Stick to worrying about what you can control.
The U.S. has debt. A lot of debt. About $31 trillion dollars worth, which is $94,000 per U.S. taxpayer. Some members of Congress have threatened to prevent the government from lifting the debt ceiling, leaving the nation to default on its dollars.
Right now, the U.S. federal budget deficit sits at 1.4 trillion. American voters have concerns, and rightly so. A big question mark is what happens to personal savings and investments if the country defaults on debt.
Suze Orman, financial guru, recently addressed whether you will lose your Treasuries if the U.S. defaults on its debt on her Women and Money podcast.
This is what Suze Orman thinks of a U.S. default
Suze Orman said, "The short answer is there is no place to hide. If the U.S. government defaults, it would be cataclysmic. Which is why I have a high level of confidence… it just won't happen."
In other words, Orman thinks the consequences are too severe for U.S. congresspeople to follow through on threats to let the U.S. default on its debt. Everyone from foreign governments (which hold trillions in U.S. Treasuries) to insurers would be affected.
Suze Orman spoke to Sheila Blair, former chair of the Federal Deposit Insurance Corporation (FDIC), who shares Orman's opinion. They believe that despite the drama in Congress right now, the chance of the U.S. government defaulting on its debt is tiny.
While no one knows precisely what a default would entail, consumers can rest assured that their Treasuries and certificates of deposit are reasonably safe.
No money is 100% safe from a default
Orman acknowledges that no money is 100% safe from a U.S. default: "A large portion of the 24 trillion dollars is held by foreign countries… the consequences would be cataclysmic." The consequences of a default would ripple beyond North America.
At the very least, everyone in Congress is strongly motivated to raise the debt ceiling or otherwise avoid default. No one wants to be responsible for throwing a country into crisis.
Don't let anyone tell you that an investment is 100% safe -- no investment is. Systems change. But history suggests U.S. Treasuries are one of the safest places to invest your money.
Prevent and prepare for bad weather
Sticking to your financial plan is the best way to prepare for a default. Long-term savers should consider voting for rational candidates and diversifying their investments.
Vote for rational candidates
Voting is top of the list of things U.S. citizens can do to prevent a U.S. default. Vote for rational candidates who understand the terrible consequences a U.S. default would have. It's a little late for that this year, but it's something to remember during the upcoming election cycle.
Diversify your investments
In the meantime, stay diversified. Diversified investments steady your portfolio. Diversification creates a foundation that better weathers unexpected financial disasters, including a potentially earth-shaking U.S. default.
It's a good idea to save an emergency fund. Consider stashing six months of earnings in a high-yield savings account to prepare for the unexpected. You can lean on your emergency savings to avoid drawing on long-term savings during a market crash or if you lose your job.
Another way to diversify is to invest in property. Even if the market value of a property drops, a home can be lived in or rented out. Unused property can be listed on Airbnb or similar short-term rental websites to earn rental income.
Keep up with sound financial habits
Worries abound, but one of the best things you can do is maintain good financial habits. Do you have a long-term plan? Don't let the threat of a U.S. default dissuade you. There's no use in worrying about what you can't control. Continue saving money in the manner that works best for you.
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FAQs
Suze Orman said, "The short answer is there is no place to hide. If the U.S. government defaults, it would be cataclysmic. Which is why I have a high level of confidence… it just won't happen."
Do US Treasury bills have default risk? ›
The Bottom Line. Treasury Bills, or T-bills, represent short-term debt obligations by the Treasury. Because the U.S. government backs them, they are considered extremely low-risk, although they also have relatively low returns.
Are US treasuries still safe? ›
U.S. Treasury bonds are fixed-income securities. They're considered low-risk investments and are generally risk-free when held to maturity. That's because Treasury bonds are issued with the full faith and credit of the federal government.
Can you lose money with US Treasuries? ›
Also, T-bonds are backed by the full faith and credit of the U.S. federal government, meaning investors won't lose their initial investment.
Are US Treasuries protected? ›
Treasury securities are considered a safe and secure investment option because the full faith and credit of the U.S. government guarantees that interest and principal payments will be paid on time.
What happens to Treasury bills if the government shuts down? ›
Unlike a debt-limit default, a shutdown does not affect the government's ability to pay its debt to bondholders and therefore does not have a direct impact on the government's borrowing costs or creditworthiness.
What is default risk in Treasury? ›
Default risk is a major component of credit risk that captures the likelihood of a company failing to make timely payments on its financial obligations, namely: Interest Expense → The periodic payments to the lender throughout the term of the debt (i.e. the cost of debt financing).
Are US Treasuries 100% safe? ›
A Treasury bill, or T-bill, is a short-term debt obligation backed by the U.S. Treasury Department. It's one of the safest places you can save your cash, as it's backed by the full faith and credit of the government. T-bills are auctioned off at a discount and then redeemed at maturity for the full amount.
What is one disadvantage of investing in US Treasuries? ›
These are U.S. government bonds that offer a unique combination of safety and steady income. But while they are lauded for their security and reliability, potential drawbacks such as interest rate risk, low returns and inflation risk must be carefully considered.
Are Treasuries safer than CDs? ›
CDs and Treasuries Offer a High Degree of Safety
Both CDs and Treasuries are considered extremely safe investments. Treasuries are backed directly by the federal government, while CDs are covered by FDIC insurance – which is also backed by the federal government.
What causes bond prices to fall? Bond prices move in inverse fashion to interest rates, reflecting an important bond investing consideration known as interest rate risk. If bond yields decline, the value of bonds already on the market move higher. If bond yields rise, existing bonds lose value.
Are Treasuries safe during a recession? ›
US Treasury Bond/ Federal Bonds
Investors favor Treasury bonds during a recession because they're considered to be a safe investment. Purchasing a bond issued by the Federal Reserve Bank means that you're lending money to the US government.
Do US Treasury bonds have no financial risk? ›
U.S. Treasury bonds (T-bonds) are often touted as risk-free investments. And it's true. You would have to envision the utter collapse of the government and society to find a scenario that would involve losing any of the principal invested in a T-bond.
How risky are US Treasuries? ›
They offer a fixed interest rate and are backed by the U.S. government, making them a low-risk investment. While they may not yield the highest returns compared to riskier investments, they can provide stability to your portfolio, particularly during times of market volatility.
Are US Treasuries fully insured? ›
The FDIC does not insure U.S. Treasury bills, bonds or notes, but these investments are backed by the full faith and credit of the United States government.
Are Treasuries safer than cash? ›
Investors can choose which type of bonds to invest in based on their goals and risk tolerance. In times of economic instability, bonds and other debt instruments issued by the U.S. Treasury are considered extremely safe because the risk of the U.S. government defaulting on its financial obligations is minimal.
Are Treasury bills zero risk? ›
Treasury bills — or T-bills — are short-term U.S. debt securities issued by the federal government that mature over a time period of four weeks to one year. Since the U.S. government backs T-bills, they're considered lower-risk investments. The most common terms for T-bills are for four, eight, 13, 17, 26 and 52 weeks.
Why Treasury bills do not default? ›
Treasury bonds, notes, and bills have no default risk since the U.S. government guarantees them. Investors will receive the bond's face value if they hold it to maturity. However, if sold before maturity, your gain or loss depends on the difference between the initial price and what you sold the Treasury for.
Do Treasury bills have credit risk? ›
They are considered risk-free, as the government can always print the money to pay back the debt. And given that they have only a short time to maturity, they have very little sensitivity to interest rate moves. If interest rates rise, the bonds don't fall much in value.
Do US Treasury bonds have almost zero default risk? ›
These spreads reflect how much extra yield investors demand to hold corporate bonds over Treasury notes and bonds, which are considered the safest financial instruments because there is a near-zero chance of default by the U.S. government.
