US default as a risk to mitigate

There are people on Wallstreet who have significant inside information on what goes on in Washington. Effectively you are saying that you understand the city better then them. How likely do you think that's true?

Good point. I don't trust my meager finance skills to buy put options.

I was considering the less ambitious strategy of withdrawing whatever cash I have available in advance, defering discretionary purchases, and waiting it out. If there is a crash, I would thus avoid bank runs and would be able to use some of the cash to buy call options on some index-tracking ETFs. Or, you know, food and gas, depending on how bad it got.

I should really learn more about finance for next fiscal cliff.

I guess a thoughtful examination of probability is on topic.

What I wanted to avoid are smug dismissals of probability of default being so close to zero that it isn't worth worrying about.

Small risk, large consequences, half the probability density on the next thirty or so days, the rest smeared across at least a year (short-term debt-ceiling increases with a replay of the standoff every few months).

Too late to fundamentally restructure my finances, at the moment I'm looking at simply having some liquid cash and stocking up on store-able goods ahead of time on credit so I can make payments for them with devalued future dollars if a default happens or pay them off immediately if it doesn't.

Government research produces a lot more existential risk than it solves.

Presumably you have some data to back this up?

What existential risks do the NIH, NASA, and CDC produce?

That rush of confidence and almost righteousness you had when you posted that? No offense, but learn to recognize that feeling, it's oversimplification or maybe wishful thinking.

MIRI depends on private donations. Private donors need to make money in order to donate it. MIRI depends on the power grid, sewer lines, police to deter street crime, and access to its FDIC-insured bank account. MIRI does business with various other businesses some of which depend on government contracts to remain in business, and all of which are also embedded in an enormously complex web of private and government entities. Individual members of MIRI are also part of this web, and if they can't buy groceries or pay the rent, they will either a) stop showing up for work so they can deal with their immediate problems or b) continue showing up for work, let their stuff get repossessed, and then either b.1) become a burden on someone else (maybe MIRI while its liquid assets last) or b.2) starve.

I don't want this situation to be true any more than you do. I find it abhorrently bad design. But none of that changes that it is true, and denying it amounts to contributing to the problem by refusing to consider how one can insulate oneself and what one cares about from it.

I poked around that site previously, but it didn't seem to say anywhere whether US citizens were allowed to bet on it. Do you know?

There is no real short-term crisis.

Yes.

big risk is that U.S. government spending continues to greatly increase but long term growth rates stay low

Yes, but in that case we'll have huge problems much earlier than in 20-30 years. Japan's situation is pretty unique to Japan and I don't think US will be able to emulate it well.

I don't think a meltdown is inevitable as long as the Feds stop digging at some point. So far they've shown no signs of being able to do that.

So, even if a frank default happens later this month you predict only a modest recession?

If I were a rating agency, I would have bumped the US down more than one notch the last time this was threatened. The mere fact that we could talk about it with a straight face should have been very worrisome.

Heee-yal no!

Just because I disagree with the conventional wisdom that the US is too big to fail doesn't mean I actually believe that's a high probability.

I'm looking for strategies that are only slightly costly in the likely event of an 11th hour deal, but highly beneficial in the unlikely event of a default.

Beans, check.

Ammo, check.

Good to have around in general principle regardless of how the economy is doing at the moment. Store well, have intrinsic value, and are small enough to barter. I think of societal collapse as happening in stages:

• Market infrastructure (banks, stock exchanges) still hobbling along in the midst of deep recession. Good time to have metals, short/liquidate stocks.

• Market infrastructure crumbles. People starting to use precious metals. Good time to convert surplus precious metals into portable objects that are intrinsically useful and easy to trade. Or real estate if you can swing it.

• Collapse of distribution networks means that certain goods are unavailable at any price in certain areas. Good time to already be stocked up on those goods, and ready to barter them, to expand purchasing power.

• Find other people sympathetic to restoration. Use their help and whatever resources you've managed to secure in the previous steps to get the civilization ball rolling again.

That's the trillion dollar question.

What bothers me is nobody is willing to even hypothesize. That's what screams availability bias to me: we don't know what will happen, so we'll just assume it either won't happen or it will be business as usual.

I don't even know what field (failure-ology? domino-tics?) I need to read in to actually make an informed guess, but the best guess with what little I do know (for a worst case scenario) is the following, in roughly chronological order:

• Massive stock market crash

• One or more ratings agencies downgrade the US from its AA rating.

• Value of the dollar plummets, inflation ($100 is barely enough for even a cheap meal)

• Run on the banks. The FDIC theoretically can still bail out failing banks by taking money from non-failing ones but who knows where there is a tipping point before they all fail (and presumably are all taken over by the FDIC). Even if they eventually manage to reopen them all, days or weeks pass before some people can access their accounts.

• Government starts bouncing checks to employees, contractors, veterans, social security recipients, etc. They, along with thousands of people who never realized they depended on something that depended on regular checks from the government, are now overdue on their rent/mortgage/bills.

• Some employees continue working for IOUs, some stay home, hard to predict which federal services are operating where. State and local services still mostly functioning.

• Massive wave of seizures and foreclosures by creditors who are themselves in a desperate financial crunch. At this point, it no longer matters whether or not the debt ceiling is raised, the chain reaction has started.

• Bouncing checks and repos trigger riots and in the chaos various ethnic/political/religious grudges also get rekindled. Again, some areas hit harder than others. Probably not a good time to live in an urban slum.

• With police over-extended, increase in violent crime and property crime.

• With the dollar's lower purchasing power, it's even more expensive to import oil, which has a further inflationary effect on almost every consumer good sold in the US. Food is particularly hit because fertilizers are made with petrochemicals.

• Economies of various other nations collapse, with similar results.

...and I don't know what happens next. Presumably at some point someone puts a bullet through your head and takes whatever you have left that's worth stealing. Alcor can't help you because they can't afford liquid nitrogen, nor the cost of transporting your remains to Arizona in the first place. The end.

Total time scale: about a year. Hopefully I'm wrong and hopefully other posters and point out where.

I wonder, next time control of the House changes, maybe they will try to do away with the debt ceiling. It's a fairly recent problem. I think getting rid of the debt ceiling without replacing it with some more effective limit on deficit spending would be dangerous, though. I suspect there would be enough Representatives left in the House who felt the same way that such a bill would not pass.

The president actually talked about the use of legal exploits in a speech he recently gave (he didn't talk about the trillion dollar coin specifically, but it would fall into the category he was addressing). He basically said that he "had plans" but they would face vigorous legal challenges, and would have almost as negative an impact as an actual default.

If the sh*t hits the fan in the US, I don't see how Canada would remain unscathed. The question is where you can migrate your money, or more precisely, your purchasing power.

Germany might be a good bet....everybody speaks English, too.

Do they? That's interesting. I have a short list of countries to flee to if the U.S. gets too objectionable ("objectionable" deliberately unspecified) for me, but requiring English as a ubiquitous language is a serious limitation. Adding to that list is nice.

With regard to a potential U.S. default, I have no special plans because I have no significant dollar-denominated assets to protect. I'm not that well versed in what the fallout would be like, but I'd think the most likely threat to me personally would be unemployment, and I'm not sure there's anything I can do about that except save money.

But I predict that the U.S. will not default -- at least not this time.

Physical location is harder to change than the location of your assets. Usually.