Do you think US treasuries are still safe?

[antmary]

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Originally Posted by ziggy29 Seriously, define "safe". Safe from default? There's no 100% sure thing, but Treasuries are about as close as they come, and if they defaulted, return of invested capital might be low on the list of things to worry about. With the virtually unlimited power to tax and print money I see hyperinflation and a tanking of the dollar long before I see defaults on Treasuries. And even that's not a given.

I just read the Reuters news, and this does concern me.
Republican mainstream flirts with brief default | Reuters

[Gone4Good]

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Originally Posted by antmary I just don't know...I have opinions re: politicians, but I'm wanting to cut through all the BS, and have a "just the facts ma'am" approach. I need to leave the emotion out of my investing choices.

Then the "facts" are these . . . the U.S. will not default unless it chooses to default.

Do with that whatever you will.

[ziggy29]

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Originally Posted by antmary I just read the Reuters news, and this does concern me. Republican mainstream flirts with brief default | Reuters

It simply will not happen. No amount of political posturing or grandstanding will cause it. Neither party wants anything to do with an actual default. And a refusal to raise the debt ceiling is not the same thing as a default on existing debt.

[Gone4Good]

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Originally Posted by REWahoo I'd argue the US has a long history of elected officials who manifest this behavior. The only difference today is we are much better informed due to the diligence of the fourth estate.

Could be. But I don't recall fringe voices dominating the debate before.

Quote:

Originally Posted by antmary I just read the Reuters news, and this does concern me. Republican mainstream flirts with brief default | Reuters

[donheff]

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Originally Posted by ziggy29 It simply will not happen. No amount of political posturing or grandstanding will cause it. Neither party wants anything to do with an actual default. And a refusal to raise the debt ceiling is not the same thing as a default on existing debt.

I agree with the first part but how clear is the second. As has been continuously reported, if the debt ceiling is not raised the Treasury will not be able to make good on some obligations. That sounds like "default." It doesn't matter that we could avoid it if we don't. And everyone talks about a "brief" default as if that doesn't mean much of an impact. But, if there isn't much impact it won't be brief - why bother raising the ceiling in that case? On the other hand, if the doom predictions are correct and the economy is catapulted into a double dip no doubt Congress will raise the ceiling and the "temporary" default will end. But there is no guarantee that would undo the damage. It still amounts to a crap shoot with our financial well being.

[ziggy29]

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Originally Posted by donheff I agree with the first part but how clear is the second. As has been continuously reported, if the debt ceiling is not raised the Treasury will not be able to make good on some obligations. That sounds like "default." It doesn't matter that we could avoid it if we don't. And everyone talks about a "brief" default as if that doesn't mean much of an impact. But, if there isn't much impact it won't be brief - why bother raising the ceiling in that case? On the other hand, if the doom predictions are correct and the economy is catapulted into a double dip no doubt Congress will raise the ceiling and the "temporary" default will end. But there is no guarantee that would undo the damage. It still amounts to a crap shoot with our financial well being.

This I don't understand. Seems like raising the debt ceiling and servicing the existing debt is (or should be) two separate issues. Just because I refuse to accept an increase in my credit limit doesn't mean I'll stop paying on what I've already charged. If these are somehow linked it would be an "only in Washington" moment.

[Nords]

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Originally Posted by Gone4Good Could be. But I don't recall fringe voices dominating the debate before.

You're not reading enough history books...

[antmary]

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Originally Posted by Nords You're not reading enough history books...

Such as? I would very much appreciate one or two to start with, Nords.

[LARS]

Is it possible there could be a technical "default" for political reasons in the US? I suppose so. The level of political discourse is so screwed up in this country anything is possible.

BUT, and this is the key but, even if this does happen, the default WILL BE CURED! All interest will be paid.

So to have any discusion about payment of interest and repayment of principal on US govt. debt is crazy talk.

A discussion of hyper-inflation occuring in the US is a non-event as well.

On the other hand, the methodical, slow decline in "purchasing power" of the $ through "controlled inflation" is an entirely different matter. Indeed, this is a tried and true approach to US monetary policy.

[ziggy29]

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Originally Posted by antmary Such as? I would very much appreciate one or two to start with, Nords.

Here's a hint: you can start with books about the Reconstruction after the Civil War, and that's far from the only era where radicalism ruled the day.

[ziggy29]

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Originally Posted by LARS A discussion of hyper-inflation occuring in the US is a non-event as well.

Is it? It doesn't have to happen because of increased demand. It can also happen because of devaluation of the dollar. I don't see demand-based hyperinflation coming any time soon, but "inflating the debt away" and printing money to try to keep commerce moving is not out of the realm of possibility. And if that extra money supply has any velocity -- that is, if it actually gets injected into commerce instead of contributing to "hoarding cash" -- then it would definitely be inflationary. I'd contend that the primary reason the extra debt and liquidity the government has created in the last 2-3 years hasn't been inflationary is because that extra money supply has had very low velocity -- as often as not "extra cash" was used to put into savings or pay down debts, not to buy stuff that employs people.

[donheff]

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Originally Posted by ziggy29 This I don't understand. Seems like raising the debt ceiling and servicing the existing debt is (or should be) two separate issues. Just because I refuse to accept an increase in my credit limit doesn't mean I'll stop paying on what I've already charged. If these are somehow linked it would be an "only in Washington" moment.

Existing obligations are such that the debt is "scheduled" to go up significantly in future years. It isn't a matter of just stopping the purchases -- they have already been made in the form of obligations. The only way to avoid default while not raising the debt ceiling would be to immediately cut SS, Medicare and defense by a huge number. Of course, that would be a different kind of default.

[LARS]

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Originally Posted by ziggy29 ... but "inflating the debt away" and printing money to try to keep commerce moving is not out of the realm of possibility.

As I said, this is possible; and, indeed, is a central plank of US monetary policy, BUT this is not hyper-inflation.

Now is hyper-inflation possible in theory? Absolutely. But my point is that the powers that be will not allow, nor is it in their interests to allow, a non-orderly highly rapid (i.e. hyper) deterioration in the value of the currency.

[haha]

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Originally Posted by LARS But my point is that the powers that be will not allow, nor is it in their interests to allow, a non-orderly highly rapid (i.e. hyper) deterioration in the value of the currency.

Did the Weimar hyper-inflation occur because the German government decided to allow it?

I think you may be overestimating governmental power and wisdom.

Ha

[LARS]

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Originally Posted by haha Did the Weimar hyper-inflation occur because the German government decided to allow it? I think you may be overestimating governmental power and wisdom. Ha

Nope. Doen't think so at all. But feel free to worry about hyper-inflation in the US if you want to waste brain cells.

[ziggy29]

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Originally Posted by LARS Nope. Doen't think so at all. But feel free to worry about hyper-inflation in the US if you want to waste brain cells.

I try not to worry about what I can't control -- I just try to consider that it might happen, and what countermeasures I can take that will help prevent me from being wiped out if it does. I'm not going to do something to protect against a 0.1% chance of a bad result if it means hurting myself 99.9% of the time, but if I can mount a prudent defense against a somewhat more likely (but still unlikely) result, why not?

[haha]

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Originally Posted by LARS Nope. Doen't think so at all. But feel free to worry about hyper-inflation in the US if you want to waste brain cells.

I have plenty, so no problem.

But, perhaps you realize that you did not speak to my comment, which was only that I doubt governments must "allow" hyperinflation for it to happen. I said nothing about the likelihood of hyperinflation is the US. less still about my worry or lack thereof about this.
Always easier (and much less useful) to make fun of what someone did not say, than to try to address what they did. On the face of it, if you mean what you said “nope, don’t think so at all”, then it seems odd to think that the US government must allow hyperinflation for it to happen.

Ha

[LARS]

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Originally Posted by ziggy29 I try not to worry about what I can't control -- I just try to consider that it might happen, and what countermeasures I can take that will help prevent me from being wiped out if it does. I'm not going to do something to protect against a 0.1% chance of a bad result if it means hurting myself 99.9% of the time, but if I can mount a prudent defense against a somewhat more likely (but still unlikely) result, why not?

I agree 100% with this approach. Indeed, I spend way too much time analyzing outlier situations. Hyper-inflation and US default just are not worth spending much brain power on.

Full disclosure: I'm not a believer in gold as a currency alternative. To me it is the greater fool theory at work. So you might say I don't get it...

[LARS]

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Originally Posted by haha I have plenty, so no problem.

You obviously did not mis-spend your youth taking drugs or alcohol if you can make that statement with conviction!

[FIREd]

Clearly the bond market does not worry about the US defaulting on its debt. Bond yields have increased tremendously in Greece in response to a possible default. In the US, bond yields have come... down.

The way I see it, a default would be very damaging to a lot of generous political contributors. They will apply the right amount of pressure to make sure it doesn't happen.