund, six times over the past two decades in order to keep the country under the legal debt limit. The most prolonged delay in raising the limit came in 1995 after congressional Republicans came into power during the Clinton administration.

The last time was Jan. 17, 2012, while a vote was pending to increase the debt ceiling by $1.2 trillion. The increase was approved, lifting the debt ceiling to its current $16.4 trillion limit, and a debt ceiling debacle like the one in August 2011 was averted.

The G fund, the Thrift Savings Plan's government securities fund, is a 401(k)-style program for federal employees and military personnel. It's different than other TSP funds that consist of stock index funds, bond index funds and target-date funds that mix investments.

Instead, the G fund is invested in interest bearing, "safe" short-term Treasury securities not available to the general public. The fund matures and is reinvested daily.

However, instead of reinvesting the full balance of the G fund, the Treasury Secretary is at liberty to credit part or all of the balance of the fund to non-interest bearing accounts in the Treasury. Or as we just witnessed, to lend it the government to fund operations and pay outstanding bills.

In effect, the federal government is playing an accounting game to avoid the legal debt limit.

The G fund program alerted participants in a message last week that the "disinvestment" could occur.

Washington's Dangerous Debt Ceiling Game

Taking money from pension funds is part of the Treasury's "extraordinary measures" used in order to avoid default on the nation's obligations. The nation hit the debt ceiling Dec. 31; now the government is simply buying time.

These measures include under-investing in certain government funds, suspending the sales of nonmarketable debt and trimming or delaying auctions of securities.

Tuesday's announcement came on the heels of Geithner's plea Monday to Congress to raise the debt limit. He cautioned that failing to do so would "impose severe economic hardship on millions of individuals and businesses."

In a letter to Republican House Leader John Boehner, Geithner wrote, "Threatening to undermine our creditworthiness is no less irresponsible that threatening to undermine the rule of law, and no more legitimate than any other common demand for ransom."

Republicans appear ready to let the country hit the debt ceiling unless steep spending cuts are enacted.

House Speaker John Boehner said Monday speaking for the GOP and apparently all of the country, "The American people do not support raising the debt ceiling without reducing government spending."

But Money Morning Global Investing Strategist Martin Hutchinson isn't so sure the GOP will be able to stay strong ahead of the debt ceiling debate.

"Looks to me that the GOP will wimp out of a debt ceiling confrontation, probably rightly," said Hutchinson. "They will get very little positive while President Obama is in office. They should instead concentrate on not losing the House in 2014."