[Debt ceiling discussion mega-thread]

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Locked
User avatar
Kevin M
Posts: 15787
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: [Debt ceiling discussion mega-thread]

Post by Kevin M »

^Good article. Thanks for sharing.
If I make a calculation error, #Cruncher probably will let me know.
hghysm21
Posts: 45
Joined: Mon Jan 23, 2023 3:35 pm

CD vs T-bill

Post by hghysm21 »

[Thread merged into here --admin LadyGeek]

1. Given the uncertainty of debt default, is it safer to buy FDIC insured CD instead of T-bills?
2. If default does happen, will investments in T-bills be eventually paid in full?
User avatar
LadyGeek
Site Admin
Posts: 95691
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: [Debt ceiling discussion mega-thread]

Post by LadyGeek »

Welcome! I merged your thread into the ongoing discussion - which is the only one permitted to discuss the debt ceiling.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
alex_686
Posts: 13320
Joined: Mon Feb 09, 2015 1:39 pm

Re: CD vs T-bill

Post by alex_686 »

hghysm21 wrote: Thu Jan 26, 2023 5:34 pm [Thread merged into here --admin LadyGeek]

1. Given the uncertainty of debt default, is it safer to buy FDIC insured CD instead of T-bills?
2. If default does happen, will investments in T-bills be eventually paid in full?
2. Who knows? I strongly suspect that any default would be short and everyone would be paid if full.

1. If the default is long then I don’t see FDIC being much good. Their resources are fairly small compared to the issue at hand and would soon be overwhelmed. Then it is down to the strength and solvency of the bank.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
User avatar
retireIn2020
Posts: 745
Joined: Sat Jan 04, 2020 5:13 pm

Re: [Debt ceiling discussion mega-thread]

Post by retireIn2020 »

Tooth wrote: Thu Jan 26, 2023 6:01 am https://www.morningstar.com/articles/11 ... bt-ceiling

Morningstar has an interesting read on "likely" scenarios for a resolution. Also does a brief analysis of impact. From reading this thread to this analysis I'm sticking with having cash on hand to pay the bills for several months. Even if the dollar is worth nothing in this event, my mortgage and everything else is priced in dollars.
Good article! Thanks
https://www.merriam-webster.com/dictionary/abide
buckeye7983
Posts: 248
Joined: Fri Jun 27, 2008 12:35 pm

Re: [Debt ceiling discussion mega-thread]

Post by buckeye7983 »

From Bloomberg 5 Things To Start Your Day email this morning:
Every single Treasury auction so far this year has gone incredibly well and the interest is coming from foreign buyers,” JPMorgan Asset Management fixed-income portfolio manager Kelsey Berro said on Bloomberg Television. “So for those that think that the debt ceiling is scaring away that foreign interest, we’re not at all seeing that yet.”
JackoC
Posts: 4714
Joined: Sun Aug 12, 2018 11:14 am

Re: [Debt ceiling discussion mega-thread]

Post by JackoC »

gtrplayer wrote: Wed Jan 25, 2023 5:16 pm
GRP wrote: Tue Jan 24, 2023 10:04 pm
Marseille07 wrote: Tue Jan 24, 2023 6:24 pm
GRP wrote: Tue Jan 24, 2023 6:21 pm Americans don’t have $96,000 per person to buy the bonds.
The only way they would is if the government prints the money… which again leads to hyperinflation, Weimar style.
The point is, US government debt is your asset. That's the whole point. It is not that every American is borrowing $96,000; they're *lending* the government $96,000 on average (if such a figure is meaningful at all, since foreign nations also own US government debt).
Yes, exactly. And the problem is Americans don’t have $96,000 per person to buy that asset.
I’m afraid I don’t understand the $96,000 analogy. We would never pay all $31 trillion in debt because that would wipe all dollars out of existence. The debt is an accounting mechanism. It can be reduced and it can be raised but it can never be paid off. Our monetary system doesn’t work that way.

That’s not to say the debt can’t cause hyperinflation. It surely could and that may be something to consider when making an investment choice that relies on the value of the dollar. But making choices based on the idea that every American owes $96,000 is not something to consider.
I don't believe the money system wouldn't work with zero federal debt*, but zero debt is not going to happen so not worth spending time debating that. On the $96k, by definition every debt default on debt has zero net impact on a first order basis. All the people who owned the debt lose the difference between par and defaulted value, all the people who owed the debt gain that same amount. If each American owning $96k and owing $96k of the federal debt was an even roughly accurate model of reality, even 'real' default would not be that big a deal.

And in reality the portion of the $31tril that's not 'held by the public' somewhat resembles that. It's owned by and owed to the same entity, the federal govt, just an accounting measure with political but no real economic significance. That's why 'debt held by the public', around $24tril, is the more relevant number. But that debt is held anything but uniformly among Americans, ownership by foreign individuals and entities too but that's not even the main thing. Nor is the debt actually a contract by each citizen equally, it's paid by taxes according to how taxes are raised, nonuniformly. It's those mismatches in who owes and is owed which makes defaults messy in general, and which would make a 'real' US default an unprecedented mess (and by extension a 'technical' default which reduced market confidence a 'real' one would always be avoided).

I agree the exercise of dividing the debt by the population might be useful for some idea of the scale by people otherwise completely unfamiliar with the topic but it's no use in forming practical ideas of the implications of it not being paid as promised, how high it can sustainably be, how it could be reduced, etc.

*I mentioned earlier the US federal debt was ca. WWI almost all perpetuals, so it actually would have been theoretically possible to largely erase it with deliberate inflation, which is not possible to nearly the same degree now with a ~5yr avg maturity of debt because market has to retain confidence inflation is *not* being jacked up on purpose in order to buy the next 5yr at a reasonable rate, not to mention the additional debt for each yr's deficit. Anyway, the total US federal debt back then was around $1bil. So even with much smaller economy that was a quite small debt load but the system worked. But just like they weren't going to 'run the presses' then, we're not going to go from $24tril to zero debt now. :happy
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Re: CD vs T-bill

Post by rockstar »

hghysm21 wrote: Thu Jan 26, 2023 5:34 pm [Thread merged into here --admin LadyGeek]

1. Given the uncertainty of debt default, is it safer to buy FDIC insured CD instead of T-bills?
2. If default does happen, will investments in T-bills be eventually paid in full?
The FDIC is going to need money to pay out claims. Where does that money come from?

If a default happens, you should in theory lose your principal. That’s what a default is. It’s why junk bonds are so risky.

However, the treasury can continue rolling over treasuries at the current ceiling. So they can issue more t bills to pay your t bills. But they can’t incrementally increase the outstanding debt above the current debt ceiling.

If a default happens, treasuries will get downgraded and rates should go up. This is really bad. I don’t see it happening. Lots of rich politicians would become a whole lot less rich overnight.
the_wiki
Posts: 2882
Joined: Thu Jul 28, 2022 11:14 am

Re: [Debt ceiling discussion mega-thread]

Post by the_wiki »

Legitimately, what can you do? If you sell your treasuries out of default fear, where do you put the money?
User avatar
GeraniumLover
Posts: 560
Joined: Mon Feb 22, 2016 2:39 pm

Re: [Debt ceiling discussion mega-thread]

Post by GeraniumLover »

the_wiki wrote: Fri Jan 27, 2023 10:50 am Legitimately, what can you do? If you sell your treasuries out of default fear, where do you put the money?
As I mentioned upthread, you could buy SPX box spreads and get slightly better returns than Treasuries, with better Federal tax treatment and little risk, as long as you are comfortable making the appropriate option trades and authorized by your broker to do so.
User avatar
Kevin M
Posts: 15787
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: [Debt ceiling discussion mega-thread]

Post by Kevin M »

GeraniumLover wrote: Fri Jan 27, 2023 10:58 am
the_wiki wrote: Fri Jan 27, 2023 10:50 am Legitimately, what can you do? If you sell your treasuries out of default fear, where do you put the money?
As I mentioned upthread, you could buy SPX box spreads and get slightly better returns than Treasuries, with better Federal tax treatment and little risk, as long as you are comfortable making the appropriate option trades and authorized by your broker to do so.
I did that for awhile last year, but no longer do.

First, it's a lot of work. It takes a few minutes to enter the 4 legs of the order, and then there's a good chance your order won't get filled. So, you increase the price until it gets filled or until you hit your max price.

Second, Treasuries are not subject to state and local income tax, so the state tax exemption benefits the taxable equivalent yield (TEY). This offsets much of the fed tax benefit of the box spread.

My limit typically about a 40 basis point yield advantage over a Treasury of same or similar maturity, but that translates into a TEY benefit of only about 20 bps, and sometimes I couldn't even get execution at that price, so a bunch of wasted time.

Third, options trades are much more difficult to track--at least at Fidelity, since each trade involves four transactions. I worked out some spreadsheet stuff to handle this, but it was still difficult, especially if I had more than one box expiring on the same date, since the order of the transactions in the download doesn't match up the four legs correctly.

Fourth, there is risk related to the options exchange, and we don't know how a Treasury default might affect that.

I am continuing to buy Treasuries. Just bought 100 bills maturing in July, which constitute the long rung of my lumpy 6-month Treasury ladder in taxable. Currently I have no more IRA cash to buy TIPS, but I rolled over my 100 TIPS that matured 1/15/2023 into TIPS maturing in 2024.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
JackoC
Posts: 4714
Joined: Sun Aug 12, 2018 11:14 am

Re: [Debt ceiling discussion mega-thread]

Post by JackoC »

Kevin M wrote: Fri Jan 27, 2023 11:18 am
GeraniumLover wrote: Fri Jan 27, 2023 10:58 am
the_wiki wrote: Fri Jan 27, 2023 10:50 am Legitimately, what can you do? If you sell your treasuries out of default fear, where do you put the money?
As I mentioned upthread, you could buy SPX box spreads and get slightly better returns than Treasuries, with better Federal tax treatment and little risk, as long as you are comfortable making the appropriate option trades and authorized by your broker to do so.
I did that for awhile last year, but no longer do.

First, it's a lot of work. It takes a few minutes to enter the 4 legs of the order, and then there's a good chance your order won't get filled. So, you increase the price until it gets filled or until you hit your max price.

Second, Treasuries are not subject to state and local income tax, so the state tax exemption benefits the taxable equivalent yield (TEY). This offsets much of the fed tax benefit of the box spread.

My limit typically about a 40 basis point yield advantage over a Treasury of same or similar maturity, but that translates into a TEY benefit of only about 20 bps, and sometimes I couldn't even get execution at that price, so a bunch of wasted time.

Third, options trades are much more difficult to track--at least at Fidelity, since each trade involves four transactions. I worked out some spreadsheet stuff to handle this, but it was still difficult, especially if I had more than one box expiring on the same date, since the order of the transactions in the download doesn't match up the four legs correctly.

Fourth, there is risk related to the options exchange, and we don't know how a Treasury default might affect that.
Good summary. And again on the 'credit' aspect, the idea you'd depend solely on the options exchange because 'the FDIC depends on treasuries' is missing a basic point IMO. You don't lend money to the FDIC when you make a deposit, you lend it to a bank. If all or most banks collapse you're talking a nightmare scenario where the options exchange isn't immune either. If you look historically it's relatively unusual to have mass bank failures just because a govts defaults, even 'for real'. They will often make specific provisions to prevent bank failures. When somebody is going to get stiffed in a default, the people about to stiff them often think through exactly who they'd rather stiff. And for govt's that's often not mom and pop depositors, even in systems that aren't run by number of votes much less ones that are. Could go either way of course and no specific speculating, but there's no universal law that small depositors come out 2nd to govt bondholders in real life when push comes to shove.

Relying on the options exchange is a form of diversification, so I wouldn't say it's a bad idea. Although I also find box spreads more trouble than they are worth. The other way to diversify 'safeness' though away from just the govt via the options exchange is have a position that's more equity and less bond than you otherwise would have, but buy some out of the money SPX puts so you can tolerate that higher equity risk. I do that to a degree. And among the reasons I like CD's, when they are at significant positive after tax spread to treasuries, is diversification against direct risk to the govt. A little, not that I expect to end up happy in a big meltdown of the US federal govt: that doesn't seem to me feasible for an investor with expenses mainly in USD, unless a portfolio that give up a lot in normal circumstances.
User avatar
Kevin M
Posts: 15787
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: [Debt ceiling discussion mega-thread]

Post by Kevin M »

^I should have said that the TEY benefits of box spreads are not so great for me, as my state marginal income tax rate is fairly high at 9.3%. For someone with a lower or zero state income tax rate, box spreads would have a larger yield advantage, and it might be worth the effort to use them. However, it doesn't seem that many Bogleheads are interested in this fairly complex investment; I didn't see much posting in the box spreads thread for lending (the borrowing thread had a lot more activity).
If I make a calculation error, #Cruncher probably will let me know.
jonybogle
Posts: 13
Joined: Tue Feb 14, 2023 1:28 pm

debt ceiling, date X and "government-insured bank accounts"?

Post by jonybogle »

[Thread merged into here --admin LadyGeek]

i've been reading Jeff Somers while trying to come up with a plan for some funds.
in part this may involve putting some funds into treasuries with a maturity date sometime after mid June 2023 (which seems like a safe and sound strategy).
but also Sommers ("How do Invest as a Debt Ceiling Crises Looms" in the NYT) recommends putting some money for peace of mind in a "government-insured bank account". and from what i can tell my money at fidelity or at my local credit union is not one of these?
i'd i wanted to be extra cautious and follow his advice where could i put it?
also does anyone understand what "date X" is?
THANKS
brad.clarkston
Posts: 1726
Joined: Fri Jan 03, 2014 7:31 pm
Location: Kansas City, MO

Re: debt ceiling, date X and "government-insured bank accounts"?

Post by brad.clarkston »

I'm not a fan of Mr. Sommer most of his opinion peaces, like this one is a political scare tactic with very little to no actionable content.

The "X date" is just his made up term for the day the government finally faults and burns down Roman style.

The only semi actionable stance he took was that Treasuries are usually safe during these debt ceiling 'crisis'.
While actual T-Bills/Notes are great safety positions, the debt ceiling has absolutely no bearing on me buying them (diversification is the rule).
70% AVGE | 20% FXNAX | 10% T-Bill/Muni
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: debt ceiling, date X and "government-insured bank accounts"?

Post by exodusNH »

jonybogle wrote: Thu Feb 23, 2023 10:24 am i've been reading Jeff Somers while trying to come up with a plan for some funds.
in part this may involve putting some funds into treasuries with a maturity date sometime after mid June 2023 (which seems like a safe and sound strategy).
but also Sommers ("How do Invest as a Debt Ceiling Crises Looms" in the NYT) recommends putting some money for peace of mind in a "government-insured bank account". and from what i can tell my money at fidelity or at my local credit union is not one of these?
i'd i wanted to be extra cautious and follow his advice where could i put it?
also does anyone understand what "date X" is?
THANKS
Credit union deposits are insured via NCUA, which is functionally equivalent to FDIC.

Fidelity may have options that are FDIC insured.

Date X is when the government runs out of money and can't issue more debt. We don't know exactly when that date will be, but June-ish is the working assumption of Congress doesn't raise the debt limit.
User avatar
LadyGeek
Site Admin
Posts: 95691
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: [Debt ceiling discussion mega-thread]

Post by LadyGeek »

I merged jonybogle's thread into the ongoing discussion. As noted in the first post:
ShaftoesSpreadsheet wrote: Wed Jan 18, 2023 10:04 am [We normally do not allow discussions on economic policy. However, the impact of the debt ceiling on investments is major news and investors are concerned. The site owner, Alex Frakt, has given permission to discuss the investing aspects of the current debt ceiling issues.

Please use this single thread to discuss impacts of the US debt ceiling on your investments.

Note that we will enforce policy on other economic policy topics. Political comments remain off-topic. --admin LadyGeek]


I know this is a political topic and has to do with legislation that is pending, but hopefully we can keep it civil and narrowly focused to just T-Bills.

Right now if congress does nothing and the debt ceiling is hit what happens with T-Bills? And what if the US defaults, which I guess would happen if the treasury ran completely out of options? Last time federal employees were put on furlough... but I don't remember anything about bond obligations being interrupted. Didn't the treasury do some damage control and prioritize essential workers, military, essential debt payments, but paused other things to try and mitigate the issue.

OP is holding a sizable chunk of T-Bills. Maybe a bank CD is safer?
and:
LadyGeek wrote: Fri Jan 20, 2023 8:44 pm Additional political posts have been removed. Repeating my previous post:
LadyGeek wrote: Fri Jan 20, 2023 3:11 pm Although political influence is driving the resolution for the debt ceiling, we are holding to our "No politics" policy.

Please refrain from discussing politicians, political parties, political opinions, etc. Stay focused on the financial aspects as it relates to your investments...
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
LadyGeek
Site Admin
Posts: 95691
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: [Debt ceiling discussion mega-thread]

Post by LadyGeek »

FYI - jonybogle's question is related to his portfolio. Please see his thread here: 50% boglehead equity portolio help please (and some noob financial planning notes)

Please continue your comments in your portfolio thread. We'll be able to help you better, as it's important to see everything in one discussion.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
brad.clarkston
Posts: 1726
Joined: Fri Jan 03, 2014 7:31 pm
Location: Kansas City, MO

Re: [Debt ceiling discussion mega-thread]

Post by brad.clarkston »

ShaftoesSpreadsheet wrote: Wed Jan 18, 2023 10:04 am [We normally do not allow discussions on economic policy. However, the impact of the debt ceiling on investments is major news and investors are concerned. The site owner, Alex Frakt, has given permission to discuss the investing aspects of the current debt ceiling issues.

Please use this single thread to discuss impacts of the US debt ceiling on your investments.

Note that we will enforce policy on other economic policy topics. Political comments remain off-topic. --admin LadyGeek]


I know this is a political topic and has to do with legislation that is pending, but hopefully we can keep it civil and narrowly focused to just T-Bills.

Right now if congress does nothing and the debt ceiling is hit what happens with T-Bills? And what if the US defaults, which I guess would happen if the treasury ran completely out of options? Last time federal employees were put on furlough... but I don't remember anything about bond obligations being interrupted. Didn't the treasury do some damage control and prioritize essential workers, military, essential debt payments, but paused other things to try and mitigate the issue.

OP is holding a sizable chunk of T-Bills. Maybe a bank CD is safer?
I wouldn't say CD's are safer than T-Bills. I don't think there is anything safer that's pretty much the last resort "can't loose this money" vehicle as the spice will flow (auctions) no matter what happens with the economy.

As far as GS employee's furloughs go (funny SAS'ers and elected officials are never furloughed) it's done by scale there is a list at every agency of critical function employee's who will be reporting to work no matter what. We (my family) has been lucky enough in that my wife has always been on the 'must keep working' list.

Generally the GS and military workers get there bond funds raided when the government really gets desperate for money, that's the last resort to look for and we are not close to that happening yet.
70% AVGE | 20% FXNAX | 10% T-Bill/Muni
exodusing
Posts: 2210
Joined: Thu Oct 13, 2022 7:32 am

Re: [Debt ceiling discussion mega-thread]

Post by exodusing »

Tooth wrote: Thu Jan 26, 2023 6:01 am https://www.morningstar.com/articles/11 ... bt-ceiling

Morningstar has an interesting read on "likely" scenarios for a resolution. Also does a brief analysis of impact. From reading this thread to this analysis I'm sticking with having cash on hand to pay the bills for several months. Even if the dollar is worth nothing in this event, my mortgage and everything else is priced in dollars.
The only solution I'm seeing in that article is a discharge petition to allow a House vote. Subsequent news reports are not favorable to that as a workable solution, because McCarthy can act to thwart it and it likely is at least a three month process given House rules.

My current favorite strategy is for the treasury to issue debt with a very high coupon. With the 10-year currently yielding about 3.9%, you could issue debt with a 39% coupon for 10x and sell it for 10x its face amount. That would allow the Treasury to raise a lot of money without breaching the debt ceiling. Whether they'd do this is unknown.
SuzBanyan
Posts: 2015
Joined: Thu Jun 02, 2016 11:20 am

Re: [Debt ceiling discussion mega-thread]

Post by SuzBanyan »

exodusing wrote: Thu Feb 23, 2023 12:01 pm
Tooth wrote: Thu Jan 26, 2023 6:01 am https://www.morningstar.com/articles/11 ... bt-ceiling

Morningstar has an interesting read on "likely" scenarios for a resolution. Also does a brief analysis of impact. From reading this thread to this analysis I'm sticking with having cash on hand to pay the bills for several months. Even if the dollar is worth nothing in this event, my mortgage and everything else is priced in dollars.
The only solution I'm seeing in that article is a discharge petition to allow a House vote. Subsequent news reports are not favorable to that as a workable solution, because McCarthy can act to thwart it and it likely is at least a three month process given House rules.

My current favorite strategy is for the treasury to issue debt with a very high coupon. With the 10-year currently yielding about 3.9%, you could issue debt with a 39% coupon for 10x and sell it for 10x its face amount. That would allow the Treasury to raise a lot of money without breaching the debt ceiling. Whether they'd do this is unknown.
Not sure if we will ever know what the politicians will do, until they do it. But similar to your suggestion, I believe that the government could issue debt instruments similar to “consols” which have been issued by various governments over time, including the US. Consols are perpetual annuities and pay a fixed rate of return, are callable but never come due. With no due date, there is no face value to add to national debt and the debt ceiling is a non-issue. So would Bogleheads be interested in purchasing US issued Consols?
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Re: [Debt ceiling discussion mega-thread]

Post by rockstar »

exodusing wrote: Thu Feb 23, 2023 12:01 pm
Tooth wrote: Thu Jan 26, 2023 6:01 am https://www.morningstar.com/articles/11 ... bt-ceiling

Morningstar has an interesting read on "likely" scenarios for a resolution. Also does a brief analysis of impact. From reading this thread to this analysis I'm sticking with having cash on hand to pay the bills for several months. Even if the dollar is worth nothing in this event, my mortgage and everything else is priced in dollars.
The only solution I'm seeing in that article is a discharge petition to allow a House vote. Subsequent news reports are not favorable to that as a workable solution, because McCarthy can act to thwart it and it likely is at least a three month process given House rules.

My current favorite strategy is for the treasury to issue debt with a very high coupon. With the 10-year currently yielding about 3.9%, you could issue debt with a 39% coupon for 10x and sell it for 10x its face amount. That would allow the Treasury to raise a lot of money without breaching the debt ceiling. Whether they'd do this is unknown.
They’ll raise it because the consequences are so bad. It’s not a real threat. It’s like nukes. No one is going to use them. I wouldn’t worry about it. Lots of chest pounding for the news outlets. If this was really a threat, the bond market would have already crashed.
exodusing
Posts: 2210
Joined: Thu Oct 13, 2022 7:32 am

Re: [Debt ceiling discussion mega-thread]

Post by exodusing »

rockstar wrote: Thu Feb 23, 2023 12:41 pm
exodusing wrote: Thu Feb 23, 2023 12:01 pm
Tooth wrote: Thu Jan 26, 2023 6:01 am https://www.morningstar.com/articles/11 ... bt-ceiling

Morningstar has an interesting read on "likely" scenarios for a resolution. Also does a brief analysis of impact. From reading this thread to this analysis I'm sticking with having cash on hand to pay the bills for several months. Even if the dollar is worth nothing in this event, my mortgage and everything else is priced in dollars.
The only solution I'm seeing in that article is a discharge petition to allow a House vote. Subsequent news reports are not favorable to that as a workable solution, because McCarthy can act to thwart it and it likely is at least a three month process given House rules.

My current favorite strategy is for the treasury to issue debt with a very high coupon. With the 10-year currently yielding about 3.9%, you could issue debt with a 39% coupon for 10x and sell it for 10x its face amount. That would allow the Treasury to raise a lot of money without breaching the debt ceiling. Whether they'd do this is unknown.
They’ll raise it because the consequences are so bad. It’s not a real threat. It’s like nukes. No one is going to use them. I wouldn’t worry about it. Lots of chest pounding for the news outlets. If this was really a threat, the bond market would have already crashed.
I'll try to write this in a way that is not too political, but have you listened to some of the current members of the House? There are people whose grasp on reality is not great and would seem capable of actually doing crazy things in order to get coverage from their favorite media outlets.

We can certainly hope rationality will win over saber rattling, especially saber rattling of the "we had to destroy the village in order to save it" variety.

The bond market no doubt agrees things will not blow up. Alas, markets are not all-knowing.
alex_686
Posts: 13320
Joined: Mon Feb 09, 2015 1:39 pm

Re: [Debt ceiling discussion mega-thread]

Post by alex_686 »

SuzBanyan wrote: Thu Feb 23, 2023 12:14 pm Not sure if we will ever know what the politicians will do, until they do it. But similar to your suggestion, I believe that the government could issue debt instruments similar to “consols” which have been issued by various governments over time, including the US. Consols are perpetual annuities and pay a fixed rate of return, are callable but never come due. With no due date, there is no face value to add to national debt and the debt ceiling is a non-issue. So would Bogleheads be interested in purchasing US issued Consols?
These would have to have a "'par" value which the interest rate and callable amount would be based on. As such the par value would count.

The 10-year zero coupon bond - the exact opposite of this - would be a more viable route. However that path is untested and would raise some interesting constitutional questions.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Re: [Debt ceiling discussion mega-thread]

Post by rockstar »

exodusing wrote: Thu Feb 23, 2023 1:02 pm
rockstar wrote: Thu Feb 23, 2023 12:41 pm
exodusing wrote: Thu Feb 23, 2023 12:01 pm
Tooth wrote: Thu Jan 26, 2023 6:01 am https://www.morningstar.com/articles/11 ... bt-ceiling

Morningstar has an interesting read on "likely" scenarios for a resolution. Also does a brief analysis of impact. From reading this thread to this analysis I'm sticking with having cash on hand to pay the bills for several months. Even if the dollar is worth nothing in this event, my mortgage and everything else is priced in dollars.
The only solution I'm seeing in that article is a discharge petition to allow a House vote. Subsequent news reports are not favorable to that as a workable solution, because McCarthy can act to thwart it and it likely is at least a three month process given House rules.

My current favorite strategy is for the treasury to issue debt with a very high coupon. With the 10-year currently yielding about 3.9%, you could issue debt with a 39% coupon for 10x and sell it for 10x its face amount. That would allow the Treasury to raise a lot of money without breaching the debt ceiling. Whether they'd do this is unknown.
They’ll raise it because the consequences are so bad. It’s not a real threat. It’s like nukes. No one is going to use them. I wouldn’t worry about it. Lots of chest pounding for the news outlets. If this was really a threat, the bond market would have already crashed.
I'll try to write this in a way that is not too political, but have you listened to some of the current members of the House? There are people whose grasp on reality is not great and would seem capable of actually doing crazy things in order to get coverage from their favorite media outlets.

We can certainly hope rationality will win over saber rattling, especially saber rattling of the "we had to destroy the village in order to save it" variety.

The bond market no doubt agrees things will not blow up. Alas, markets are not all-knowing.
Not worried about it. Some folks got elected to cut spending. Others got elected to spend more. At the end of the day, if this blows up, both are screwed. But it makes for exciting news and click bait. Stop watching the news. Take a break and binge some old fashion Moonlighting.
SuzBanyan
Posts: 2015
Joined: Thu Jun 02, 2016 11:20 am

Re: [Debt ceiling discussion mega-thread]

Post by SuzBanyan »

alex_686 wrote: Thu Feb 23, 2023 1:16 pm
SuzBanyan wrote: Thu Feb 23, 2023 12:14 pm Not sure if we will ever know what the politicians will do, until they do it. But similar to your suggestion, I believe that the government could issue debt instruments similar to “consols” which have been issued by various governments over time, including the US. Consols are perpetual annuities and pay a fixed rate of return, are callable but never come due. With no due date, there is no face value to add to national debt and the debt ceiling is a non-issue. So would Bogleheads be interested in purchasing US issued Consols?
These would have to have a "'par" value which the interest rate and callable amount would be based on. As such the par value would count.

The 10-year zero coupon bond - the exact opposite of this - would be a more viable route. However that path is untested and would raise some interesting constitutional questions.
Without reading the exact definition under the legislation that imposes a “debt ceiling”, it is my understanding that Consols issued by the U.S. Treasury would not fall within the scope of the debt ceiling because there is no principal that is an obligation of the U.S. Treasury. The obligation to make interest payments, apparently, is not “debt” as defined under debt ceiling legislation. Yes, clearly a loophole.
exodusing
Posts: 2210
Joined: Thu Oct 13, 2022 7:32 am

Re: [Debt ceiling discussion mega-thread]

Post by exodusing »

rockstar wrote: Thu Feb 23, 2023 1:20 pm
exodusing wrote: Thu Feb 23, 2023 1:02 pm
rockstar wrote: Thu Feb 23, 2023 12:41 pm
exodusing wrote: Thu Feb 23, 2023 12:01 pm
Tooth wrote: Thu Jan 26, 2023 6:01 am https://www.morningstar.com/articles/11 ... bt-ceiling

Morningstar has an interesting read on "likely" scenarios for a resolution. Also does a brief analysis of impact. From reading this thread to this analysis I'm sticking with having cash on hand to pay the bills for several months. Even if the dollar is worth nothing in this event, my mortgage and everything else is priced in dollars.
The only solution I'm seeing in that article is a discharge petition to allow a House vote. Subsequent news reports are not favorable to that as a workable solution, because McCarthy can act to thwart it and it likely is at least a three month process given House rules.

My current favorite strategy is for the treasury to issue debt with a very high coupon. With the 10-year currently yielding about 3.9%, you could issue debt with a 39% coupon for 10x and sell it for 10x its face amount. That would allow the Treasury to raise a lot of money without breaching the debt ceiling. Whether they'd do this is unknown.
They’ll raise it because the consequences are so bad. It’s not a real threat. It’s like nukes. No one is going to use them. I wouldn’t worry about it. Lots of chest pounding for the news outlets. If this was really a threat, the bond market would have already crashed.
I'll try to write this in a way that is not too political, but have you listened to some of the current members of the House? There are people whose grasp on reality is not great and would seem capable of actually doing crazy things in order to get coverage from their favorite media outlets.

We can certainly hope rationality will win over saber rattling, especially saber rattling of the "we had to destroy the village in order to save it" variety.

The bond market no doubt agrees things will not blow up. Alas, markets are not all-knowing.
Not worried about it. Some folks got elected to cut spending. Others got elected to spend more. At the end of the day, if this blows up, both are screwed. But it makes for exciting news and click bait. Stop watching the news. Take a break and binge some old fashion Moonlighting.
I don't watch the news. I do think it is important to keep up with current events. These days the WSJ is a preferred source.
alex_686
Posts: 13320
Joined: Mon Feb 09, 2015 1:39 pm

Re: [Debt ceiling discussion mega-thread]

Post by alex_686 »

SuzBanyan wrote: Thu Feb 23, 2023 2:39 pm
alex_686 wrote: Thu Feb 23, 2023 1:16 pm
SuzBanyan wrote: Thu Feb 23, 2023 12:14 pm Not sure if we will ever know what the politicians will do, until they do it. But similar to your suggestion, I believe that the government could issue debt instruments similar to “consols” which have been issued by various governments over time, including the US. Consols are perpetual annuities and pay a fixed rate of return, are callable but never come due. With no due date, there is no face value to add to national debt and the debt ceiling is a non-issue. So would Bogleheads be interested in purchasing US issued Consols?
These would have to have a "'par" value which the interest rate and callable amount would be based on. As such the par value would count.

The 10-year zero coupon bond - the exact opposite of this - would be a more viable route. However that path is untested and would raise some interesting constitutional questions.
Without reading the exact definition under the legislation that imposes a “debt ceiling”, it is my understanding that Consols issued by the U.S. Treasury would not fall within the scope of the debt ceiling because there is no principal that is an obligation of the U.S. Treasury. The obligation to make interest payments, apparently, is not “debt” as defined under debt ceiling legislation. Yes, clearly a loophole.
That not the legal reading of the people who I listen too, but these are untested waters. I personally think a trillion dollar coin has a stronger legal basis than consols. Yes, these are all hacks.

https://en.wikipedia.org/wiki/Trillion-dollar_coin
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
exodusing
Posts: 2210
Joined: Thu Oct 13, 2022 7:32 am

Re: [Debt ceiling discussion mega-thread]

Post by exodusing »

alex_686 wrote: Thu Feb 23, 2023 2:52 pm
SuzBanyan wrote: Thu Feb 23, 2023 2:39 pm
alex_686 wrote: Thu Feb 23, 2023 1:16 pm
SuzBanyan wrote: Thu Feb 23, 2023 12:14 pm Not sure if we will ever know what the politicians will do, until they do it. But similar to your suggestion, I believe that the government could issue debt instruments similar to “consols” which have been issued by various governments over time, including the US. Consols are perpetual annuities and pay a fixed rate of return, are callable but never come due. With no due date, there is no face value to add to national debt and the debt ceiling is a non-issue. So would Bogleheads be interested in purchasing US issued Consols?
These would have to have a "'par" value which the interest rate and callable amount would be based on. As such the par value would count.

The 10-year zero coupon bond - the exact opposite of this - would be a more viable route. However that path is untested and would raise some interesting constitutional questions.
Without reading the exact definition under the legislation that imposes a “debt ceiling”, it is my understanding that Consols issued by the U.S. Treasury would not fall within the scope of the debt ceiling because there is no principal that is an obligation of the U.S. Treasury. The obligation to make interest payments, apparently, is not “debt” as defined under debt ceiling legislation. Yes, clearly a loophole.
That not the legal reading of the people who I listen too, but these are untested waters. I personally think a trillion dollar coin has a stronger legal basis than consols. Yes, these are all hacks.

https://en.wikipedia.org/wiki/Trillion-dollar_coin
The relevant law limits the "face amount" of debt. https://uscode.house.gov/view.xhtml?pat ... ion=prelim

The trillion dollar coin should work, but it appears to be very gimmicky and would likely be litigated (although I'm not sure who would have standing to challenge it). That creates uncertainty which is not helpful.

What problem do you see with high coupon debt? The Treasury could collect a lot of cash while keeping the face amount of the debt within limits.
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Re: [Debt ceiling discussion mega-thread]

Post by rockstar »

exodusing wrote: Thu Feb 23, 2023 3:20 pm
alex_686 wrote: Thu Feb 23, 2023 2:52 pm
SuzBanyan wrote: Thu Feb 23, 2023 2:39 pm
alex_686 wrote: Thu Feb 23, 2023 1:16 pm
SuzBanyan wrote: Thu Feb 23, 2023 12:14 pm Not sure if we will ever know what the politicians will do, until they do it. But similar to your suggestion, I believe that the government could issue debt instruments similar to “consols” which have been issued by various governments over time, including the US. Consols are perpetual annuities and pay a fixed rate of return, are callable but never come due. With no due date, there is no face value to add to national debt and the debt ceiling is a non-issue. So would Bogleheads be interested in purchasing US issued Consols?
These would have to have a "'par" value which the interest rate and callable amount would be based on. As such the par value would count.

The 10-year zero coupon bond - the exact opposite of this - would be a more viable route. However that path is untested and would raise some interesting constitutional questions.
Without reading the exact definition under the legislation that imposes a “debt ceiling”, it is my understanding that Consols issued by the U.S. Treasury would not fall within the scope of the debt ceiling because there is no principal that is an obligation of the U.S. Treasury. The obligation to make interest payments, apparently, is not “debt” as defined under debt ceiling legislation. Yes, clearly a loophole.
That not the legal reading of the people who I listen too, but these are untested waters. I personally think a trillion dollar coin has a stronger legal basis than consols. Yes, these are all hacks.

https://en.wikipedia.org/wiki/Trillion-dollar_coin
The relevant law limits the "face amount" of debt. https://uscode.house.gov/view.xhtml?pat ... ion=prelim

The trillion dollar coin should work, but it appears to be very gimmicky and would likely be litigated (although I'm not sure who would have standing to challenge it). That creates uncertainty which is not helpful.

What problem do you see with high coupon debt? The Treasury could collect a lot of cash while keeping the face amount of the debt within limits.
The release of this coin would be worse than Lehman.
alex_686
Posts: 13320
Joined: Mon Feb 09, 2015 1:39 pm

Re: [Debt ceiling discussion mega-thread]

Post by alex_686 »

rockstar wrote: Thu Feb 23, 2023 3:25 pm The release of this coin would be worse than Lehman.
Any solution that is not a political solution (e.g. Congress raising the debt limit) is going to involve some type of untested hack. Not advocating this, rather pointing out all hack solutions are going to be truly second rate.
exodusing wrote: Thu Feb 23, 2023 3:20 pm The relevant law limits the "face amount" of debt. ... What problem do you see with high coupon debt? The Treasury could collect a lot of cash while keeping the face amount of the debt within limits.
My point was that consols would also have a face value, so you don't win anything here. Zero coupon bons also have a high face value relative to coupon bonds, so that is not there. What you would need to do is issue a low par bond with very high coupons to step around the issue. Of course from a mathematical perspective that would represent a discount bond so then there are technical issues if the face value of the bond is actually the face value.

I work with bonds, I am not a lawyer or a congress person, I am not advocating anything. Just pointing out the various roads that could be taken the perils of going down them.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Re: [Debt ceiling discussion mega-thread]

Post by rockstar »

alex_686 wrote: Thu Feb 23, 2023 3:34 pm
rockstar wrote: Thu Feb 23, 2023 3:25 pm The release of this coin would be worse than Lehman.
Any solution that is not a political solution (e.g. Congress raising the debt limit) is going to involve some type of untested hack. Not advocating this, rather pointing out all hack solutions are going to be truly second rate.
exodusing wrote: Thu Feb 23, 2023 3:20 pm The relevant law limits the "face amount" of debt. ... What problem do you see with high coupon debt? The Treasury could collect a lot of cash while keeping the face amount of the debt within limits.
My point was that consols would also have a face value, so you don't win anything here. Zero coupon bons also have a high face value relative to coupon bonds, so that is not there. What you would need to do is issue a low par bond with very high coupons to step around the issue. Of course from a mathematical perspective that would represent a discount bond so then there are technical issues if the face value of the bond is actually the face value.

I work with bonds, I am not a lawyer or a congress person, I am not advocating anything. Just pointing out the various roads that could be taken the perils of going down them.
I’m just saying that the message the market would get from the release of any hack solutions would send everything down.
exodusing
Posts: 2210
Joined: Thu Oct 13, 2022 7:32 am

Re: [Debt ceiling discussion mega-thread]

Post by exodusing »

alex_686 wrote: Thu Feb 23, 2023 3:34 pm
rockstar wrote: Thu Feb 23, 2023 3:25 pm The release of this coin would be worse than Lehman.
Any solution that is not a political solution (e.g. Congress raising the debt limit) is going to involve some type of untested hack. Not advocating this, rather pointing out all hack solutions are going to be truly second rate.
exodusing wrote: Thu Feb 23, 2023 3:20 pm The relevant law limits the "face amount" of debt. ... What problem do you see with high coupon debt? The Treasury could collect a lot of cash while keeping the face amount of the debt within limits.
My point was that consols would also have a face value, so you don't win anything here. Zero coupon bons also have a high face value relative to coupon bonds, so that is not there. What you would need to do is issue a low par bond with very high coupons to step around the issue. Of course from a mathematical perspective that would represent a discount bond so then there are technical issues if the face value of the bond is actually the face value.

I work with bonds, I am not a lawyer or a congress person, I am not advocating anything. Just pointing out the various roads that could be taken the perils of going down them.
That's exactly what I'm suggesting. High coupon that can be sold for much more than face. Being a discount bond from a mathematical perspective does not matter under the words of the law.

Treasury could also repurchase low coupon debt that is now trading below par. That would give them some more room.

As you say, consols with a face amount don't win.
User avatar
nps
Posts: 1633
Joined: Thu Dec 04, 2014 9:18 am

Re: [Debt ceiling discussion mega-thread]

Post by nps »

brad.clarkston wrote: Thu Feb 23, 2023 11:11 am Generally the GS and military workers get there bond funds raided when the government really gets desperate for money, that's the last resort to look for and we are not close to that happening yet.
It already happened

https://www.tsp.gov/plan-news/2023-01-2 ... ebt-limit/
jonybogle
Posts: 13
Joined: Tue Feb 14, 2023 1:28 pm

Re: debt ceiling, date X and "government-insured bank accounts"?

Post by jonybogle »

exodusNH wrote: Thu Feb 23, 2023 10:42 am
jonybogle wrote: Thu Feb 23, 2023 10:24 am i've been reading Jeff Somers while trying to come up with a plan for some funds.
in part this may involve putting some funds into treasuries with a maturity date sometime after mid June 2023 (which seems like a safe and sound strategy).
but also Sommers ("How do Invest as a Debt Ceiling Crises Looms" in the NYT) recommends putting some money for peace of mind in a "government-insured bank account". and from what i can tell my money at fidelity or at my local credit union is not one of these?
i'd i wanted to be extra cautious and follow his advice where could i put it?
also does anyone understand what "date X" is?
THANKS
Credit union deposits are insured via NCUA, which is functionally equivalent to FDIC.

Fidelity may have options that are FDIC insured.

Date X is when the government runs out of money and can't issue more debt. We don't know exactly when that date will be, but June-ish is the working assumption of Congress doesn't raise the debt limit.

hi enh,
thanks for this and also LG for sorting me out.
so "government insured bank account" implies FDIC. and NCUA is equivalent to FDIC so it i wanted to be extra cautious i just check with my credit union and verify they are insured "through" (?) NCUA?
and then, well what are the mechanics of this just for my own education? i need to go back and read the first sections of this thread to myself but what happens for the "noob perspective"?
they fail to raise the debt ceiling?
the treasury starts casting about for options but if things go upside down or start to lock up (?) - or i am not sure what happens really since i didn't follow the housing crises very closely at the time - but they step in to cover FDIC and presumably NCUA deposits so you will always have access to that?
lastly (please) at fidelity i guess i just ask if whey have any vehicles that are "insured by FDIC"?
THANKS
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: debt ceiling, date X and "government-insured bank accounts"?

Post by exodusNH »

jonybogle wrote: Mon Feb 27, 2023 9:54 am
exodusNH wrote: Thu Feb 23, 2023 10:42 am
jonybogle wrote: Thu Feb 23, 2023 10:24 am i've been reading Jeff Somers while trying to come up with a plan for some funds.
in part this may involve putting some funds into treasuries with a maturity date sometime after mid June 2023 (which seems like a safe and sound strategy).
but also Sommers ("How do Invest as a Debt Ceiling Crises Looms" in the NYT) recommends putting some money for peace of mind in a "government-insured bank account". and from what i can tell my money at fidelity or at my local credit union is not one of these?
i'd i wanted to be extra cautious and follow his advice where could i put it?
also does anyone understand what "date X" is?
THANKS
Credit union deposits are insured via NCUA, which is functionally equivalent to FDIC.

Fidelity may have options that are FDIC insured.

Date X is when the government runs out of money and can't issue more debt. We don't know exactly when that date will be, but June-ish is the working assumption of Congress doesn't raise the debt limit.

hi enh,
thanks for this and also LG for sorting me out.
so "government insured bank account" implies FDIC. and NCUA is equivalent to FDIC so it i wanted to be extra cautious i just check with my credit union and verify they are insured "through" (?) NCUA?
and then, well what are the mechanics of this just for my own education? i need to go back and read the first sections of this thread to myself but what happens for the "noob perspective"?
they fail to raise the debt ceiling?
the treasury starts casting about for options but if things go upside down or start to lock up (?) - or i am not sure what happens really since i didn't follow the housing crises very closely at the time - but they step in to cover FDIC and presumably NCUA deposits so you will always have access to that?
lastly (please) at fidelity i guess i just ask if whey have any vehicles that are "insured by FDIC"?
THANKS
Almost all credit unions will be a member of NCUA. It will be plastered on their website and probably any local branches.

FDIC insurance protects you if your bank fails. Your deposits will be protected up to the limits. In modern times, banks don't usually go to $0. There are enough regulations in place that a bank would be liquidated and customers moved to a healthy bank before that happened.

I'm not sure of the mechanics of making a FDIC claim. There was a bank/credit union in Rhode Island years ago that went bust. It took a long time to make everyone whole, though it was a spectacular failure / fraud. The banks involved didn't have national insurance, but rather a state insurance fund. (https://en.m.wikipedia.org/wiki/Rhode_I ... ing_crisis)

There's not much planning you can do for a US Government debt default. It's honestly like preparing for a meteor impact. Even if you were sitting on a pile of physical gold, everything would be so broken that you might not be able to transact anyway.
protagonist
Posts: 9277
Joined: Sun Dec 26, 2010 11:47 am

Re: [Debt ceiling discussion mega-thread]

Post by protagonist »

For what it is worth, TIPS Watch offered a rather frightening comparison between the possible 2023 debt ceiling crisis and that which happened in 2011 https://tipswatch.com/ :

It would be interesting to hear comments from the Bogleheads community (avoiding partisan politics of course), and what, if anything, people here are thinking of doing about it.
"Debt-limit crisis: Lessons from the 2011 earthquake
Posted on March 6, 2023 by Tipswatch

The 2011 crisis led to an S&P downgrade of U.S. debt. This year could be worse.

By David Enna, Tipswatch.com
Extended quote has been removed. Moderator Pops1860.

Remember forum policy:
Please limit quotations and reproductions of external materials to the minimum necessary to make your point. You should also provide the source and, where possible, a link to the original work.
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Re: [Debt ceiling discussion mega-thread]

Post by rockstar »

On the bright side, triggering a default would put us into a recession and tame inflation. :)
protagonist
Posts: 9277
Joined: Sun Dec 26, 2010 11:47 am

Re: [Debt ceiling discussion mega-thread]

Post by protagonist »

protagonist wrote: Wed Mar 08, 2023 6:57 pm For what it is worth, TIPS Watch offered a rather frightening comparison between the possible 2023 debt ceiling crisis and that which happened in 2011 https://tipswatch.com/ :

It would be interesting to hear comments from the Bogleheads community (avoiding partisan politics of course), and what, if anything, people here are thinking of doing about it.
"Debt-limit crisis: Lessons from the 2011 earthquake
Posted on March 6, 2023 by Tipswatch

The 2011 crisis led to an S&P downgrade of U.S. debt. This year could be worse.

By David Enna, Tipswatch.com
Extended quote has been removed. Moderator Pops1860.

Remember forum policy:
Please limit quotations and reproductions of external materials to the minimum necessary to make your point. You should also provide the source and, where possible, a link to the original work.
Sorry....I was unaware of that rule.
Here is the link to the original source: https://tipswatch.com/2023/03/06/debt-l ... arthquake/
protagonist
Posts: 9277
Joined: Sun Dec 26, 2010 11:47 am

Re: If the Treasury has hit the debt limit, how can it continue to sell treasuries?

Post by protagonist »

toddthebod wrote: Fri Jan 20, 2023 12:31 pm
chrisdds98 wrote: Fri Jan 20, 2023 12:17 pm It looks like treasuries usually go up quite a bit during these debt crises'. i guess you should go long treasuries if you think this will go to the brink but they don't default. if they default supposedly everything crashes
I'd expect the opposite: Yields to go up, prices to go down, as borrowing gets more expensive for the Federal government. You'd want to sell all your treasuries and wait out the crisis.
As a reaction to the 2011 debt ceiling crisis, on 8/6/11 S&P downgraded the US credit rating from AAA to AA+. On 8/8/11 the 3 major US stock indices lost 5-7% in one day. "U.S. Treasurys, which had been the subject of the downgrade, actually rose in price and the dollar gained in value. The flight to safety was on." https://tipswatch.com/2023/03/06/debt-l ... arthquake/

The 2023 crisis seems to be potentially much more precarious than the 2011 crisis. I wonder which would be riskier, stocks or Treasuries. Would TIPS be safer? At least they are inflation-protected if held to maturity, but that also assumes that the worst case scenario would be avoidable and the government would continue to pay its obligations.
Danw
Posts: 67
Joined: Sun Jul 24, 2016 3:41 pm

How would a government default affect money market funds?

Post by Danw »

[Thread merged into here --admin LadyGeek]

In the unlikely event that the government defaults, how would Vanguard money market funds be affected? I am specifically concerned about the U.S. Treasury Money Market Fund.

Dan
tonyclifton
Posts: 992
Joined: Sat Feb 08, 2020 4:25 pm

Re: How would a government default affect money market funds?

Post by tonyclifton »

Danw wrote: Fri Mar 10, 2023 2:33 pm In the unlikely event that the government defaults, how would Vanguard money market funds be affected? I am specifically concerned about the U.S. Treasury Money Market Fund.

Dan
Please type the word default into the forum's search box. This was recently covered (from all angles).
brad.clarkston
Posts: 1726
Joined: Fri Jan 03, 2014 7:31 pm
Location: Kansas City, MO

Re: How would a government default affect money market funds?

Post by brad.clarkston »

IF the US gov defaults you have bigger issues than your MM fund. Food, water, electric, bullets will be the bigger issues.

Not something I would ever waste time fretting on as the powers that be have several tricks to print more money and kick the debt down the road with.
70% AVGE | 20% FXNAX | 10% T-Bill/Muni
Geologist
Posts: 3056
Joined: Fri Jan 02, 2009 6:35 pm

Re: How would a government default affect money market funds?

Post by Geologist »

This is already a topic of discussion in viewtopic.php?f=10&t=395322&newpost=7157159
mark_in_denver
Posts: 411
Joined: Thu Feb 26, 2015 7:36 pm

Re: How would a government default affect money market funds?

Post by mark_in_denver »

brad.clarkston wrote: Fri Mar 10, 2023 2:40 pm IF the US gov defaults you have bigger issues than your MM fund. Food, water, electric, bullets will be the bigger issues.

Not something I would ever waste time fretting on as the powers that be have several tricks to print more money and kick the debt down the road with.
^^^This.
User avatar
LadyGeek
Site Admin
Posts: 95691
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: [Debt ceiling discussion mega-thread]

Post by LadyGeek »

I merged Danw's thread into the ongoing discussion.

(Thanks to the member who reported the post and provided a link to this thread.)

As noted my earlier post, please refrain from posting political comments and keep the discussion focused on the impact to your investments.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
kevinf
Posts: 848
Joined: Mon Aug 05, 2019 11:35 pm

Re: [Debt ceiling discussion mega-thread]

Post by kevinf »

And to reiterate, the debt limit (or not honoring our debt) is most likely unconstitutional.
Last edited by kevinf on Sat Mar 11, 2023 12:41 am, edited 1 time in total.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: How would a government default affect money market funds?

Post by secondopinion »

Here is an article that describes when the US actually did default a few times in 1979 over a debt ceiling issue: https://www.firstlinks.com.au/us-govern ... -risk-free
In the 1979 defaults, the US Government didn’t treat all its creditors equally. Most Treasury bills, notes and bonds are held by banks and other financial institutions like insurance companies and pension funds, with a small minority held by individuals. In 1979, the Government chose to repay the main institutional creditors in full, out of fear of triggering a banking crisis, but chose to default on 6,000 individual investors.

On 26 April 1979, the US Treasury defaulted on $41 million of maturing Treasury bills. They were paid 20 days late on Thursday 17 May 1979 after the Government found some money. Then again on 3 May 1979, Treasury defaulted on another $40 million. These were also paid 14 days late. Then again on 10 May 1979, Treasury defaulted on yet another $40 million of maturing T-bills. These were also paid on 17 May.
Essentially, the defaults ended up like delayed payments for some unlucky individuals. It was far from the end of the world, unlike some have suggested it would be like.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: How would a government default affect money market funds?

Post by secondopinion »

brad.clarkston wrote: Fri Mar 10, 2023 2:40 pm IF the US gov defaults you have bigger issues than your MM fund. Food, water, electric, bullets will be the bigger issues.

Not something I would ever waste time fretting on as the powers that be have several tricks to print more money and kick the debt down the road with.
Read my post and the article attached above. It is very relevant and essentially is not doom and gloom.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
VartAndelay
Posts: 276
Joined: Tue Mar 03, 2015 10:29 pm

What happens to treasuries if the debt ceiling is not raised?

Post by VartAndelay »

[VartAndelay's post has been merged into the ongoing discussion. Thank you to the member who reported the post and linked this thread. --moderator Kendall]

Let's say someone is holding T-Bills and the debt ceiling is not raised when the decision comes up in a few months or so. What would happen to those T-Bills?
Locked