Don’t Get Caught Holding Dollars When The U.S. Default Arrives
goingbroke
Posts: 1,410
You don’t want to be the average American in a default scenario, whenever it arrives. Ray Dalio, the head of Bridgewater Associates, the world’s biggest hedge fund, puts that day in “late 2012 or early 2013.”
the only way for the U.S. to meet its financial obligations is to print a lot of money.”
the only way for the U.S. to meet its financial obligations is to print a lot of money.”
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In God We Trust.... all others pay in Gold and Silver!
<< <i>from the linked article:
“My guess is that the U.S. will default again. It may not technically be called that, but the only way for the U.S. to meet its financial obligations is to print a lot of money.”
What does that mean in practical terms? In Greece, professor Savas Robolis at Panteion University in Athens reckons that by 2015, the average Greek employee and pensioner’s standard of living will have fallen 40% compared with 2008....
You don’t want to be the average American in a default scenario, whenever it arrives. Ray Dalio, the head of Bridgewater Associates, the world’s biggest hedge fund, puts that day in “late 2012 or early 2013.”
>>
Not much of an article. The guy in the article and others use the term "default," when all they mean is that a lot of money will be printed. There is a major difference in terms of who gets hurt and the consequences. In a true default, bond holders bear the brunt of the pain and all those that seek credit find it much harder to get. With the printing of lots of money, certain asset holders benefit (stocks, commodities, real estate), and those on fixed incomes tend to shoulder the load, and credit is easier than in a default scenario.
The examples of U. S. default listed in the article were a change in terms of payment. I see that as likely, especially if and when war comes. Those on the other side of the war won't be able to collect on their debts. The other side will likely be China, and their allies. All those obligations will be redone, and most American citizens will get behind it as a popular China-bashing measure, especially with the drum beat of war. War is always risky, and a loss of a major war might be the catalyst for the end game talked about in another thread. A loss in a major war often means the end of the country that loses, in terms of the structure of the government. Often all debts incurred and all currency issued by the old government are renegotiated or wiped clean.
As far as the standard of living, Americans have already seen that, as has most of the world, with soaring food and fuel prices. The upper middle class hasn't been hurt much by that because they spend a small percentage of their money on food and fuel. For the lower middle class and the working poor it is a wallop. For the working poor in the U. S., many have already seen about a 25% decline in buying power.
As far as the printing of money, what is new? QE1 and QE2 were massive examples of that. Gold has already responded to that with all time record high prices. I guess it makes an interesting article to use the term "default," but folks would do well to read between the lines and not the headline.
As far as the average American mentioned in the last paragraph, unfortunately for most of us, there isn't that much choice. Those here have mostly already loaded up with hard assets, so not much more to be done. Trading currencies on leverage or other things that hedge funds might do when they see that train coming, isn't a good idea for an average American, and tend to more risky than risking the train for amateurs. And, again, much of what is outlined has already transpired: massive printing of money in the form of QE1 and QE2, decline in buying power for the working poor, close to what some Greeks have seen.
There will be no default. There will, however, be greater inflation, because that's simply necessary to repay the debts that have been incurred.
I think that in the short term, the rate of U.S. money printing is likely to decline under any scenario, maintaining and possibly increasing the value of the cash dollars (even if T-bills and T-bonds take a hit).
If the debt limit is not raised, U.S. borrowing and spending will decline sharply, and fewer dollars will be printed.
If the debt limit is raised, any "agreement" will cut U.S. borrowing and spending substantially, and fewer dollars will be printed.
Even without an "agreement" on cutting the deficit, U.S. borrowing and spending is likely to decline because the Republican House of Representatives will make major cuts to any spending bills it passes.
The only wild card is the Federal Reserve. Theoretically it could stave off the consequences of a Treasury bond default by exchanging newly created cash for maturing bonds at full face value plus interest. This policy would run the risk of flooding the world with dollars, leading to accelerating inflation. I think this scenario is unlikely but possible.
My Adolph A. Weinman signature
Actually, cashflow is king. People/companies who don't have cashflow are dumping assets to maintain themselves and that is only good so long as you have assets to convert.
Land and buildings are cheap. Labor is available. Equipment is for sale, begging to be sold. The only things needed are CASH/credit and customers.
There are a lot of people who believed we'd be on our way to full employment by now. That will take MANY more years. I don't think we've turned the corner yet.
Concur...I'm finding that the mom and pops and independents will give considerable discount for cash regardless of what's on the tag. I got 25% off yesterday for cash; they wanted $29 and I got it for 22 (that's all I had with me). When I offered the credit card instead they said 22 was fine. They saved the swipe fee and didn't offer a receipt. Even at a big box, I told them I wanted a better price on two ties or I would leave them on the counter and then pulled out my cash...got 20% off right there.
The funny thing is I saw an article last week that was talking about the middleclass white terrorists are the ones to watch out for...said they used cash and stashed metal. Maybe they don't have a lot of debt either and probably pay their mortgage on time too...greedy animals! Strange days. I guess it is better to use a credit card so the banks get the swipe fees, you can have your purchases tracked so you can have the opportunity to be marketed with custom ads, pay full price and get a nice receipt that has another ad on the back of it...
Cash is king, use it.
Got CASH?
Actually, one of my brothers has had a reocurring dream about this for years. I keep telling him that I'm going to call him at 11:12 and say, don't bet on race horses.
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Check out other currencies vs the USD since the year 2000.
In 2000, a $1 US could get you $1.60 Canadian, now it only gets you 0.95 Canadian$.
"“Those who sacrifice liberty for security/safety deserve neither.“(Benjamin Franklin)
"I only golf on days that end in 'Y'" (DE59)
By STEPHEN L. BERNARD
NEW YORK—As Asian investors prepare to open a new week of trading, an expected announcement from U.S. House of Representatives Speaker John Boehner (R., Ohio) on the state of negotiations over the U.S. debt level could dictate whether they're in for a turbulent opening or a relief rally.
Fears rose last Friday that the government might not reach an Administration-imposed deadline of Aug. 2 to raise its debt ceiling after Mr. Boehner said he was abandoning discussions with President Barack Obama over plans for a sweeping deal to reduce the U.S. budget deficit by some $3 trillion.
Mr. Boehner's comments suggested that Democrats and Republicans remained bitterly divided over their preferences for tax hikes or spending cuts to achieve that goal. He later said Saturday that he hoped to detail a framework for an increase in the debt ceiling before Asian markets opened and has since said he will hold a conference call with members of his Republican Party at 4:30 p.m. EDT (2030 GMT) Sunday.
But it's not clear what information he could provide to remove the pessimistic outlook portrayed in lawmakers' comments Saturday and Sunday. They suggested the two sides were far from a comprehensive deal and that the more likely scenario was a Republican plan to temporarily raise the borrowing limit without a far-reaching agreement.
Given that state of play, investors are bracing for a negative reaction in the markets. Any fear that the debt ceiling won't be raised—and thus that a default is possible—could see stocks, commodities, the dollar and long-dated Treasurys fall while safe-haven flows would move to shortest end of the Treasurys curve. Gold, which recently moved above $1,600 an ounce might also benefit, as could safe-haven currencies such as the Japanese yen and the Swiss franc.
"The markets will exhibit a fair amount of volatility until the official announcement of a debt deal," said Abdullah Karatash, head of U.S. fixed income credit trading at Natixis in New York. "I expect a volatile trading week with stocks, corporate bonds and Treasurys likely selling off until an official announcement of a deal."
Without a comprehensive deal, long-dated Treasurys could bear the brunt of investor concerns as they are directly impacted by the long-term fiscal health of the country. Traders would likely shift out of them into the perceived safety of cash and short-dated Treasurys.
"Long-end Treasury yields are liable to jump as increased default concerns cause players to seek safety from what until now had been the ultimate financial safe-haven," said John Canavan, market analyst at Stone and McCarthy Research Associates in Princeton, N.J.
If no deal is reached, yields on 30-year bonds could jump to around 4.40% to 4.45% Monday from their Friday close of 4.259%, Mr. Canavan predicted. The 10-year note yield could spike to around 3.10% from 2.964%, Mr. Canavan said. Treasury yields move inversely to their prices.
Investors' most immediate fear is that the government will be forced to default if the impasse in negotiations sees no increase in its legal borrowing limit by Aug. 2. But even if a temporary solution is found, the two sides' failure to hammer out an effective long-term deficit reduction plan won't bode well for the United States's perfect "AAA" credit rating.
Both Moody's Investors Service and Standard & Poor's have placed the U.S. credit rating on review for a potential downgrade. S&P said a broad long-term deficit reduction would be needed to avoid that outcome. Given the importance of U.S. Treasurys to the global financial system, a downgrade could have far-reaching effects, especially as various institutional investors are required by their charters to hold only assets rated triple-A.
Stocks drew strength last week from what looked like progress in the negotiations, with the Dow Jones Industrial Average rising 1.6% for the week to get within 1% of the 2011 high it reached in late April. But with the post-market close breakdown in talks between House Republicans and the White House Friday, the risk of investor disappointment is now high.
"The uncertainty that this creates could lead to some selling pressure [in stocks] Monday," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research, who added that he still believes a deal will eventually be reached.
Meanwhile, a soured image of the U.S.'s capacity to get its debt problems in order could hurt the dollar if foreign investors in U.S. bonds take flight. The biggest beneficiaries would likely be the perceived safe havens of the Japanese yen and Swiss franc, against which the dollar ended Friday at 78.52 yen and 0.8182 Swiss francs, respectively.
Although the market is "pricing in a deal" of some sort, the closer it gets to the Aug. 2 deadline without a deal, the more selling pressure is likely to bear on the dollar, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. Alternatively, if Mr. Boehner were to surprise the market with a positive announcement later Sunday, the week could kick off with a "knee-jerk" relief rally in the dollar, Mr. Eisner added, though that would be tempered if the deal includes no meaningful long-term deficit reduction.
Similarly, an unexpected positive announcement Sunday would lift the U.S. bond market. "Treasurys might initially rally on the news, but would start to trade more on economic fundamentals over time as a major source of uncertainty would be eliminated," said James DeMasi, chief fixed-income strategist at Stifel Nicolaus & Co. in Baltimore.
—Min Zeng and Brendan Conway in New York contributed to this report.
<< <i>"Cash is King right now. Strongest I've seen it in 40 years."
Concur...
Cash is king, use it.
Got CASH? >>
I concur!
how low is it?
inflation is so low that the gubbmint now wants to recalculate the way inflation is figured.
<< <i>14th amendment article 4.-
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. >>
U.S. Debt Limit
<< <i>Defaulting on the debt is unconstitutional according to the 14th amendment. The only legal option Congress has is to raise revenue (taxes), reduce spending or raise the debt ceiling.
<< <i>14th amendment article 4.-
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. >>
>>
I don't interpret that as saying a default is unconstitutional. It simply says that the public debt is a valid debt. Plenty of valid debts are discharged without being fully paid off, either through negotiation or through the bankruptcy process.
The validity of a debt and its soundness are two different animals.
My Adolph A. Weinman signature
(Thinking outside the box)
Looks to me that government has been slowly transferring bad debt to the FED. What is the FED's balance sheet now 2.5 trillion? What if the FED falls on the sword... and defaults?
You could "create" a new FED overnight and the Governments credit rating would be intact(some what).
Just tossing this out for debate!
In God We Trust.... all others pay in Gold and Silver!
So what will you be holding? A bar of silver? Yen? Yuan? You better have some dollars to buy things. While I would agree this ain't the America written about in history books, you still have to live. Sure it's socialist and has military of some kind deployed in over 100 countries and will likely go the same way as the british empire. So? That means you should live like sh it or starve if it collapses? Please. Living well is the best counter action I can think of.
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