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Who Profits If the Government Defaults?

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Posted on Oct 11, 2013
ToonariPost -- A News Mash Up (CC BY-SA 2.0)

Short-selling investors, savvy gold and silver bugs and currency traders—are all people who are closest to and most informed about the U.S. financial system. In other words, likely few people who are reading this page.

“Shorting” involves assuming that the value of a stock or bond will drop and selling to profit at its current worth. Erika Eichelberger writes at Mother Jones: “Short selling is an investment strategy that’s typically employed by sophisticated investors and financial firms, but technically anyone can do it. Investors who bet that the value of US Treasury securities will dip would likely profit.” If a default caused a stock market crash, shorting any U.S. stock could make the seller money. Sellers can even invest in mutual funds that specialize in short selling.

Jeff Connaughton, a former investment banker and White House lawyer during the Clinton administration, draws out the anti-social nature of short selling in clear lines. “It’s a very powerful and disillusioning feeling to know that smart rich people can make money even when America goes over Niagara Falls in a barrel,” he says.

Gold and silver almost always rises in value when the stock market becomes unstable, because they retain their value better than paper money or other assets do. Traders who invest in foreign currency benefit when the value of those notes mushroom in relation to the U.S. dollar.

Read about other likely beneficiaries of a default crisis—bankruptcy lawyers, pawn shop owners, mortgage services, canned food manufacturers and Bitcoin investors (maybe)—here.

—Posted by Alexander Reed Kelly.

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