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 firstname.lastname@example.org. 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. THIS COMMUNICIATION MAY NOT BE USED BY YOU AS A RELIANCE OPINION WITH RESPECT TO ANY FEDERAL TAX ISSUE DISCUSSED HEREIN AND IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY YOU FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON YOU BY THE INTERNAL REVENUE SERVICE.
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