The Debt Limit and Your TSP Fund

By on January 20, 2011 in Current Events with 65 Comments

Some in the federal community may feel somewhat removed from the nation’s economic crisis. Our jobs are relatively secure, the pay isn’t bad, and our retirement system is pretty good–and often cited as a model system for the rest of the country to emulate.

Without a doubt, we are now starting to feel some of the heat.  A two-year federal employee pay freeze will certainly be felt in your paycheck, especially since the cost of some essential goods and services are going up and there is the possibility of inflation damaging the purchasing power of the dollar. Retirees have not had a COLA increase for two years even though the cost of health insurance is going up as well as other expenses that are often felt more by retirees than those who are still working.

But, with the unemployment rate at close to 10% for an extended time and the real unemployment rate hovering at 18% or so, having a secure job with a good retirement system and decent benefits is not a bad position in which to find yourself on today’s economy.

We have been very fortunate to live in America. Most Americans have faith in the federal government to provide services without taking away our personal freedom or too much of our hard-earned money. Most of our readers are working or used to work for the federal government and probably have at least as much or more faith in trusting the government to treat people fairly.

There is one area that may bear watching and which many readers may not have thought about in terms of its potential personal economic impact.

In all likelihood, the problem with our national debt will play out in ways that are unexpected and unpredictable. Without a doubt, the federal government is broke and this massive debt will continue to put our country in danger in different ways. Ultimately, all of us will end up feeling some economic pain as our political system addresses the problem or ignores it.

European countries have similar problems. One way in which several national governments have tried to resolve their economic problems is taking money from retirement systems where the money was to be used for financial support of the contributor after retirement.

The Christian Science Monitor recently summarized the retirement pension situation in several countries. While we may not be surprised at the government’s actions in Hungary and Poland, we may be more surprised at what has happened in France and Ireland. 

Last November, the French government decided to earmark 33 billion Euros from the national reserve pension fund to reduce the nation’s deficit. In Ireland, a fund was created to support Irish pensions from 2025-2050 and to provide pensions for some public sector employees. In 2009, the Irish government earmarked four billion Euros from the fund for bank rescue. The remainder was taken in 2010 to support the bailout of the rest of the country. 

Hungary was more direct. It told its citizens to give their retirement savings to the government or, alternatively, lose the right to the state pension while still being forced to contribute money to it from their paychecks. The plan gave the government control over $14 billion of individuals’ retirement money. Bulgaria instituted a similar program. No doubt, that helped the nation’s debt problem. It also created a problem for those who were going to use the money for retirement.

A few days after the Christian Science Monitor article appeared, the Wall Street Journal ran a news item about America’s debt ceiling. Here is one paragraph from that article: 

“Even if the debt ceiling is reached this time, the Treasury has tools at its disposal to keep the government from defaulting on its obligations, though they aren’t unlimited. It can stop issuing bonds that don’t go directly to the market and exist primarily in accounting ledgers, including those that would go to the so-called G-fund—a money-market fund in government retirement plans—and the Civil Service Retirement Fund.”

This has actually happened before. (See “We’re the Federal Government: You Can Trust Us”) The Thrift Savings Plan published a note on its website that said, in effect, “Don’t worry about your TSP investment in the G fund. It is still safe, the action being taken is legal and any money due will be restored.” And, in fact, it was restored. The government just used it for awhile until it resolved the debt ceiling problem.

While some readers tend to see events in purely political terms and blame the party with which they do not affiliate as the source of their problems, the reality is somewhat different.  The same government action has occurred under President Clinton and President Bush.

Moreover, it is likely to happen under President Obama. No one can predict with certainty how Congress and the Obama administration will deal with the debt limit problem. But, if it is not resolved and time is spent while the nation’s leaders try to work out a solution to raising the debt limit while not destroying the country’s economic situation, you can be assured that the scenario in the Journal article is likely to play out. 

In a 2006 reader survey, 84% of those responding thought the federal government should not use money in the G-fund to eliminate short-term problems with the debt ceiling. But, keep in mind, whether you like it or not, your retirement money is controlled by the federal government and, if convenient or necessary, chances are it will be used again to shore up the finances of the national government.

No one knows if the debt ceiling will be raised before the financial markets take a hit or not. There is even considerable disagreement about whether raising the debt ceiling without major changes in federal spending is a good idea. 

There are also different circumstances now than when a similar situation occurred in the past. The situation today is more volatile than it was in 1996 or 2006 as our debt has gone up, federal government spending is up dramatically, and our economic situation has deteriorated.

In 1996, Japan, the United Kingdom and Germany were the biggest holders of American debt. The majority of our debt held by foreign countries is now held by China, Japan and the U.K. This could put more pressure on the American government, especially if the dollar is viewed by international investors as a less reliable currency than other currencies. It is conceivable that TSP investors (and others) will see the value of their stocks dropping at the same time the G fund is used by the federal government to help with the debt problem.

In short, there is likely to be turmoil in the next several months. The problem could be pushed aside (again) in hopes of an improving economy in coming months. The problem could be addressed in a substantive way and steps will be taken to lessen the debt problem by reducing spending in some way. Or, perhaps, the political factions will dig in with their respective positions and we will see the government engage in an economic version of “chicken” to see which side gives in while the financial markets drop at the prospect of an American nation more beholden to foreign powers that may not share our values.

For TSP investors, the reality is you do not have many good options. For any investment funds outside of the TSP, the Journal quoted Aaron Gurwitz, the chief investment officer at Barclays. His advice: “The best move for investors…would be to diversify their holdings of dollar-denominated securities to include other developed nations, including Canada and the U.K., and stable emerging markets.”

You may want to watch your TSP and how the government handles the current problem. It is likely that the G fund will be used to help with the debt problem. It is also very likely you will get the money back as happened previously when the debt limit had to be raised (although for much less debt than we now have). Ultimately, it is your money even if you do not have full control over it.

Anyone who has complete faith in any government to do the right thing has probably not studied much history. Events and governments change. Europeans who thought their money was safe with their government probably felt very secure about their future retirement–until policies changed that had a negative impact on many people and increased their reliance on family or government to take care of them in their old age. While that is unlikely in the United States, is isn’t impossible either. 

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters onĀ federal human resources.

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  1. Steve Neal says:

    They ar NOT getting my TSP savings… Due to the Democratic (refusal to negotiate) gov’t shutdown and my immediate short paycheck and uncertain future loss of income, I have a bonafide family crisis to justify a 100% withdrawal of my TSP holdings. I can then invest them as I see fit, instead of leaving my retirement savings where the greedy bastards can control them…

  2. Chas says:

    This statement in the article is bogus: ” We have been very fortunate to live in America. Most Americans have faith in the federal government to provide services without taking away our personal freedom or too much of our hard-earned money. Most of our readers are working or used to work for the federal government and probably have at least as much or more faith in trusting the government to treat people fairly. ” OBMACARE is taking away money from those who worked all their lives and now have to support those 30 million who cannot afford health insurance (i.e., subsidies – similar to tax credits). This is socialism at its best – thanks to the Democratic Congress of 2009 who passed this pieces of s*** without bipartisan approval. One -sixth of the economy is impacted by this legislation. Debt is out of control and the Democrats want to continue spending more than they borrow.

  3. Splitrock says:

    Sir – to protect our G fund monies if we are close to retirement – would you rec’d we move them to another TSP fund less likely to be used to solve the debt issues?

  4. Guest says:

    What fund families have mutual funds invested in canadian dollars? Also if we had to, in a dollar free fall take out our TSP- what would be the impacts (would we have to quit federal service?)

  5. federalretiree66 says:

    Then there is always the option of taking the whole TSP “thing” out, paying the taxes, and getting it safely in a teeny-interest savings account. What is the difference in paying federal and state taxes on the lump sum and watching the whole thing go up in smoke as the economy crashes and the market plummets???? Cannot see much difference in giving it to the government right up front, and watching it get swallowed up by a broke country. Enlighten me, sombody!

  6. Franc_shao says:

    I figure the G Fund is probably too good to last. At this point in my career, I’m all in the C, S and I funds anyway. At the time I retire, if the USG is screwing around with the G, I’ll just roll everything over onto a Vanguard account. I’ll have more than enough for Admiral shares (already do), so while it won’t be as low cost as TSP, at least it’ll still remain a good value.

    • USPS Letter Carrier says:

      Going all stock is a very aggressive asset allocation and can thus be quite volatile (stocks dropped 1-28-11 as Egypt goes up in flames). Vanguard is a great choice but Admiral shares no longer has the cachet it once had as it now only takes $10,000 to get in. Saying you could retire with north of several dozen Admiral share Vanguard funds would be nice.

  7. PitbullDad says:

    I think it is more likely that the government’s match to TSP contributions will go first before anyone has to worry about the liquidity of TSP.

  8. Guest says:

    Here we go again. The government can earmark a minimum of $5 BILLION for Isreal and additional BILLIONs for other countries in the original and follow on Continueing Resolutions and not care about the people in this country. Congress will also get the pay raises and their pensions for life without any of that being touched. As for the “other” government workers we will get the screws turned tighter. This is out ragious. We need to worry more about our selves and less about others until we can pay off our debt. If I were to do this with my money and life I would go to jail. So why do we let congress and the president do it??????? I haven’t voted for an incumbent yet and for what they are showing me, I still won’t.

  9. Freecell4 says:

    You need to stop giving our politicians ideas, first transfer of budget funds, using our Social Security dollars and now with your article you planted a seed for them to put the fingers in the pot of TSP.

  10. Bph1994 says:

    I agree the stock markey fundamentals are shot full of QE 2 etc. They make no sense & could drop precipitously any old time. I too have read several times the insiders on Wall st are moving out. So where should we put our money????? G? C? S? I? F? Our should I take a big 50 K loan on my money & invest in metal??

  11. Newmexico87122 says:

    Another reason I rolled my tsp into an IRA. I have no “g” money anymore

  12. Essex Wyrven says:

    The goverment could still operate without raising the debt ceiling. It would however have to limit expenditures to income. That means some things wouldn’t get paid. Things that would have to be paid or else the US is in default, would be interst on it debts to outside holders, (not necissarily interest on deebt held in trust funds), and contractual payments, Like Boeing etc. So that would mean they would have to cut entitlements: a slice off Social Security, a slice off payment to the States, a slice off paychecks. That would be of course after they maxed out the short term, no payment to any of the trust funds or TSP, and other account maneuvers. It could be quite messy, even if done well.

  13. Dale N.P.S. says:

    Congress, Senate and the President of the United States, they are all insiders to information.
    All of their retirement is safe and secure, they have very little to worry about.

    The American federal worker is automatically enrolled in to the G-fund it is like Social Security a continuous income for Capitol Hill to stick their fingers in two.

    Everything has been cleverly thought through and planned out by young graduates, trying to make names for them selves, which work for all of the different key senior government officials.

    The key Capitol Hill senior buy into these cleverly thought through plans, by these young graduates that have been taught by corrupt professors that are advisers for the government as well.

    This is the reason why were in a mess were in today, GREED and CORRUPTION.

    The thrift savings plan G-fund and all the others will be just like Social Security broke in the near future.

    American federal workers will need to stand up and (make our voices heard in EVERY POSSIBLE WAY put a stop to this robbery.)

    • USPS Letter Carrier says:

      “Congress, Senate and the President of the United States … All of their retirement is safe and secure, they have very little to worry about.”

      All of them have access to the TSP. Surely whatever befalls you in the TSP also affects them.

      • Gary Huffman says:

        Let’s actually look at all the elected/appointed gov. officials and see how many are invested in TSP. Not many, I’ll bet.

        • USPS Letter Carrier says:

          Since you brought it up, you go ahead and look it up and report back. But just as to date Dale hasn’t bothered to reply, perhaps lacking the courage of his paranoia, I wouldn’t be surprised that you’ll fail to provide a link showing the percentate of gov. officials investing in the TSP. I’ll go so far as to bet you don’t provide the link.

          We may harangue them but you’d be foolish to think that they as a group would pass up the free money in the 5% match.

  14. rationalone says:

    Talk about apples and oranges…comparing the U.S. economy to that of Hungary is like comparing Wal-mart to the corner quicky-mart. If your going to dicuss real concern, lay of the fear driven worst case senarios. It is just as likely that Bernanke and the newly appointed chief of staff will continue to instill confidence on Wall St. as we slowly dig our way out of this hole. Everyone predicted that the turn around would be slow, and by all indicators we are ahead of schedule. The unemployment numbers are troubling, but as Daley gets the banks to loosen up on credit, we should see some significant relief. How ’bout a little optimism and faith in the country that has lead the world in all things economic for the past fifty plus years. Don’t forget that China has its own set of internal problems that will eventually force it to play by the rules and position us to continue gaining momentum. The debt is a concern, but it can be dealt with without all the chicken little fear mongering. What do you suggest I do with my TSP investment? Put it in a mattress!

  15. Soccer1133 says:

    If SAM were to default it won’t matter where your money or investments are. The global economy would fail and money and investments would be useless. Self sustenance would become the rule.

    Could it happen? Yes, in some ultra realistic situation. Will it happen? With almost certainty, NO.

    Long ago I was told by a very old and wise man: ” What is the worst thing that could happen to you? You could die, he went on to say. But, he continued, that only can happen once so why worry about it!”

  16. Judypaglia says:

    Is a Roth IRA out of danger if I transfer my G funds to a Roth? How far can/will our government go? It’s serious, our country is in a deep mess.

    • USPS Letter Carrier says:

      You can’t transfer your G Funds to a Roth IRA. Once you leave gov service you can roll over your TSP money into an IRA. (If this article spooks you this badly, you may wish to max out your IRA after the 5% match.) You do know that if you roll over your TSP into an IRA and then convert into a Roth IRA, that you’ll be paying taxes on it, right? And if you’re so scared of what might happen as mentioned in this article, you’ll probably be frightened of what the gov may do next to your Roth IRA as well.

  17. guest says:

    I am CSR offset and just under 5 yrs to retirement. Since I am not benefitting from the matching 5% by the gov’t of what benefit is there for me to keep my money in G fund. The gov’t may only borrow it but then again it may not pay it back then what?

  18. Margaret Leps says:

    Now I know where my cost of living increase went–last night’s White House Bonanza. While I imagine the first lady’s dress was donated–along with the alterations to suit her taste, etc, along with the entertainment, I doubt that it was a fund raiser!

    Regarding taking more from social security than is contributed, compounding would help solve the problem. There was an opportunity this year, if there were such a surplus that we could reduce the payments from 6.2 to 4.2 percent this year, to use the compounding concept. The impoverishment solution was chosen instead.

  19. GenericFed says:

    We will hopefully never have to find out, but I’m assuming that there will be a very short time span between the Federal Government reneging on TSP obligations, and the evaporation of other investments and the dollar as a store of value.

    Investing in non-TSP foreign investments has its risks. Direct investing overseas subjects you to adverse tax consequences, and local risk. Many international mutual funds are hedged so they DON’T go up when the dollar goes down (or vice versa).

    Buying free and clear a house (with good locks) seems to be a good strategy. Working to improve our country’s fiscal responsibility won’t hurt, either.

  20. Guest says:

    Seems odd to first tell us how much the federal government can be trusted to do the right thing then turn around and tell us the feds can take our money to fix the debt problem. Even though the money might be returned it is still our money and should not be used in this way without our explicit permission. If I wouldn’t let them to take money from my checking account to balance the budget then why would I let them take my retirement savings?

    • quantitative_generalist says:

      The reason you’re getting interest on the G-Fund bonds is because there exists a risk of default. If you won’t tolerate the risk, don’t participate in TSP, pay the taxes on income, and put dollars (or krugerands, or whatever) in your mattress. You’ll be safe from default risk, if not from robbery or inflation.

  21. PitbullDad says:

    On Monday, I faxed a TSP form for Request for Full Withdrawal. About half will be applied to new home construction for our retirement home, and to pay off all loans to be debt free.

    I am going against the convention of monthly payments (85% opt for that) and going with a level annuity with survivor benefits @ 50%. I understand that only 15% elect annuity. Why, I don’t know. Perhaps some feel that the annuity can’t be changed once elected, so they stay with monthly payments which you can “control” and schedule so that you have something at the end.

    HOWEVER, for me, the annuity option results in a 50% higher monthly payment (as long as both are living). Sure, I know there is nothing there when both of us are gone, but I ALSO have two guaranteed life insurance policies, and plan to convert another term policy, so that’s what the heirs will get.

    My wife’s mom lived to 102, her father 94, and my grandmoms to 105, and 83. My mom is 85 and her two brothers are 88 and 92. Seems we have a healthy gene pool.

    So I am betting both of us will outlive the statistical average (age 77), even tho I had cancer two years ago and was “cured” of it.

    Message here is that the TSP money is YOURS, so consider the annuity option because those funds go to MetLife and they will pay you as long as you (both) shall live.

    • Just a Fed says:

      “those funds go to MetLife and they will pay you as long as you (both) shall live.”

      Or until MetLife goes out of business. Who’s to say the company is more solvent than the government? As we know, corporations falsify their financial position all the time.

      • FedSmith says:

        At the moment at least, Metlife is in better financial shape and is subject to accounting procedures that the government is generally free to ignore. Here is information on Metlife as of this morning:

        Take that only for what it may be worth to you…

        Metlife Inc (MET)
        Quarterly Earnings Estimate Revised

        01/20/2011
        09:09 AM EST

        Earnings Estimates are expected to be $1.10 for Q4 2010, and $1.23 for Q1 2011 while Q2 2011 estimates are rising to $1.27. MET’s next earnings announcement is scheduled for the week of 01/31/2011.

        • rkay48 says:

          MetLife may be doing fine now. But an annuity is for the rest of your life. AIG used to be a AAA rated company and look how Uncle Sam had to bail them out. So things change. Also, annuties do not pay much these days due to the low interest rates. Especially if you opt to inflation protection in your annuity, the pay out will be rather low. I would rather take my chances (which I view as excellent) with the G fund rather than an annuity. Once you retire, you can move your TSP money to an IRA and do with it as you wish (buy gold stocks,, etc). And the money is indeed yours, just like in a 401K, so I just cannot see the Govt abrogating its Fiduciary duty in any realistic scenario.

    • fed worker says:

      Not trying to be nosy, but are you one of the ones that had over $500,000.00 in the TSP? If so, we all dont have the luxury to do what you did with your abundant funds…

  22. Deborah H Young says:

    Mr. Smith, as I am nearing my retirement within 2 years, hopefully, I would like to know your opinion then on the option of keeping my money in TSP after retiring and drawing on it. This is what I was planning on doing. Your article makes me paranoid now as to what action I should take since I am on FERS and most of my retirement as you know will be out of my TSP. Should I keep it in there or what?

    • FedSmith says:

      There are some very good financial advisors who would be better equipped to take the time to look at your overall financial situation and provide financial advice based on your unique circumstances. We refrain from providing individual financial advice, based in part upon the advice of our attorney, but also because it takes considerable time to do a good job of providing advice and this is best handled by an expert certified in providing the financial advice that would be helpful to you.

    • PitbullDad says:

      I agree with Ralph, to consult a Certified Financial Planner. I did.

      In another post, I explained my reasons for opting for about 57% cash payment and 43% annuity.

    • USPS Letter Carrier says:

      Take a deep breath and don’t let one article make you think that the sky if falling. There is no sense in worrying about what the gov may or may not do as you have little control over it. You want to know what do with your TSP account when you retire within 2 years? Your two basic options are to draw on it or roll it over to an IRA and draw on it there. You may wish to visit other forums like bogleheads.org and ask their opinions.

  23. KBKBK says:

    “For TSP investors, the reality is you do not have many good options.” No Kidding! There are NO good options for TSP investors. If there are, I must have missed them in this article.

    • PitbullDad says:

      Consider my other post where I explained what I am doing with 57% cash withdrawal and 43% annuity.

      Your feedback is welcome.

      • KBKBK says:

        I’m no where near retirement, so am not planning on any cash withdrawls anytime soon. My point was that there are few options in the TSP, and right now I don’t really like any of them and wish there were other options to choose from besides C,F,G, I, etc.

  24. CBH says:

    Great article!!!!
    Bring all of our troops home!!
    Stop giving our hard earned money to foreign countries all over the world!!
    We need to take care of ourselves, first.

    • guest says:

      since the G fund is now.0011% can I take my money out with early out and not get penalized?
      taxing everything higher and prices higher and no increase in pay -need to knwo please.

      • Girlsailor says:

        How about loaning your TSP to yourself first.

        • reply for sailor says:

          girlsailor
          how do i loan it to myself without penaty or interest?
          want to buy x and x investments and pay it back later but how much each month do they want from me?

          • USPS Letter Carrier says:

            TSP > Planning Tools > Calculators …TSP Loan

            A TSP loan is at the G Fund interest rate which is currently 2.875% You also pay a $50 fee.

          • quantitative_generalist says:

            note that the interest you’re paying, you’re paying to yourself. it goes back into your TSP holdings.

  25. Fed Peasant says:

    The concept is valid. It can, & possibly will, happen to the G fund again. However, if they go after TSP holding in the F, C, S, or I funds, then there will be turmoil & controversy. That would be reckless & possibly subject the TSP account holder to capital losses & denial of access to a chosen market. Also consider the use of a means test, special tax, or other inhibitors. In recent years, they have made some improvements to the TSP plan. I used to have a strong impression, that they secretly did not want you to keep your money there after departure from the federal government. The rules gave me that impression. For the record, most of my serious money is invested abroad. Canada has been very good to me!!! $$$

    • Kaylarjosh says:

      where are you investing specifically by stock and country, I believe in what you have discussed…llll

      • Fed Peasant says:

        What I am about to say is not a suggestion or endorsement for anyone. It is simply to answer your question & offer things to consider. And not to enter a debate. Currently I have;
        Brazil Telecomm Brazil
        Vino Concho Toro Chile
        Royal Bank of Canada Canada
        Bank of Ireland Ireland
        Nordic American Tankers Bermuda
        Teva Pharmaceuticals Israel
        Very recent sales are:
        FEMSA Coca Cola Mexico
        Brasil Foods Brazil
        Trans Alta Canada
        I have some foreign based stock & real estate funds in my IRAs. Typically in my TSP, the International Fund is the biggest single holding. I make occassional allocation adjustments due to tactical decisions. How much & why is proprietary & private. I always have a short list of target companies, in mind. That too is private. I hope that this answers your questions.

    • Tdby says:

      How do you invest in Canada?

      • Fed Peasant says:

        The single biggest trading partner of the USA is Canada. I understand that we get most of our oil from there (not OPEC). Canada has very big & mostly well regulated financial markets. To my surprise there are very, very, few mutual funds for USA investors wanting Canada. In recent years there is a little offered by way of ETFs. I never understood that. One choice is the Fidelity Canada fund in the open end mutual fund category. There are about 2-3 ETFs at most. Most Canadian blue chip stocks have ADRs (american depository receipts) that trade in New York. My US based brokerage account gives me direct access to all Canadian exchanges. Another choice is to contact a US based brokerage firm & specify that you want an account for Canadian exchanges only & funded with Canadian dollars. Also directly contact the big financial firms in Canada, for an account. Consider tax implications. For the USA, nearly all stocks trade in New York & the regulation is centralized there between the SEC, NASD, & New York State regulators. Canada is fragmented by comparison. Most provinces have their own exchange & their own provincal regulators. Toronto has Ontario, Calgary has Alberta, etc. There is little federal over sight there by the Canadian national government. Go to the Financial Post newspaper for news & the lrage national newspapers. I call it the Canadian version of the Wall Street Journal. Do your homework & think for yourself!! You will occassionally hear cocky & ignorant comments among Americans about Canada. You don’t learn & make money with people who think that way!!

    • Guest says:

      how do you invest ‘abroad’?

  26. CH77 says:

    I don’t expect the situation to right itself in any sensible manner. People want low taxes, generous socialized retirement benefits spanning 30+ years (despite talk of “trust funds,” those benefits are paid for by current taxpayers, and often equal much, much more than the beneficiaries contributed via their taxes during their working lives), and a massive defense budget, all at the same time…and woe unto any politician who points out the incoherence of that position.

    • Skippy DoD says:

      So true, so true…the last ‘honest with the voters’ politician we had was Michael D. back in the early 70s when he told the voters if you want better housing, education, health, etc….you will have to pay for it…in tax rises. And we know how that turned out don’t we…the only state he carried was ‘Taxachussets’.
      I live overseas and work for the DoD, so see close up and personal what is going on over in Europe. The American citizenry doesn’t even BEGIN to understand how skewed their perspective is on ‘what they expect’ from their lives. The fantasy land they live in, where someone else pays, does not exist. The sooner the American public learns the hard facts about how THEY must pay for what they want in order to maintain a certain level of living, the better.

  27. Guest says:

    Good article, Mr. Smith. Thank you.

    Question for you: If the U.S. defaults on the Federal debt (and please don’t automatically say that it’s not a possibility for consideration), does the authorizing statute for the TSP require G Fund investors to take a “haircut” on the value of their holdings, similar to bond holders in a corporate bankruptcy?

    I’ve been searching for the answer to this question and can’t find it anywhere.

    “While some readers tend to see events in purely political terms and blame the party with which they do not affiliate as the source of their problems, the reality is somewhat different.”

    Ahahaha, now that’s just poo. But I don’t need to correct you here, because I have every confidence that shortly there will be more than enough people posting ad hominen attacks against you to “correct” your misunderstanding of how it’s always the fault of party that the commenters don’t support, and how the favored party has their best interests at heart and is actually not filled with corrupt individuals who care only about power over others and lining his or her pocket with corporate contributions paid for by wealth stolen from the middle class.

    See how easy it is once you have right perpective!

    • FAA Engineer says:

      It’s either George W Bush’s fault, or Barack Hussein Obama’s fault.

      BWAHAHAHAHAHAH – as bowser says

      End of December – insider trading was running 80-1 sell vs. buy
      Last week, $0 insider buys (first time I’ve heard of this happening). Let that sink in. $0!!!

      Stock market is being propped up by QEII. Insiders are getting out. Your C fund is in danger of being handed over to Wall street. Your G fund is controlled already by D.C.

      Screwed either way

      Will QE3 happen? Again, screwed either way.

      DOE, there are maybe 3 of us on this post that understand “haircut”, but I’ll bet many can name the contestants on American Idol.

      Bill Bonner wrote a great article entitled “When in Doubt, Default”

      • Guest says:

        “Bill Bonner wrote a great article entitled ‘When in Doubt, Default'”

        The Daily Reckoning is among my favorite financial sites, along with Calculated Risk and Zero Hedge. I used to follow Mish pretty closely, but he’s gotten a little shrill over the past couple of years.

        Cheers.

        • FAA Engineer says:

          I still read Mish, but he’s gotten so extreme half his stuff is iffy. Jim Quinn in TheBurningPlaform is on my must read daily list.

          p.s. Alan Gurwitz at Barclays is throwing out garbage advice. Canada’s banks (and hence the country) are in more trouble then ours.

    • FedSmith says:

      The Cat_Herder raises a good question about what happens in the unlikely event of a government default. I do not know the answer. Our readers have a wide variety of experience in various fields. I hope someone with a definitive answer will provide some insight into this.

    • quantitative_generalist says:

      AFAIK there is no defined process for default of sovereign obligations. It is expected course of business that corporations go bankrupt, and there is a prevailing authority and framework for orderly resolution. Sovereigns aren’t supposed to default, and there is no super-national authority to establish a framework. Every sovereign default is an individual negotiation, frequently initiated by a unilateral declaration of complete default.

      In other words.. If USGov refuses to pay out on its bonds, then those bonds are only good for wallpaper. Whether they’re held by corporations/banks, other governments, or retirement funds. Even if that retirement fund is the one sponsored by USGov.

      Personally, I’m increasingly leaning toward the “gold-bars under the mattress” retirement plan.

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