Effect of US Govt. Default on Money Market Prime?

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RobertF
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Effect of US Govt. Default on Money Market Prime?

Post by RobertF » Wed Jun 15, 2011 9:55 am

If the US. gov't. doesn't get its act together by August 2nd and has to default on some of its debt, what effect might that have on Vanguard's Prime Money Market fund? Could it possibly "break the buck?" Might there be a general "run" on money funds in the U.S.? Also, how would this effect other VG funds like the GNMA or Total Bond Index fund? We're accustomed to thinking of money market funds as a "safe haven" of last resort but given that these funds invest in short-term US paper, I'm not so sure even they are safe anymore.

Thanks in advance for all responses.

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Langkawi
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Post by Langkawi » Wed Jun 15, 2011 10:20 am

Yawn :roll:

richard
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Post by richard » Wed Jun 15, 2011 10:27 am

Langkawi wrote:Yawn :roll:
You're just saying that because of the number of equivalent threads on this board.

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dmcmahon
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Post by dmcmahon » Wed Jun 15, 2011 10:36 am

Where would they "run" to? Greenbacks in suitcases? Which are ultimately backed by the same government...

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Post by NoVa Lurker » Wed Jun 15, 2011 10:56 am

richard wrote:
Langkawi wrote:Yawn :roll:
You're just saying that because of the number of equivalent threads on this board.
I assumed the yawn was also due to the silliness of the hypothetical. All these "what if the US defaults" threads remind me of the threads re: "Will your emergency fund sufficiently protect you if there is a nuclear apocalypse?"

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nisiprius
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Post by nisiprius » Wed Jun 15, 2011 11:08 am

RobertF, why do you have any substantial holdings in Vanguard Prime Money Market when FDIC-insured savings accounts like ING Direct are paying 1%? Just wondering.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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mhc
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Post by mhc » Wed Jun 15, 2011 11:49 am

If that happens, you better hope you are well invested in the 3 precious metals: gold, silver, and lead. :shock:

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Post by Hector » Wed Jun 15, 2011 11:53 am

nisiprius wrote:RobertF, why do you have any substantial holdings in Vanguard Prime Money Market when FDIC-insured savings accounts like ING Direct are paying 1%? Just wondering.
May be he holds certain amount of cash in his retirement accounts.

rokidtoo
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Re: Effect of US Govt. Default on Money Market Prime?

Post by rokidtoo » Wed Jun 15, 2011 1:00 pm

RobertF: "If the US. gov't. doesn't get its act together by August 2nd and has to default on some of its debt, ..."

They'll slow payments to contractors, layoff contractors, layoff federal employees, and perhaps slow entitlement payments before they get to bond holders. By that time the pitch forks and torches will be out in full force. ;-)

-----Jim

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greg24
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Post by greg24 » Wed Jun 15, 2011 1:12 pm

nisiprius wrote:RobertF, why do you have any substantial holdings in Vanguard Prime Money Market when FDIC-insured savings accounts like ING Direct are paying 1%? Just wondering.
And the FDIC is going to pay him in....

RobertF
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Post by RobertF » Wed Jun 15, 2011 1:19 pm

nisiprius wrote:RobertF, why do you have any substantial holdings in Vanguard Prime Money Market when FDIC-insured savings accounts like ING Direct are paying 1%? Just wondering.
The reason is that these are retirement account monies that aren't so easy to move around. Also, I tend to trust Vanguard more than your typical bank.

I realize that, gauging from the responses so far, many of you think this is a stupid question. However, I think it's a legitimate "what if," particularly given what happened in '08-'09 --political comments deleted--

rokidtoo
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Post by rokidtoo » Wed Jun 15, 2011 1:49 pm

RobertF,

This Wikipedia article describes the 1995-96 government shutdown.

http://en.wikipedia.org/wiki/United_Sta ... 5_and_1996

The shutdown started on Nov 13th 1995 when President Clinton vetoed bills for a continuing resolution and the raising of the debt ceiling.

The public was in an uproar because the national parks and the Smithsonian were closed. Can you image what would happen if Social Security payments were stopped or even delayed?

It isn't going to happen. ---Jim

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Post by AndroAsc » Wed Jun 15, 2011 2:27 pm

rokidtoo wrote:RobertF,

This Wikipedia article describes the 1995-96 government shutdown.

http://en.wikipedia.org/wiki/United_Sta ... 5_and_1996

The shutdown started on Nov 13th 1995 when President Clinton vetoed bills for a continuing resolution and the raising of the debt ceiling.

The public was in an uproar because the national parks and the Smithsonian were closed. Can you image what would happen if Social Security payments were stopped or even delayed?

It isn't going to happen. ---Jim
According to what I've read, a "govt shutdown" is really not a shutdown at all. Critical parts of the govt continue to function, life goes on. Many things do cease to function, but it's not going to be lawlessness in the country.

I rather that the govt shutdown for months and fix the damn finance problems than to come up with a "solution" that basically defers the deadline until a later date...

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Post by jmg229 » Wed Jun 15, 2011 2:50 pm

AndroAsc wrote:
rokidtoo wrote:RobertF,

This Wikipedia article describes the 1995-96 government shutdown.

http://en.wikipedia.org/wiki/United_Sta ... 5_and_1996

The shutdown started on Nov 13th 1995 when President Clinton vetoed bills for a continuing resolution and the raising of the debt ceiling.

The public was in an uproar because the national parks and the Smithsonian were closed. Can you image what would happen if Social Security payments were stopped or even delayed?

It isn't going to happen. ---Jim
According to what I've read, a "govt shutdown" is really not a shutdown at all. Critical parts of the govt continue to function, life goes on. Many things do cease to function, but it's not going to be lawlessness in the country.

I rather that the govt shutdown for months and fix the damn finance problems than to come up with a "solution" that basically defers the deadline until a later date...

I think there is a misconception between a "government shutdown" as the phrase is commonly used and the issue we are facing with the debt ceiling. A "shutdown" is when the government lacks the authority to spend money due to a lapse in the budget/continuing resolutions. The debt ceiling issue is one where the government doesn't have the money to spend on interest payments, social security payments, etc. and eventually results.

The misconception seems to come from the fact that the last time debt ceiling worries came up in a big way was when Clinton vetoed both an increase in the debt limit and a continuing resolution (resulting in a government shutdown) at the same time.

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Post by Stonebr » Wed Jun 15, 2011 3:01 pm

I'm gonna go looting. Don't need a MMF if everything is free.
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear

rokidtoo
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Post by rokidtoo » Wed Jun 15, 2011 3:25 pm

Consequences of not raising the debt ceiling:

http://www.govexec.com/dailyfed/0511/05 ... eiling.htm

I think a partial government shutdown, similar to 1995-96, would be the first step. However, at $126B a month, we'd quickly get to the more unacceptable consequences.------Jim

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Sheepdog
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Post by Sheepdog » Wed Jun 15, 2011 3:40 pm

If It happens, I will dig up the lawn and plant edible crops and can 'em.(after putting up a barbed wire fence.) This is the right time while the growing season is still long ...then go fishing. Then relax.
So why worry?
It's not what you gather, but what you scatter which tells what kind of life you have lived---Helen Walton

jack1719
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Post by jack1719 » Thu Jun 16, 2011 12:54 pm

US goverment default is not even on the horizon..debt ceiling will be raised..

and US government default is not really even a blip on the horizon..its something way off in the distance,even the remote chance

What should be more of a worry is Greece defaulting,that is a very big possibilty,and it setting off a chain reaction in europe,spain,portugal, European banks etc..

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Post by richard » Thu Jun 16, 2011 1:08 pm

jack1719 wrote:US goverment default is not even on the horizon..debt ceiling will be raised..
Your faith in the US political system is touching :)
jack1719 wrote:What should be more of a worry is Greece defaulting,that is a very big possibilty,and it setting off a chain reaction in europe,spain,portugal, European banks etc..
That's a real problem

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Post by Valuethinker » Fri Jun 17, 2011 12:13 pm

richard wrote:
jack1719 wrote:US goverment default is not even on the horizon..debt ceiling will be raised..
Your faith in the US political system is touching :)
jack1719 wrote:What should be more of a worry is Greece defaulting,that is a very big possibilty,and it setting off a chain reaction in europe,spain,portugal, European banks etc..
That's a real problem
I guess from a European perspective we don't believe defaults can happen except when there are compelling economic reasons (in the case of Ireland there are, and still the default does not occur-- politics trumps economics).

So the American situation to us is baffling. A government that pulled this trick would not survive a non confidence motion in the House of Parliament, and would be obliterated at the next election.

Its's a trans Atlantic thing, I suspect, those of us who don't live in America, are not America, cannot folllow the rationality of the thing.

Over to investing

1. you have to prepare for as many eventualities as possible, eg splitting your cash between US bank accounts and Money Market Funds


It looks like Greece will happen before any US government shutdown, so we get to find out about what Greece means.


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Post by hsv_climber » Fri Jun 17, 2011 12:20 pm

greg24 wrote:
nisiprius wrote:RobertF, why do you have any substantial holdings in Vanguard Prime Money Market when FDIC-insured savings accounts like ING Direct are paying 1%? Just wondering.
And the FDIC is going to pay him in....
...nice and shiny IOUs.

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