Non-Political *If* the US Defaults What happens to Money Market Accounts and Other Bond Focused Funds

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MrCheapo
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Non-Political *If* the US Defaults What happens to Money Market Accounts and Other Bond Focused Funds

Post by MrCheapo »

Hi,

I understand the chance of default is very very small. But if the default does happen ...

I have about $600K in VMRXX Vanguard Cash Reserves Federal Money Market Fund Admiral Shares

Lots of related Questions

1) I've heard of some MM accounts shares going below a $1, is this likely to occur for VMRXX with a US default on its debt?

2) Which bond funds (long, short, medium) are likely to be affected if the US defaults.

3) How should I structure this $600K to give me some sort of FDIC protection. Just ladder CDs or something else?
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JoMoney
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Re: Non-Political *If* the US Defaults What happens to Money Market Accounts and Other Bond Focused Funds

Post by JoMoney »

No idea, but since my money market accounts aren't paying any interest, if they miss a payment of that interest I wouldn't know.
If there was such a scenario, and it was as catastrophic as it could be (it's quite possible for there to be some technical default in some small way that's a non-event), I would question whether FDIC offers anything over treasury bonds protection. Existing treasury bonds already have/had that money approved by congress. The treasury can't pay out money that isn't first approved by congress, so if the scenario got to that point, FDIC would be behind in the line.
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pizzy
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Re: Non-Political *If* the US Defaults What happens to Money Market Accounts and Other Bond Focused Funds

Post by pizzy »

MrCheapo wrote: Tue Sep 28, 2021 7:29 am Hi,

I understand the chance of default is very very small. But if the default does happen ...

I have about $600K in VMRXX Vanguard Cash Reserves Federal Money Market Fund Admiral Shares

Lots of related Questions

1) I've heard of some MM accounts shares going below a $1, is this likely to occur for VMRXX with a US default on its debt?

2) Which bond funds (long, short, medium) are likely to be affected if the US defaults.

3) How should I structure this $600K to give me some sort of FDIC protection. Just ladder CDs or something else?
Why so much in cash?
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
Dennisl
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Re: Non-Political *If* the US Defaults What happens to Money Market Accounts and Other Bond Focused Funds

Post by Dennisl »

I’m guessing buckets and multiple years of safe cash flow in or near retirement
fortunefavored
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Re: Non-Political *If* the US Defaults What happens to Money Market Accounts and Other Bond Focused Funds

Post by fortunefavored »

The whole financial system would collapse. Money market funds (or more accurately, the underlying securities) are the "oil" in the financial system, far far beyond your little investment.

Like many "black swan" scenarios (real ones, not "extremely unlikely but could happen" which the term seems to have evolved to) there is no point in planning for them unless you go full prepper - buy yourself a rural compound, guns, food and plan to ride out a major collapse.

So either you have faith in the current structure of society/finance.. or you don't. If you do, you put this stuff out of your mind and keep on going. If you don't.. well. you have a lot of work to do to change directions.
ivgrivchuck
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Re: Non-Political *If* the US Defaults What happens to Money Market Accounts and Other Bond Focused Funds

Post by ivgrivchuck »

As others have said, the whole financial system would collapse...

Gold coins, gun+bullets, food cans, land in the rural area, tools would probably be your best investments...
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
Mike Scott
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Re: Non-Political *If* the US Defaults What happens to Money Market Accounts and Other Bond Focused Funds

Post by Mike Scott »

If you want to keep that much cash, I would move it to FDIC insured accounts at 0.5% and then keep looking for better returns.
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willthrill81
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Re: Non-Political *If* the US Defaults What happens to Money Market Accounts and Other Bond Focused Funds

Post by willthrill81 »

Back in 2008-2009, MM accounts had major issues, as described here in the Wiki, and that wasn't even close to a U.S. default.
Mike Scott wrote: Tue Sep 28, 2021 10:04 am If you want to keep that much cash, I would move it to FDIC insured accounts at 0.5% and then keep looking for better returns.
Bingo!
Last edited by willthrill81 on Tue Sep 28, 2021 10:08 am, edited 1 time in total.
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H-Town
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Re: Non-Political *If* the US Defaults What happens to Money Market Accounts and Other Bond Focused Funds

Post by H-Town »

MrCheapo wrote: Tue Sep 28, 2021 7:29 am Hi,

I understand the chance of default is very very small. But if the default does happen ...

I have about $600K in VMRXX Vanguard Cash Reserves Federal Money Market Fund Admiral Shares

Lots of related Questions

1) I've heard of some MM accounts shares going below a $1, is this likely to occur for VMRXX with a US default on its debt?

2) Which bond funds (long, short, medium) are likely to be affected if the US defaults.

3) How should I structure this $600K to give me some sort of FDIC protection. Just ladder CDs or something else?
If you want FDIC protection, it seems like you need to put into separate bank accounts (the limit is $250k per depositor, per insured bank). That's your first step. Build ladder CDs takes time, so it's not today's job.
Time is the ultimate currency.
Topic Author
MrCheapo
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Re: Non-Political *If* the US Defaults What happens to Money Market Accounts and Other Bond Focused Funds

Post by MrCheapo »

pizzy wrote: Tue Sep 28, 2021 7:59 am Why so much in cash?
Dennisl wrote: Tue Sep 28, 2021 9:26 am I’m guessing buckets and multiple years of safe cash flow in or near retirement
Sure, it was just inertia (I sold a house in 08/18 and didn't buy another and then nervousness (the DOW is 25,000 it will surely correct). Now that the first kid enters college in 2023 so I just held onto it.
Walkure
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Re: Non-Political *If* the US Defaults What happens to Money Market Accounts and Other Bond Focused Funds

Post by Walkure »

I was wondering about this from a Treasury Direct standpoint. No need to go as far as a default (as I understand that interest payments could continue to be made out of current tax recepts) but could just approaching the ceiling of allowable debt issuance cause the Treasury to shut off the ability to purchase new EE/I bonds? Perhaps folks who were looking to add before the Nov 1 rate announcement should get in a bit early?

Alternatively, and this would be kind of funny in a perverse way, if we hit the ceiling and the treasury stopped all auctions on new bonds/bills but it turned out that Treasury Direct didn't have a kill switch because way back when site was created no one had even considered the possibility and folks kept right on buying savings bonds... :twisted:
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Re: Non-Political *If* the US Defaults What happens to Money Market Accounts and Other Bond Focused Funds

Post by LadyGeek »

This thread has run its course and is locked (no longer answering the OP's question "3) How should I structure this $600K to give me some sort of FDIC protection. Just ladder CDs or something else?"). See: Non-actionable (Trolling) Topics
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