Debt ceiling default has limited risk
It sounds scary. It sounds really scary.
The US govt is defaulting on the debt because of antics in Congress. The Republicans refuse to raise the debt ceiling without major spending cuts and the Democrats refuse to cut anything. The impasse continues until the default is getting close.
So what will this look like when it comes to pass? Gold will spike to $5000? We'll need wheelbarrows of money to buy a loaf of bread? The stock market will collapse? Treasury yields will skyrocket?
I don't think so. Here's why.
If we do get a little "default" some people will bail on Treasuries and send the yields up, but up by a semi-reasonable amount. I can't say exactly how much, but it isn't going to yield 10 or 20% or something. Let's say the 10-yr goes up to 4%. Maybe a 1-yr goes up to 2%.
So what is the smart move if that happens? Exactly. Buy the Treasuries! Buy the stocks! Sell the gold! Sell the commodities. And if someone wants to offer you a wheelbarrow of cash for a loaf of bread, by all means take him up on it.
It isn't like the govt is going to permanently default. A few days or a few weeks of delayed interest payments and everything goes back to normal.
You might want to get some cash ready now though, because we may get pretty close to a default before this thing gets resolved. If the market starts to get panicky, buy.
You can call it the cult of the Turdburglar if you like, but I prophesize that the end of the world will not come in 2011. I talked to the aliens and they said their ship is still hiding behind a comet that won't get here for at least a few years. Oh yeah, and they said to send me all your money so I can convert it to the currency we'll be using on our new alien planet after the world ends later on down the road. The good new is that on the alien planet you get 10% interest in the bank and there's no inflation, so you can just send me your money now.