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Can You Protect Your Portfolio Against A U.S. Debt Default?

Friday, April 29, 2011 - 6:37 AM
This USA Today article doesn't provide many details on protecting your portfolio for this worst case scenario in which short-term rates might soar. It mostly describes how damaging the US debt default would be for the economy.
What can you do to protect yourself? You could buy foreign currencies, because the value of the dollar would plunge on the world markets. You could avoid Treasury securities and funds that invest in them. You could hoard gold or silver and hope that your local grocery store will exchange canned goods for them. (It might be more efficient to hoard canned goods.)

Ken TuminKen Tumin5,473 posts since
Nov 29, 2009
Rep Points: 125,800
1. Friday, April 29, 2011 - 10:11 PM
Won't happen. More crazy talk to get people to indulge in, and continue, the current panic buying of precious metals and commodities. Hoarding canned goods? Beam me up Scotty!
ShorebreakShorebreak2,700 posts since
Apr 6, 2010
Rep Points: 14,636
2. Saturday, April 30, 2011 - 1:37 AM
The author is on to something, but is focusing on the wrong topic. The US will not default on their debt, because unlike everyone else they have the power to print money, the very thing that we should all be fearful of. We are printing money in prodigious amounts, while we see the dollar plunging in value every day and the first signs of inflation creeping into our lives. The seeds are being planted for an economic catastrophe in the not too distant future unless we change course. Unfortunately, this appears to be very unlikely.
loulou554 posts since
Aug 3, 2010
Rep Points: 3,437
3. Saturday, April 30, 2011 - 6:34 AM
This author has an interesting take on the subject (the article has more examples about his point):
While the ostensible purpose of the Federal Reserve is to “stabilize” the money supply, its real purpose is to enable public officials to spend as much money as they want by borrowing it and then letting the Federal Reserve pay off its creditors with newly printed, debased, cheapened, devalued dollars.

That's precisely what the Fed is doing now, has been doing recently, and has been doing ever since it was established in 1913. It “monetizes” the government's debt by printing the money to pay it off. The inflated supply of money cheapens the value of the money in circulation, which means that bondholders are being repaid in currency that is worth less than it was when they loaned it.

That's a default.
MikeMike327 posts since
Feb 22, 2010
Rep Points: 876