How to respond to the debt limit mess?

So. I don’t have much confidence in either party’s wisdom or sense of obligation to act in the best interests of the country. I’m debating moving some of my meager savings into the safest 401K haven (a cash fund?) I can find between now and Aug 3 (at least). Is this a pointless exercise? Anybody else got a plan for dealing with this?

Good question. I am a fed employee and our version of the 401K is the Thrift Savings Plan (TSP). Usually the safest place to put your money (low-risk, low reward) is the G-fund, which I believe is buying Treasury securities that are specially issued to the TSP. I’m not sure what these will do in the event of the default. I’d like to know though.

Someone else started a thread on this, but it didn’t get very far.

Personally, I don’t think there’s much you can do. If the government defaults, any investment that pays off in U.S. dollars will go south. You can try putting all your money in foreign funds, but the Euro is already shaky and a U.S. default would rattle the world financial market to the core.

Gold prices (spot market) have risen by more than $100/oz. since the first of the month, so you’re already at a high point in the market. If the world currency market doesn’t collapse, small investors will take a bath.

If you put everything in foreign stocks, you’re hoping that they don’t take a beating if the U.S. market crashes. Which, given the interdependency of the global market, may be a false hope.

And real estate is too weak right now to be a safe investment.

As for me, I’m making no changes to my portfolio at all, because as I posted in the other thread:

You do realize the government hasn’t been paying into the TSP for months, haven’t you? One of the reasons why the government did not default back in May is because it stopped paying into the TSP and it’s been borrowing from it.

You should play the lottery. You have a better chance on winning it than you do of the government not raising the debt ceiling by Aug 2nd.

It’s two weeks away and they’re still playing a game of “chicken.” One side will blink and both sides will declare victory and the whole mess will be forgotten in five minutes, till the next time it has to be raised

And if they don’t raise it, nothing is a safe bet.

ETA: Safe bet = worth the risk. Nothing is a totally safe bet.

I went to one of the Republican Triumverate’s pages on Facebook to let my feelings be known about his tendency to walk out on negotiations and his uncompromising positions. I found there that when he expressed his opinions, you could comment or press a “Like” button. There was no “Unlike” button available. Now there’s a man who really cares about what his fellow Americans think. He’s interested in getting at the truth.

The question is not, “What is a a totally safe bet?” but rather, “What is the safest bet?” among all the imperfect alternatives.

I have yet to see a Facebook page with an “unlike” button available.

You know, I heard that through the news a few months ago, but I just checked my latest leave & earnings statement and it still shows the government’s TSP basic contribution and matching amounts being the same as they always have. I’m not sure what the actual facts are on this. Apparently it’s not affecting me though.

It is affecting you. Just as your checking account at your local bank is a balance on paper only. Your bank doesn’t have your cash in your bank.

The federal government is borrowing from CSRS, FERS and TSP to fund current operations of the government since it reached the debt ceiling in May. The ability to continue shuffling accounts to keep functioning runs into a brick wall on August 2nd. Your leave and earnings statement is showing the deductions into the respective accounts. The government is matching your TSP contributions.

All on paper.

The reality is the actual cash is being transferred to other government accounts to keep operating. If/when the debt ceiling is raised federal employee retirement accounts will be filled back up with the money currently being borrowed. Since January the CSRS accounts have been drained from $770 billion to $680 billion in June. TSP G accounts Since March have been drained from $129 billion to about $27 billion in June. See http://www.fedsmith.com/article/3006/debt-issuance-suspension-period-billion-your.html for details.