Q. Both the president and OMB nominee have floated the idea of defaulting on national debt in order to settle it at a lower cost. What impact would there be on TSP accounts if debt were defaulted upon?
A. A default would set a precedent for creating a new financial world — a world where U.S. debt carries the risk of default. I’m not an economist, but it seems to me that only certain result from this would be that the U.S. would have to pay more to borrow money going forward, and that this would drive interest rates higher, overall. This would have a negative impact on the F Fund’s and the C, S and I funds’ values, and would drive up the return on the G Fund, in the short run. Beyond that, the long-term and other systemic implications are anyone’s guess.
