Sometimes the world of investing makes sense. Specifically, in this economic topsy-turvy investing world we are wondering, are treasury bills safe investments?
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2. Sometimes the world of investing makes sense.
Sometimes, like now, it seems like a modern
version of Alice in Wonderland where Alice says,
"Why, sometimes I've believed as many as six
impossible things before breakfast."
3. Other times the comment of the caterpillar seems
appropriate for American politics and finance,
"We're all mad here." Specifically, in this
economic topsy-turvy investing world we are
wondering, are treasury bills safe investments?
5. A safe investment preserves its dollar value and
keeps up with inflation. A few years ago we
wrote about how to invest without losing any
money. The point we made was that some
investments, like stocks, can appreciate nicely
over time. They can also fall in value at very
inconvenient times. We noted that the best way
to protect the dollar value of your investments
was with deposits insured by the Federal
Deposit Insurance Corporation (up to $250,000
per account) at your local bank.
6. The next best choice, we said, was with Treasury
bills, notes, and bonds. By staying with short
term securities you retain the ability to change
your investments to stay ahead of inflation.
Unfortunately, that approach may not work
today. The problem with this approach today is
two-fold. These investments assume that the
dollar will not collapse nor will the US
government fail to meet its obligations and pay
what they have promised.
7. Is It Time to Worry About the Dollar and the US
Government?
8. The problem that is looming over today’s
investing landscape is the US debt crisis and
the distinct possibility of a US government debt
default. The government ran out of money a
couple of months ago and the US Treasury has
been shifting payments around to make ends
meet. According to Secretary Yellen, this will
work until June or perhaps July and then the
US will begin to default on debt payments.
9.
10. Why we think it is time to worry is this. The
argument presented to the American people
has to do with raising taxes and/or cutting
spending. However, the legislation that has
been proposed to raise the debt ceiling and
forestall a debt default includes items that do
not do either of these things.
11. What we are seeing is a dangerous game of
“chicken” with two cars speeding down the
highway toward each other to see which one
swerves first. This is a bad idea for drunken
teenagers and what we are seeing in Congress
is unforgivable for leaders of the United States
of America.
13. There are a lot of dollars in the world. There are
about $2.342 trillion in notes and coins in
circulation. The US has $45.45 billion in gold
reserves, (8,133 tons). Compared to these
monetary assets, there are about 30 trillion US
dollars owed in US Treasuries.
14. The problem is that in the modern world the vast
majority of monetary assets are essentially
credit. This includes dollar reserves held by
nations around the world and anyone who has
put their money into US Treasuries or bank
accounts relying on the full faith and credit of
the US government.
15. The financial system depends on trust in the
value of currencies and especially on the value
of the dollar. It depends on people believing
that when they want to cash in a CD or US
Treasury bill that they will be paid.
16. And it depends on them believing that the
purchasing power of that dollar will be
somewhere in the neighborhood of what they
expected. Historically, when a national
currency is in peril because of a likely debt
default people buy dollars. Today they may
buy euros, British pounds, Swiss francs, yen, or
yuan.
17. The problem with treasury bills as a safe
investment is that people lose the necessary
level of trust, they will buy other currencies
and send the dollar down in value. Anyone
with anything to sell will demand more dollars
because they will expect the value of the U.S.
dollar to fall.
18. This will turn into a self-fulfilling prophecy and
the dollar could, in fact, collapse. Then the
Treasuries that you want to redeem will have
substantially less real world value than you
expected. That assumes that the government
actually has the money to pay you because it
has defaulted on its debts because the political
game of “chicken” ended very poorly.
19. For more insights and useful information about
investments and investing, visit
www.ProfitableInvestingTips.com.
