Imagining The Worst-Case Scenario If The United States Even Comes Close To Defaulting On Its Debt

[WillyT]

The Great Global Freakout of 2011
Imagining the worst-case scenario if the United States even comes close to defaulting on its debt.
By Annie Lowrey - Slate
Posted Thursday, April 21, 2011, at 6:00 PM ET

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On July 6, 2011, a faint buzzing from your bedside table awakes you at 3 a.m. You ignore it. At 3:02, your Blackberry still vibrating, your iPhone, which you use for personal email and calls, starts in with the same high-frequency drone. At 3:03, your home phone starts ringing.

You're a principal at a small, New York-based financial firm. The sudden cacophony means the worst has happened. In mid-May, the United States hit the debt ceiling: Because Congress failed to increase the debt limit, the Treasury Department could no longer issue new bonds to finance the United States' deficit spending and to pay the interest on its existing debt. For a few weeks, Treasury and the White House were able to move money from one pocket to another to keep the country running smoothly. But the congressional bickering never abated, with Republicans insisting on the passage of huge, immediate spending cuts and a balanced budget amendment, and Democrats refusing to consider either—and certainly not to tie them to the debate over the $14.3 trillion ceiling.

Uncertainty hit the bond market, though not as hard as some expected: For a few weeks and for the most part, investors shrugged it off. But as the intransigence got worse and investors became more spooked, they started selling off Treasury bonds. Financial firms also quietly started converting investments into cash, seeking the absolute and unconditional safety that only dollars provide. The stock market slumped.

Weeks into the impasse, some Social Security payments stopped going out, causing American citizens to scream bloody murder. They barely noticed when, just before midnight on July 5, Treasury said it would start missing scheduled coupon payments on some bonds. Wall Street didn't miss the announcement, though—hence your 3 a.m. wakeup call. The United States, to the shock and horror of investors around the world, sat on the brink of default. The world's safest investment became the world's most uncertain, tipping the markets into chaos...

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More: http://www.slate.com/id/2291836

:kick:

[GomezLives]

1. The WH will start getting phone calls from India.

[Aerows]

2. It won't happen

The dollar is still the world reserve currency. Things aren't going quite as hot in nations like China as many would lead you to believe - they are rioting over the price of food and gas, and disrupting shipping out of Shanghai. Japan has so many issues right now that they could dump our Bonds, but in order to dump them, you have to have someone to buy them.

The ONLY investments that are currently safe whatsoever are precious metals. I bought silver when it was $28/oz. It's now nearly $50/oz. I will be buying more as I can. That indicates that it's more than just the dollar that is having stability issues as currency, MANY currencies are less stable.

In any case, much of this business is smoke and mirrors. If it really became an issue, the Bernank would do what he does best - print more money.

[Dkc05]

3. The white house operator is outsourced to India.

Ouch. That would be bad.

[Poboy]

5. Funny. I'm in at about your DCA as well. What a ride.

I just tell people if they can afford to get a few rolls (wait for a dip!), put them away and forget about them, that it makes a good insurance policy. Not to use as an investment, but as capital preservation.
Like cases of beans( Blue Runner) and rice. ;-)

Its got to come down soon, imo.

[Aerows]

6. Yep - wait for the dip!

And it's always a good idea to have some cans if Blue runner beans and rice on hand ;). I certainly do, along with other lasting products.

[former9thward]

4. The market is a prediction of economic conditions 6-12 months out.

And the market is moving up. It obviously is not tanking and does not believe there will be big problems in this debt fight. The world is not going to end. It is a scare tactic to get Obama to give in to the Rep demands. Forget it.