US Treasuries=USD, in terms of investment security?

[rj.phila]

Hi folks, a thought entered my mind regarding investment approaches
yesterday that i'd like you to help me stress test. Here it is:

Is there a plausible scenario in which a loss in principal on us treasuries
occurs, and yet the domestic purchasing power of the USD is still
maintained? Ive heard it said that if the US defaulted on its debt, that
in essence the issue of the value of the USD would be moot(in the words
of a Vanguard rep, "the world is ending".

The reason i ask is that im entertaining the idea of a treasury index fund
as a base level of security regarding my investments, as opposed to a
high yield bank account(if ever there were an oxymoron). Liquidity/emergency
fund issues aside, what are your thoughts?

[97guns]

why in the world would you want to invest in this


• U.S. Tax revenue: $2,170,000,000,000
• Fed budget: $3,820,000,000,000
• New debt: $ 1,650,000,000,000
• National debt: $14,271,000,000,000
• Recent budget cut: $ 38,500,000,000

remove 8 zeros and pretend it’s a household budget.

• Annual family income: $21,700
• Money the family spent: $38,200
• New debt on the credit card: $16,500
• Outstanding balance on the credit card: $142,710
• Total budget cuts: $385

[thekid]

why in the world would you want to invest in this


• U.S. Tax revenue: $2,170,000,000,000
• Fed budget: $3,820,000,000,000
• New debt: $ 1,650,000,000,000
• National debt: $14,271,000,000,000
• Recent budget cut: $ 38,500,000,000

remove 8 zeros and pretend it’s a household budget.

• Annual family income: $21,700
• Money the family spent: $38,200
• New debt on the credit card: $16,500
• Outstanding balance on the credit card: $142,710
• Total budget cuts: $385

Because that family has plenty of capability -political shananigans notwithstanding- to increase income / cut spending.

[thekid]

With regards to the OP's question. Interesting thought. I would largely agree that it's the same/very similar risk. Only difference is that with default on a loan you hold, you lose your capital (or the part affected by default). In terms of loss of purchasing power because of deflation of value of USD, you lose a percentage.

[rj.phila]

thanks guys. to be clear, im NOT trying to debate the likelihood of a doomsday scenario. im trying to assess if we WERE to see a doomsday scenario, what would the effective difference be between holding USD and US Treasuries?

a more eloquent way to ask the question may be this way: what is the difference in risk premium between USD and US Treasuries in the only thing that COULD put treasuries at risk-a doomsday scenario?


(ps-to answer your question 97guns, the return on treasuries has been in solid "+" territory since pretty much forever, that's the incentive.)

[cooliemae]

In general terms, I would see the Treasuries as having a higher risk premium (though still rather small) in terms of liquidity.

Let's assume that the US defaults, either way the purchasing power of the USD will be affected. The difference is in liquidity.

If you have USD you have liquidity and can move to another currency quickly or spend the money before it devalues farther.

If you have treasuries you don't have liquidity because if the US defaults, by definition it can't meet it debt obligations (i.e. treasuries) so not only would you lose value (say $0.30 on the dollar), but you would also have to wait to get the payout.

So if guess you would have to decide if the rate of return currently offered by treasuries outweights the rate of return for USD. If not and you fear for the worst stay with USD.

[97guns]

(ps-to answer your question 97guns, the return on treasuries has been in solid "+" territory since pretty much forever, that's the incentive.)

when you invest in a company is it not because of their strong fundamentals and bottom line or do you just see the 5% yearly dividend and no further research is necessary?

how could this company we call the united states still be in business, how can these people still be investing into these numbers? if the united states was a dow industrial company what would its valuation be?