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Cash to be Worth Less if U.S. Defaults

With all of the battling going on in Washington over the debt limit and a possible government default, people may be asking what this means for them. Well, for one thing, your cash will be worth much less.

Forbes magazine outlines what happened the last five times the government defaulted, the last time being in 1979.

"With the exception of 1979,” Chris Mayer said, “which was mostly due to administrative confusion -- the U.S. simply ran out of money each time. The end result was the dollar had to be devalued. Meaning it lost significant purchasing power.

“My guess is that the U.S. will default again. It may not technically be called that, but the only way for the U.S. to meet its financial obligations is to print a lot of money.”

The more money that is out there, the less it is worth. That is what is happening in Greece, which also defaulted on its loans. Forbes writes:

In Greece, professor Savas Robolis at Panteion University in Athens reckons that by 2015, the average Greek employee and pensioner’s standard of living will have fallen 40% compared with 2008.

“To get our overall fiscal gap under control,” writes Boston University professor Laurence Kotlikoff in Bloomberg, “the U.S. must cut spending or raise tax revenue by $20 trillion over the next decade, far more than either the president wants or the House Republicans seek.”

The number being talked about during budget negotiations is $3 trillion -- far less than what this and other experts say is needed.

Forbes concludes:

You don’t want to be the average American in a default scenario, whenever it arrives. Ray Dalio, the head of Bridgewater Associates, the world’s biggest hedge fund, puts that day in “late 2012 or early 2013.”


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