A government default, no matter what government it is, will create issues for your investments. Plenty will happen if you leave your investments as they are. You will take a great deal of risk. Before you can fully understand the issues at hand you will want to look at what a government default means. The market is starting to react in several areas already such as bonds and NYSE.
Foreign Exchange Trading Resilient to a Point
The bond market is all about long term promises to pay debts. The government, if unable to pay their debts, will see a lowering of their credit rating, which means higher borrowing rates. The U.S. Treasury will have to increase the interest rates on notes, bills, and bonds. This means home buyers and businesses will see an increase in borrowing rates too. If investors are looking to bonds the rise in rates will mean the existing bond price will fall. You could lose value in your current bonds. Foreign exchange trading safe-havens are often in bonds, but on a government default even bonds are not a safe place to be.
The 10-year note is currently 2.61% meaning any reinvested money from interest exists thus a very small cushion is there against price declines with interest rate increases. CDs, dividend stocks, and even corporate earnings are all at risk. This leads to the direct affect in foreign exchange trading, which would see a quick sell off of the USD. The USD is already being sold, but it would pick up as confidence falls. For the status it has as the world’s currency, it could lose that status and give the advantage to a place like China. It is advantageous for other countries, but extremely detrimental to the USA.
Potential Resolution= What in Foreign Exchange Trading?
Most investors believe strongly that the U.S. representatives on both sides will not let the USA default, but will resolve to raise the debt ceiling at the last minute. When this happens, all investments in other currencies like the EUR, JPY, AUD, and GBP will be sold to buy the USD. The USD will gain in value again. Even other investments like safe-havens will be sold to buy USD back. The longer the situation goes unsolved the smaller the return of value to the USD will be in foreign exchange trading. There are other options too like investing in bank deposits or certain investment funds. Buying international bonds that gain because of the USD value falling is another way to make a profit during a default or near default. Gold is always a prime place to be to make money since it can be hedged or just invested with it.
Many believe they can predict what congress will eventually decide. Sadly this is not always the case. Depending on what factors are being played the USA could default and certain people in power in the USA would welcome it because it would mean a power shift and one that could prove lucrative to them. On the other hand having faith that there are more who do not want a default could be how you decide to invest.