Debt Deal or No, We're Prepared for a US Credit Downgrade

Even if a debt deal done, there's no guarantee we still won't be facing a US credit downgrade. There could be little change to our overall daily lives. On the other hand, there could be severe and catastrophic changes due to the ineptitude and shortsightedness of our government representatives. This doesn't mean that we just have to throw our hands up in the air and leave it all to chance though.

If you're of the train of thought that due to the possible US credit issue, interest rates will be going up on things like mortgages, car loans or other big ticket loans, there may not be much time to refinance or get a loan before it's too late. However, taking action for the near term and moving forward may involve some diversifying and planning for the unexpected in an effort to spread risk over a number of areas, hopefully minimizing it in the process.

While I'm not a doomsday seeker, in my opinion, going into a situation where the results and effects are largely unknown warrants a bit of planning and forethought, even if nothing eventful actually happens.

Cash on Hand

Whether or not there is a downgrade to US credit, I find it pertinent to have some cash on hand just in case. This aspect of our planning process involves not only having a little backup spending money at home, but freeing up some additional cash reserves in the bank as well.

It's important to bear in mind that if the US loses its AAA bond rating, interest rates might start to go up, and go up quickly. This could have a cascading effect on the rest of the economy, possibly pushing us back into recession (even though many of us don't feel like we've ever emerged from the recession in the first place). If this is the case, further cuts could be made by companies and more jobs could be lost. Not only this, but interest rates on credit cards could be pushed higher, making the payment of those monthly credit card bills on time and in full, even more important.

Commodities Stash

This is a worst, worst, case scenario preparation, and while I have no real expectations of having to pay for my food or necessities with actual commodities (i.e. real silver coins, silverware, gold jewelry, etc.), I feel it's not a bad idea to have a few of these items on hand and available if needed.

Call me crazy or overly-cautious if you like, but knowing I have a couple rolls of silver dimes in the fire safe and safe deposit box is a nice feeling, and will be a nicer feeling yet, should we ever have to make use of them.

You Can't Eat Money

Well, I guess you actually could eat money, but I wouldn't advise it, nor do I think it would do much good. Even with a spread of cash and commodities available, if stores aren't open or there is a run on the banks because the effects of the debt default or credit issue at some point (possibly making guarantees of the United States elsewhere -- such as upon FDIC guaranteed deposits -- worthless as well), I would still like to have dinner. This means that buying a little extra food in the upcoming days or weeks -- at least until a debt deal is done or things with our credit rating have played themselves out -- will be on our preparatory list.

Watching for Opportunities

I can't be all doom and gloom on the effects of a US credit downgrade. As with most bad situations, there are resultant good situations that may come along with them. Therefore, I plan to watch for possible opportunities in the coming weeks or months should a deal not be reached.

With interest rates possibly set to rise, there could be opportunities when it comes to CD and savings rates. Rising interest rates could push product prices higher, and with them, inflation, increasing the yields on I-series savings bonds. Such increases could also mean that coupon clipping and power shopping will be more important, and commodity prices (silver, gold, etc.) could spike, providing the chance for some profit taking, and possibly offering other investment opportunities for putting some of that excess cash we put aside, to work.

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Disclaimer:

The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.