If the U.S. government goes bankrupt, what happens to i-bonds?

[shrike]

I know it sounds like a stupid question. And no, I'm not trying to get advice from a message board; I just can't find the information anywhere else, so I'm wondering if anyone here knows the protocol.

I have two i-bonds, which I bought years ago to compliment my stocks. They get a nice little return every year, and are up to $12,000. Not a lot, but not so little that I can write them off.

If the government does indeed go bankrupt, or defaults, are my bonds worthless?

Sorry for sounding so paranoid, but it's been on my mind lately.

[grannie4peace]

1. they are lost

[EmeraldCityGrl]

4. If the country goes belly up we're all screwed.

Even insured savings accounts and money markets will be lost.

Precious metals and land, the tangibles will hold value ...someday.

[Tangerine LaBamba]

2. I found this.......

"Can I ever lose money in I Bonds?

No. They are U.S. Treasury securities backed by the U.S. Government. I Bonds even protect you from the effects of severe deflation—the earnings rate can't go below zero and the redemption value of your I Bonds can't decline."

Sounds to me like I-Bonds are in the same protected status as Fannie Mae and Freddie Mac.

http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ifaq.htm#lose

[Stuart G]

3. There is of course, an alternative to bankruptcy ...Raise Taxes..

And believe me, that is what they will do. The government must pay interest on its debt.. end of discussion..

[On the Road]

5. The Treasury Could Decide the Conditions

which bonds to pay and in what amounts -- it would not have to be 100%.

Having said that, there are probably over a hundred governments that would go broke before the US. Despite the $10 trillion debt, the US is in better fiscal shape than most developed nations, not to mention undeveloped countries. I would not worry about them. There is really no safer place.

[whistle]

6. Just think U.S. Confederacy Bonds and what they were worth after

...Robert E. Lee surrendered to the Union

[The_Casual_Observer]

7. A 70's movie called "Americathon" was about a telethon bailout

of the bankrupt US treasury.

[spin]

8. Remember the government can always print money...

but citizens can't.

Of course, the money may be worthless.

[shrike]

9. I don't like to overreact to things

I-Bonds were the one investment I didn't think I had to worry about. Now I'm not so sure.

Thanks to everyone who responded. I'll just sit tight and see what happens.

[DemReadingDU]

11. I have similar concern with Treasury Bills

I have purchased T-Bills via http://treasurydirect.gov/
It's an online application where I link with my bank.

The T-Bills are cycling every 4 weeks, until at some point, I want to redeem them. But, if my bank fails, or if there is no electricity to use my computer, how would the T-Bills be redeemed?

So don't fret, we all have concerns. I'm like you...wait and see what happens

[dixiegrrrrl]

10. If you trust the Gov't to pay the debt, keep them

if you are starting to realize that all bets are off, cash them in.

[HamdenRice]

12. It's almost impossible for a govt to go "bankrupt." Even Zimbabwe isn't "bankrupt"

The reason is that governments can print money. So you will be paid whatever the face value of the bond is. However, when the government prints money irresponsibly, the value of the money declines, which is reflected in an overall increase in prices, called "inflation."

You'll get your $12,000, but gas will be $16.00 per gallon, chicken will be $12.00 per pound, and a pair of cheap blue jeans will cost $200.

You'll get your $12,000, but the dollars will be worth about $3,000 2005 dollars.

That's assuming we're lucky and it isn't as bad as it may get. Zimbabwe has inflation running at rates in the millions, so you need like a billion Zim-dollars to buy a gallon of milk. Needless to say any savings or bonds were wiped out in value, if not in face value.

We came very close to this situation in the early 1970s inflation. Universities and foundations with fixed income endowments almost went bankrupt. NYU (which is preposterously rich now) had to shut down and sell half its campus. Both Yale Law School and Columbia Law School had leaky roof with libraries that could barely be used during rainy days. The Ford Foundation fired a very substantial portion of its staff.

Lots of rich people who lived on savings saw their lifestyles destroyed.

[OllieLotte]

13. Not worthless, but not worth much either.

They could run the printing press and keep paying you. The problem would be that the money they were paying you with could buy little or nothing. I heard of a case in Europe after WW1 where someone had left a basket of money lying around and someone came and took the basket leaving the money behind. I have a photo of a young woman actually stuffing bundles of money into a stove for heat. (I don't know how to post photo's otherwise I would put it on this post...sorry)