Possible government default a threat to 401(k)s, home values - ABC 33/40 - Birmingham News, Weather, Sports

Possible government default a threat to 401(k)s, home values

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BIRMINGHAM - AL -

 

Stocks rose Monday amid renewed optimism of a Congressional agreement to avoid a default on the nation's debt.  The government is expected to reach its debt ceiling Thursday.  Senate Majority Leader Harry Reid and Republican leader Mitch McConnell spent the day discussing a bill that would raise the debt limit until Mid-February.  The Dow, Nasdaq and Dow all rose prior to closing.  

However, until a deal is definitely reached, concern over the stock market remains.  Last week, President Barack Obama said if the debt ceiling is not increased, "every American could see their 401(k)s and home values fall."  Dr. Andreas Rauterkus is an associate professor of finance at the UAB Collat School of Business.  He says a default would trigger a global recession, under which Americans could expect to see losses similar to those experienced in 2008.

Dr. Rauterkas says there's not much people can do to safeguard money invested in 401(k)s, adding, "you could theoretically move your money into treasuries, short-term treasury securities, but...that would be a very radical move."  That's because he says such a move would likely result in transaction costs, although the cost would not be nearly as high as the taxes and penalties associated with cashing out a 401(k).

In any case, many financial experts, including Dr. Rauterkas, avoid making doomsday predictions, in the belief that there's no way Congressional leaders could allow the default to occur. Then, there's also the international pressure.  As the professor says, "I would assume that every business leader, every leader of financial markets - not just in the U.S. but around the world - is calling the Treasury, is calling the President, is calling everybody in Congress, every five minutes."

 

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