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Oct 7, 201311:11 AMFinancial Perspectives

with Michael Dubis, CFP

There’s no way the government will default on its debt

I am sick of the fear-mongering by politicians, the media, and some financial talking heads around the possibility that the U.S. will default on its debt if an agreement is not reached on the debt ceiling. 

I’m going to keep this as simple and short as possible: There is no conceivable way the U.S. government will default on its debt this month.

Here’s why I believe this:

  • The U.S. government will likely bring in more than $200 billion in tax receipts, while our interest on our debt is about $25 billion. 
  • The 10-year Treasury is trading at a yield of approximately 2.6%. This is down from about 2.9% a month ago and is actually dropping in yield as I write. If the U.S. government were about to default on its debt, the yield would be skyrocketing. Think of Greece, Italy, Ireland, Brazil, Mexico, etc. Government default is preceded by a rapid rise in the government’s debt yield. 
  • Finally, the stock market would be in a free-fall. Yes, as I write, it’s down slightly, but I suspect that has more to do with the impact of furloughs, spending, poor economic numbers, and overall confidence than the potential of unpaid Treasury debt.

It’s irresponsible of politicians and media pundits to suggest that the U.S. might default. It pains me to imagine how many people are making decisions that will negatively affect their wealth as a result of these harmful warnings. 

Spend more time on your own situation and focus on what really matters. There will be many crises — both manufactured and real — that will require our attention throughout our lives. In the meantime, watch the yield on the 10-year Treasury bond. If it spikes significantly, then be worried. Right now, the yield is dropping. … I’m not worried.

Michael Dubis is a fee-only certified financial planner and president of Michael A. Dubis Financial Planning, LLC. He is also an adjunct lecturer at the University of Wisconsin Business School James A. Graaskamp Center for Real Estate. Mike can be reached at financialperspectives@gmail.com.

 This article contains the opinions of the author. The opinion of the author is subject to change without notice. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products or services described in this website or that of the author’s. Mike Dubis does not guarantee the relevancy, appropriateness, or accuracy of any outside information or links. Mike Dubis does not render or offer to render personalized investment advice or financial planning advice through this medium. All references that might be made to an investment or portfolio's performance are based on historical data and one should not assume that this performance will continue in the future.
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Old to new | New to old
Oct 8, 2013 03:08 pm
 Posted by  Anonymous

Michael

The Wall Street Journal front page story of October 8, 2013 reports on a series of Wall Street Bankers who disagree--and warn strongly that "prioritizing" payments to one purpose or another will mean that a payment default will happen in one bucket in another. By federal and state law, employees must be paid; by federal law, Vendors must be paid within 30 days. And so on.

There is a deeper side to the story and I respectfully suggest you read about it.

Oct 9, 2013 09:51 am
 Posted by  Anonymous

It could be that the entire government shutdown and possible default was designed not for political reasons but to actually impact the stock and bond market. There will be wealthy concerns that actually will benefit from a stock market drop or a default.
It does not cost much to fund the small handful of Congressional representatives to force a shutdown or a default. While the stated intent political and related to denying people access to health care - the real intent of the campaign donors on the far right may be to profit from the economic turmoil. There were definitely groups and individuals who profited from the last debt deadline when the US bond rating dropped and interest rates rose.

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About This Blog

It is an understatement to say the world has experienced a radical shift in capital markets. There are more layers of information and opinions on the direction of the world than we've seen in decades. The internet and the media do not always make it easier, but Michael Dubis' contribution through IB blogs will help you sift through the noise and give you some perspective. You can find his company online.

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