This debt ceiling crisis has a more serious feel to it than the 2011 one, I remember at the time it all seemed farcical and from memory the US government more or less shutdown and government workers stopped getting paid. They still seemed to have cash though to keep the serious operations going. So not sure if a comparison with 2011 is more equivalent to the current period (Jan 2023 to 1st June 2023), where the treasury was still finding ways to prioritise payments and keep things going.

I may be wrong, or just paying more attention to this one, but it appears that their is a much greater chance of an actual US governemnt default this time. It looks like they need to get through to mid-July before any tax revenue comes in to provide short term relief, so a 4-6 week period of no money, if no deal is reached. I have seen some suggestions that the treasury could mint a $1 trillion coin or the debt ceiling could be challenged under Amendment 14 in the courts. Either way it looks like the US is struggling and following the playbook laid out by Ray Dalio and others.

In a default scenario I would think that long duration US bonds would go down in price as the yield would need to increase. Gold should still increase as a safehaven, maybe bitcoin too. This is a pretty serious self-inflicted doomsday type outcome so I don't think it is likely but I also don't think the probability of it happening is zero either, given the politics involved.

@Rapstar Are you considering a default possibility in your positioning?

If US defaults on its debt, here are some consequences.

• The economy will dash into a recession.
• US bond will be downgraded and the financing cost for businesses and individuals will go up tremendously.
• Unemployment rate will go rocket high.
• The expenditure of households and companies will shrink.

I don’t know about you guys, but to me it sounds like the most effective solution to hammer the inflation rate back down to 2%.

Depends what is defined as a default. US credit default swaps are up about 100% over the past month! Apparently, the US CDS contract is rather vague on what a default actually is.

If you consider the failure to pay an interest bill when due as a default, well than a default of quite possible. However, should the US default on bonds as they fall due, we would have much bigger worries than long dated treasuries - so I think this is out of the question (the Republicans cannot afford the risk of being blamed for such a disastrous outcome and will come to a deal).

Something to be careful of is short dated T-bills - 1 month T-bills plummeted in value during the 2011 debt crisis. Better to keep cash in 3-6 month duration T-bills to avoid the stress of holding these through the crisis.

In terms of long duration bonds, they rallied strongly in 2011, and rallied moderately during the 1995 debt ceiling crises. I would bet the same will occur this time, as fears of default / shut down will likely exacerbated deflationary pressures, causing a flight to safety in regimes of falling growth and deflation.