Does the federal government ever bounce a check?

Answers to your questions about the news.
July 18 2011 5:24 PM

Your Deadbeat Uncle Sam

Does the federal government ever bounce a check?

Greek Finance Minister  Evangelos Venizelos  is seen prior an ECOFIN Council. Click image to expand.
Politicians negotiating debt

President Obama and members of Congress continue to haggle over a debt ceiling increase. The president has warned that, if negotiations fail, there may not be enough "money in the coffers" to send out Social Security checks and millions of other payments as of Aug. 2. Is there any way the government might bounce a check?

Not really. In some ways, the government's banking habits aren't that different from yours or mine. The federal government keeps a single checking account at the Federal Reserve Bank of New York. The Treasury puts a daily statement up on the Web, showing its deposits (tax payments and the like) and withdrawals (entitlements and other obligations). While there's a theoretical possibility a check could bounce—it is, after all, a checking account—the chances are virtually nil. That's because Uncle Sam puts a lot more effort into monitoring his balance than the average person. The Treasury Department employs more than 2,000 people at the Financial Management Service to make sure agencies don't overdraw the account, so there's simply no way the federal government would float a bad check. In addition, electronic transfer is now the dominant payment method, and Uncle Sam doesn't write as many checks as he used to. Thirty years ago, the government used paper checks for 85 percent of its outgoing payments. This year, that number is down to 18 percent.

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The Treasury keeps a cushion in its checking account, too, so it would take quite a bit of sloppy accounting to bounce a check. As of the last published statement, the government's cash balance was $35.8 billion. On an average business day, the Federal Reserve issues less than $1.2 billion worth of paper checks.

The government also stashes cash in a few other accounts. Treasury tax and loan accounts are maintained at private banks and earn daily interest, unlike the general checking account at the Fed. The Treasury secretary has the ability to transfer those funds, totaling around $2 billion, into checking on the same business day.

What would happen if the Treasury did manage to bounce a check? No one really knows. It hasn't ever happened, and the Federal Reserve doesn't have a boilerplate contract laying out minimum balance, ATM, and overdraft fees for the federal government. One would hope Ben Bernanke could front Uncle Sam enough to cover the odd Social Security check, but there's simply no precedent.

Got a question about today's news? Ask the Explainer.

Brian Palmer is Slate's chief explainer. He also writes How and Why and Ecologic for the Washington Post. Email him at explainerbrian@gmail.com. Follow him on Twitter.

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