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Protecting your investments in case of default

A blank US government check.

Steve Chiotakis: From APM, American Public Media in Los Angeles, Good Morning Happy 4th of July. I'm Steve Chiotakis. Leaders on both sides of the debt ceiling negotiations continue to debate over the weekend. One development on Fox news Sunday, Texas GOP Senator John Cornyn said his party would be open to a short-term deal to avoid default, which could come in less than a month. But his party will not sacrifice, he says, stringent spending cuts just to make a deal.

John Cornyn: We're running up against this deadline and they're going to try and present as a fate of compli. Nobody's going to have time to read it or consider the implications of it and he's going to say you have to pass it or the economy's going down the tubes. That's just irresponsible.

So the threat of U.S. debt default is very real, remains very real. And as Marketplace reporter Bob Moon reports that's got investors paying close attention.


Bob Moon: You can run but you can't hide -- not from the wide-reaching financial shockwaves that would result from a default by the United States government. So says investment fund manager Axel Merk.

Axel Merk: Make no mistake about it: if there was a default, it is a question of the least evil, where the person that loses the least is going to be the winner.

Merk only half-jokingly suggests investors might want to stash a gold bar under the bed. Stocks would be bound to suffer, and he says shifting to a mutual or money-market fund is likely to carry the risk of exposure to European debt. He suggests cash might be the least dangerous investment.

Merk: We encourage investors to do what central banks are doing, to diversify to baskets of currencies, to spread the risks across countries.

There's also the option of corporate bonds, but Merk says you still can't beat the ease of cashing out of Treasurys quickly. That's why he's still in no hurry to unload his government bonds, even with the growing talk of a default.

Merk: There is a great liquidity in Treasurys, and even if we had to sell them if there was a panic, we are willing to take that risk.

Merk says for now, most investors are still signaling their belief someone will blink first.

I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.
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Good catch, Mark. Isn't auto-correct a wonderful thing.

I think fait accompli is what the gentleman said. It means an already established fact. Surely someone was head scratching over fate of compli.

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