"People need on an individual basis to continuously reduce their personal levels of debt."
- Julie Murphy Casserly, president of JMC Wealth Management in Chicago
On Tuesday the yield on one month Treasury bills hit the highest since late last year, trading around 0.16%, almost 14 basis points higher from a week earlier, another sign investors are getting increasingly concerned about the prospects of the U.S. government default. Obama administration already said a default would be "catastrophic" and could drag the world's largest economy into a crippling depression. Some analysts already suggested consequences for ordinary Americans would mean a drop in stocks, a likely interruption of government payments, like Social Security or Medicare reimbursements, while bonds will suffer significant losses and investors could lose the substantial part of their investment. According to Deutsche Bank projections, in case a convincing sing of an imminent deal do not emerge by Friday, the S&P 500 will plunge to 1650. In case the United States misses an interest payment, the index will crash to 850.
Meanwhile, analysts already are trying to calm down markets by mentioning crucial things to remember in case of a default. In the wake of a potential default, investors have to hold adequate cash levels, stay calm, rebalance their portfolio, turn to a global investment perspective and buy downside portfolio protection. Despite gloomy prospects, the reality is likely to be less extreme though still highly devastating.
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