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I want to consider a special case of this question (so not a duplicate, in my mind, but forgive me if that's incorrect in the eyes of moderators). What happens to my savings if my country defaults or restructures its debt?

There's a lot of 'what happens if my country has a sovereign default on its debt.

My question is more specific: What happens if the US has a sovereign default on its debt, on a global scale, since the US dollar is the global reserve currency and essentially the center of the international market? How does that play into my 401k and IRAs even though they include many international funds? How does this affect my ability to trade stocks and mutual funds through US brokerages (like Edward Jones, or Vanguard for instance). In conjunction with that, in the event of a default by the US, is there any way to hedge your investments against such a catastrophe since the US is the center piece of international trade?

I'm going to piggy-back another question off of this one: What happens to my investments and my ability to trade stocks if the US dollar's status as the international reserve currency is reviewed and moved off of that status to make another commodity or currency the reserve currency? What implications would that have for US citizens and their investments?

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Josiah
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  • As asked this question seems too focused on economics and not enough on personal finance for this site. The bit about "any way to hedge your investments" seems on-topic, but the rest not so much. – dg99 Jul 09 '15 at 17:05
  • Well, that's my main concern - how to invest as a US citizen for the event of a US sovereign default. The rest I thought would be necessary information for making wise choices and understanding the why behind the advice given here. – Josiah Jul 09 '15 at 17:15
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    To my thinking, the world will need some common currency just to serve the needs of global commerce. In the mid-term, the USD seems well-placed to continue as such. If your spending is in dollars, I would not worry too much - you won't feel any downturn of the dollar since the prices you pay will also be going down. – ALAN WARD Jul 09 '15 at 17:20
  • @ALANWARD I would like to hear your reasoning behind this conclusion. With a debt/GDP ratio of 105%, the US is probably paying its interest through loans. If the dollar devalues rapidly due to a default, wouldn't that take the global economy down along with it? Being the reserve currency for global commerce doesn't make the dollar invincible, does it? I would think it would just mean the global economy is tied to the performance of the dollar. – Josiah Jul 09 '15 at 17:32
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    In the event you describe, it doesn't seem like there would really be any safe harbor, even internationally. The US dollar is so tightly intermingled with the global economy this would instigate a global financial crisis. I guess in the short term you might see a run up of commodities like gold, but you'd have to time that very precisely. It wouldn't be a very effective hedge. – JohnFx Jul 09 '15 at 17:40
  • So what, then? Take up gardening and hunting? Stock up on shotgun shells and rifle bullets? – Josiah Jul 09 '15 at 17:43
  • @Josiah True enough for your comments, the USD going down would make a whole lot of stakeholders unhappy - and by a lot I mean all over the world. So, a lot of people with an interest in making sure it won't happen, or if it does it falls in a more or less controllable fashion. As a side note, we have much the same concern here in Europe with the EUR. ;-) – ALAN WARD Jul 09 '15 at 17:47
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    Voting to close. Such "what if" questions lead to speculation, opinion, discussion, but not much in terms of real answers. – Chris W. Rea Jul 09 '15 at 19:29

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If the US economy crashes at all suddenly, the global economy goes with it. In that case, yes, the postapocalyptic scenarios may be the best answer.

But that's got so low a probability of happening that you'd be a fool to invest in it. If you really feel the need, consider investing in the companies which supply those activities. The big winners in the California gold rush were the general stores that sold supplies to the speculators.

JTP - Apologise to Monica
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keshlam
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Lots of opportunities during threats to US debt demand.

Most just involve being short the S&P or long the VIX (or short treasury bond futures, or short a US dollar currency pair). Those are the opportunities.

And if you are worried about the utility of speculating in US dollars on a decline of the US dollar, then it is easy enough to hop out of the FEDwire network into a cryptocurrency network these days - either as a value transfer protocol to another currency in lieu of capital controls, or a speculative investment, or both.

Enjoy!

CQM
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    That's an interesting suggestion - using cryptocurrency as a value xfer protocol. Quite clever. – Josiah Jul 10 '15 at 15:15