Join Early Retirement Today
Closed Thread
 
Thread Tools Search this Thread Display Modes
Old 09-25-2012, 03:17 PM   #41
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Quote:
Originally Posted by packrat44 View Post
This is a major beef I have with the present system. It has similarities to playing a game where your oponent can and does change the rules as the game progresses.
We would all like a stable affordable tax system.

yet looking at our present fiscal system and looking at how the boomers will swamp entitlements. It just seems as if higher rates are inevitable for all but the poorest. Oh it's still to be determined who gets taxed and the details of such. But it's coming. You can count on it.

Those that think we can take it all from those few rich people aren't looking at the numbers. No this will affect pretty much everyone.

So plan for it. Things will change. It's inevitable.
__________________

__________________
MasterBlaster is offline  
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-25-2012, 03:27 PM   #42
Thinks s/he gets paid by the post
packrat44's Avatar
 
Join Date: Jun 2007
Location: near Canadian border and near Mexican border
Posts: 1,142
Quote:
Originally Posted by MasterBlaster View Post
We would all like a stable affordable tax system.

yet looking at our present fiscal system and looking at how the boomers will swamp entitlements. It just seems as if higher rates are inevitable for all but the poorest. Oh it's still to be determined who gets taxed and the details of such. But it's coming. You can count on it.

Those that think we can take it all from those few rich people aren't looking at the numbers. No this will affect pretty much everyone.

So plan for it. Things will change. It's inevitable.
That is the way I viewed retirees 40/50 years ago when I was young.
__________________

__________________
Pigs get fat, hogs get slaughtered. That's my story and I am sticking to it.
packrat44 is offline  
Old 09-25-2012, 04:25 PM   #43
Recycles dryer sheets
 
Join Date: Feb 2007
Posts: 197
Quote:
Originally Posted by explanade View Post

US isn't full of freeloaders like Greece, except those who don't want the marginal tax rates to return to their previous levels.

...

Whenever there is trouble, everyone will rush into the dollar. For all the dilution of value in the dollar, is US Treasury having to pay high interest rates?
I was very careful not to interject political dialog in my statements regarding QE. So, do you think I'm a "freeloader" because I discuss tax strategy regarding capital gains rates?

Regarding Treasury interest rates: I believe it is a a combination of a few factors:
1. Return of capital is more important than Return on capital. This is in support of your statement regarding "rush into the dollar" but also encompasses more. If you have investment capital, but are afraid to put it into plants, people, equipment, etc, where do you park it? Best place is in short term US paper, with the emphasis on short term.
2. Who are the buyers of US Government debt in recent auctions? Well, according to this article, 61% of the net new US Government debt auctioned in 2011 was purchased by......the Federal Reserve. Here's a quote:
Quote:
But in recent years foreigners and the U.S. private sector have grown less willing to fund the U.S. government. As the nearby chart shows, foreign purchases of U.S. Treasury debt plunged to 1.9% of GDP in 2011 from nearly 6% of GDP in 2009. Similarly, the U.S. private sector—namely banks, mutual funds, corporations and individuals—have reduced their purchases of U.S. government debt to a scant 0.9% of GDP in 2011 from a peak of more than 6% in 2009.
The Fed is in effect subsidizing U.S. government spending and borrowing via expansion of its balance sheet and massive purchases of Treasury bonds. This keeps Treasury interest rates abnormally low, camouflaging the true size of the budget deficit. Similarly, the Fed is providing preferential credit to the U.S. government and covering a rapidly widening gap between Treasury's need to borrow and a more limited willingness among market participants to supply Treasury with credit.
Whether or not you think this is a good decision (by the Fed), you must admit that it cannot go on forever.

I would rather not have a political discussion on this, or even one with implied name calling or to discuss who are "freeloaders".

You are free to believe whatever you want. I make my investment decisions based on what I think is happening, or will happen in the future. While I could have it exactly backwards, I've managed to steer a pretty decent course over the years, my net worth is double what it was in 2004, almost 3x what is was 1/1/2000, and I've been FIREd since early 2009. In addition, after reaching a peak net worth in May 2008, I was able to re-coup all losses and reach a new high net worth by the end of 2009...without having a work income stream.

One other thing....I own plenty of US Government paper....however it is inflation adjusted, pretty much all purchased when the real rate portion was much higher.
__________________
copyright1997reloaded is offline  
Old 09-25-2012, 04:28 PM   #44
Recycles dryer sheets
 
Join Date: Feb 2007
Posts: 197
Quote:
Originally Posted by MasterBlaster View Post
Present law also has the following tax for high earners. If your income is over $200k single (or $250k married) then there will be the additional (Obamacare) tax on investment income of 3.8%.

So your rate could go as high as 23.8%

Also, dividends lose their special status and will be taxed at your ordinary income rate. That could be as high as 43.4% versus the current 15% max.
Thanks for mentioning this! When I had looked at this back a few years, I was still working. Now that I am FIREd, my income is much lower...but need to do some what ifs with tax software to make sure I don't get myself into this situation.
__________________
copyright1997reloaded is offline  
Old 09-26-2012, 09:41 PM   #45
Dryer sheet wannabe
 
Join Date: Sep 2012
Location: Houston
Posts: 13
Quote:
Originally Posted by copyright1997reloaded View Post
I was very careful not to interject political dialog in my statements regarding QE. So, do you think I'm a "freeloader" because I discuss tax strategy regarding capital gains rates?

Regarding Treasury interest rates: I believe it is a a combination of a few factors:
1. Return of capital is more important than Return on capital. This is in support of your statement regarding "rush into the dollar" but also encompasses more. If you have investment capital, but are afraid to put it into plants, people, equipment, etc, where do you park it? Best place is in short term US paper, with the emphasis on short term.
2. Who are the buyers of US Government debt in recent auctions? Well, according to this article, 61% of the net new US Government debt auctioned in 2011 was purchased by......the Federal Reserve. Here's a quote:


Whether or not you think this is a good decision (by the Fed), you must admit that it cannot go on forever.


I would rather not have a political discussion on this, or even one with implied name calling or to discuss who are "freeloaders".

You are free to believe whatever you want. I make my investment decisions based on what I think is happening, or will happen in the future. While I could have it exactly backwards, I've managed to steer a pretty decent course over the years, my net worth is double what it was in 2004, almost 3x what is was 1/1/2000, and I've been FIREd since early 2009. In addition, after reaching a peak net worth in May 2008, I was able to re-coup all losses and reach a new high net worth by the end of 2009...without having a work income stream.

One other thing....I own plenty of US Government paper....however it is inflation adjusted, pretty much all purchased when the real rate portion was much higher.
You are exactly right, the Fed Reserve has picked up the slack because China and the rest of the world have become risk adverse to the US government spending, debt and the US Dollar. The Fed Reserve is no longer the buyer of last resort, they are the primary buyer, with inflation producing digits conjured out of thin air.

You want to know what direction we head from here? For the second time in two weeks, Philadelphia Fed President Charles Plosser is warning about the time bomb that is excess reserves.

HOT: Fed Prez Spills the Beans on the Excess Reserve Inflation Time Bomb

Quote:
Before the CFA Society of Philadelphia/The Bond Club of Philadelphia, Plosser said today (my bold):

"I have been a student of monetary theory and policy for over 30 years. One constant is that central banks tend to find it easier to lower interest rates than to raise them. Moreover, identifying turning points is difficult even in the best of times, so timing the change in the direction of policy is always a challenge. But this time, exit will be even more complicated and risky. With such a large balance sheet, our transition from very accommodative policies to less accommodative policies will involve using tools we have not used before, such as the interest rate on reserves, term deposits, and asset sales. Once the recovery takes off, long rates will begin to rise and banks will begin lending the large volume of excess reserves sitting in their accounts at the Fed. This loan growth can be quite rapid, as was true after the banking crisis in the 1930s, and there is some risk that the Fed will need to withdraw accommodation very aggressively in order to contain inflation. At this point, it is impossible to know whether such asset sales will be disruptive to the market. A rapid tightening of monetary policy may also entail political risks for the Fed. We would likely be selling the longer maturity assets in our portfolio at a loss, meaning that we may be unable to make any remittances to the U.S. Treasury for some years. Yet, if we don’t tighten quickly enough, we could find ourselves far behind the curve in restraining inflation.

While these risks are very hard to quantify, it is clear that the larger the Fed’s portfolio becomes, the higher the risk and the potential costs when it comes time to exit. And based on my economic outlook, that time may come well before mid-2015. In my view, to keep the funds rate at zero that long would risk destabilizing inflation expectations and lead to an unwanted increase in inflation."

This is very candid talk from a Fed insider, Plosser clearly sees the potential for massive price inflation if those excess reserves hit the system, even more striking is that Plosser knows that the Fed will likely be very slow in hiking interest rates, thus fueling the inflation.

When the price inflation hits, don't say you haven't been warned, Plosser is revealing very clearly how it will hit.
Prepare your portfolio accordingly.
__________________
"Winners take imperfect action, while losers are busy perfecting their plan"
StuartR is offline  
Old 09-27-2012, 06:56 AM   #46
gone traveling
 
Join Date: May 2012
Location: Fairfax, VA
Posts: 211
Quote:
Originally Posted by StuartR View Post

Prepare your portfolio accordingly.
Assuming you're fully on-board for such a scenario, what exact IS preparing accordingly?
__________________
bo_knows is offline  
Old 09-27-2012, 07:39 AM   #47
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Posts: 3,695
Quote:
Originally Posted by explanade View Post
US can't be compared to Greece.
Right! Greece has better weather, better food and knows how to enjoy both regardless of the economy and/or politics.

"fiscal cliff, schmishcal cliff! pass the ouzo!"

Friends just got back from a month in Greece. Verdict: nobody over there worries too much about the whole thing...party on the beach!

Seriously, I think our fearless leaders will resolve this before year end.
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline  
Old 09-27-2012, 08:44 AM   #48
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,963
Quote:
Originally Posted by Midpack View Post
Simpson-Bowles (Bowles-Simpson), still the best place to start IMO http://www.fiscalcommission.gov/site...h12_1_2010.pdf. Every American taxpayer should read it and be prepared to sacrifice responsibly, but few ever will. I quit holding my breath quite a while back. I hope we find the collective will to act before we reach Greece's predicament...
Quote:
Originally Posted by explanade View Post
US can't be compared to Greece.
Quote:
Originally Posted by Fermion View Post
But only one of them has control over its money.
Quote:
Originally Posted by explanade View Post
US also has a productive economy, Greece doesn't.

US isn't full of freeloaders like Greece, except those who don't want the marginal tax rates to return to their previous levels.

Etc.
So you believe we can't become comparable to Greece if we don't act to bring our fiscal house more in balance at some point? The ability to print your own currency only works to a point. There are about 40 examples where that's failed among the many listed here.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline  
Old 09-27-2012, 08:49 AM   #49
Thinks s/he gets paid by the post
 
Join Date: May 2008
Posts: 3,416
Well the own currency is one factor.

I think the fact that we have a much more productive economy whereas Greece only has what, tourism, is a much bigger factor.

Greece got into its fiscal crisis because they were spending money that their economy didn't justify.

We're in debt mostly because of political and policy decisions and the refusal to agree on how to address the problem.
__________________
explanade is offline  
Old 09-27-2012, 09:06 AM   #50
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,614
Quote:
Originally Posted by bo_knows View Post
Assuming you're fully on-board for such a scenario, what exact IS preparing accordingly?
Part of the problem is that most folks can't afford to be "fully on board" with this scenario. To stake the whole portfolio on this potential scenario would be very risky.
But, I think the scenario Plosser outlines is a significant possibility. I've done a little by significantly reducing my bonds and bond maturities (on the assumption that higher inflation will drive interest rates higher as well). I think stocks, overall, will do relatively well in keeping pace with moderately higher inflation. Since Plosser's view doesn't seem to be widely held, I'd think that hedging against it should be fairly cheap, but that's about where I run out of ideas. I guess I could buy gold/gold options, but that introduces another point of of uncertainty (e.g. will higher inflation result in significantly increased demand for gold this time?). It'd be more straightforward just to "bet" on the inflation index.
So, what's the cheapest way to buy some insurance against a 2-5% increase in the CPI?
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now  
Old 09-27-2012, 10:17 AM   #51
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,369
Quote:
Originally Posted by Midpack
So you believe we can't become comparable to Greece if we don't act to bring our fiscal house more in balance at some point? The ability to print your own currency only works to a point. There are about 40 examples where that's failed among the many listed here.
I looked at the chart. I sure hope we don't ever match Hungry's 1945 rate. Prices doubling every 15 hours wouldn't be very kind to a pensioner like me with an annual 2% cola!
__________________
Mulligan is offline  
Old 09-27-2012, 01:33 PM   #52
Moderator Emeritus
 
Join Date: Oct 2007
Posts: 4,929
Quote:
Originally Posted by StuartR

You are exactly right, the Fed Reserve has picked up the slack because China and the rest of the world have become risk adverse to the US government spending, debt and the US Dollar. The Fed Reserve is no longer the buyer of last resort, they are the primary buyer, with inflation producing digits conjured out of thin air.
This turns out not to be the case.

The Federal Reserve did buy lots of Treasuries as part of the quantative easing programs in 2008-early 2009 and in he first half of 2011, but is not currently the primary buyer. That would be all the Mom and Pop buyers.

http://www.cnbc.com/id/47738555/Gues..._s_Not_the_Fed

Oh, and Japan is about to pass China in foreign holdings of US Treasuries...

http://www.nytimes.com/interactive/2...ed-States.html

(apologies for injecting facts into this thread...)
__________________
M Paquette is offline  
Old 09-27-2012, 01:51 PM   #53
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Fiscal cliff my tushy! Next year I turn 70 1/2 - and no matter what Congress does my old buddy old pals are gonna 'pssst RMD' .

I will be forced do you hear me forced to pay more taxes and of course spend more cause I hear you can't take it with you.

heh heh heh - I have never heard any Congressman stand up and say let's help poor ole Unclemick out - taxwise.
__________________
unclemick is offline  
Old 09-27-2012, 02:17 PM   #54
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
Quote:
Originally Posted by M Paquette View Post
(apologies for injecting facts into this thread...)
Are you working at the Fed?
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline  
Old 09-27-2012, 02:26 PM   #55
Dryer sheet wannabe
 
Join Date: Sep 2012
Location: Houston
Posts: 13
Quote:
Originally Posted by M Paquette View Post
This turns out not to be the case.

The Federal Reserve did buy lots of Treasuries as part of the quantative easing programs in 2008-early 2009 and in he first half of 2011, but is not currently the primary buyer. That would be all the Mom and Pop buyers.

Guess Who's Buying All the Bonds? (It's Not the Fed) - US Business News - CNBC

Oh, and Japan is about to pass China in foreign holdings of US Treasuries...

Who Is Owed by the United States - Graphic - NYTimes.com

(apologies for injecting facts into this thread...)
Thanks, M for the correction - or at least partial correction that the Fed was not the leading buyer at least in the first quarter of this year. But that does not change the narrative that they have been the primary. But more importantly, that they will be the primary buyer again because China will cease to roll over into new treasuries. Here's why.

The People's Bank of China owns almost $1.2 trillion in U. S. Treasury debt. It is the largest holder. Close behind is Japan. You can see which nation owns how much of U.S. Treasury debt in the Treasury Department's monthly TIC report.

Take a look at the report. China held a maximum of a little over $1.3 trillion in July 2011. Then it began to reduce its holdings by about $140 billion by January. The official policy of the bank is for greater diversification. This is a code phrase for "selling Treasury debt."

We know this: by mid-2011, China had gotten rid of almost all of its T-bills, meaning 90-day IOUs. It was holding U. S. bonds. So, when it ceases to buy bonds that come to maturity, its holdings fall. It does not have to sell T-bonds. It simply lets them mature. The U.S. Treasury must then credit China's account with this money. The central bank takes the money and runs.

The quiet way to get out of the dollar is to do nothing. Just take the dollars from the Treasury and invest them elsewhere in U.S. markets, or sell them for other currencies.

It is not clear that China has begun a bank run on the Treasury. But word is beginning to get out. If the bank's present policy continues – a refusal to roll over maturing debt – the Treasury Department will have to find new buyers.

There will come a day when the refusal of creditors to roll over the debt will increase. Then, without warning, the rollovers will cease. The creditors will decide to keep their dollars and forgo the rollover. On that day, the Treasury will have to go to the FED and demand that the FED buy its debt.

The first indications of a bank run by China have begun. There is no panic yet. The system is bumping along. But if China does not reverse itself soon, it will become clear that the U.S. Treasury is over-leveraged. It has more debt than its income can sustain.

So now when you see Japan surpass China as largest foreign debt holder, you'll know it no cause for celebration.
__________________
"Winners take imperfect action, while losers are busy perfecting their plan"
StuartR is offline  
Old 09-27-2012, 02:33 PM   #56
Moderator Emeritus
 
Join Date: Oct 2007
Posts: 4,929
Quote:
Originally Posted by FinanceDude

Are you working at the Fed?
Nah. Of course if Ben were to slide a few notes my way, I would not object...

Or maybe a pound of bacon...
__________________
M Paquette is offline  
Old 09-27-2012, 03:22 PM   #57
Dryer sheet wannabe
 
Join Date: Sep 2012
Location: Houston
Posts: 13
Quote:
Originally Posted by samclem View Post
Part of the problem is that most folks can't afford to be "fully on board" with this scenario. To stake the whole portfolio on this potential scenario would be very risky.
But, I think the scenario Plosser outlines is a significant possibility. I've done a little by significantly reducing my bonds and bond maturities (on the assumption that higher inflation will drive interest rates higher as well). I think stocks, overall, will do relatively well in keeping pace with moderately higher inflation. Since Plosser's view doesn't seem to be widely held, I'd think that hedging against it should be fairly cheap, but that's about where I run out of ideas. I guess I could buy gold/gold options, but that introduces another point of of uncertainty (e.g. will higher inflation result in significantly increased demand for gold this time?). It'd be more straightforward just to "bet" on the inflation index.
So, what's the cheapest way to buy some insurance against a 2-5% increase in the CPI?
The first step is to “rethink your stock portfolio.” Given a falling dollar, investors can trade in their U.S. shares for investments in foreign companies. U.S. stocks are overvalued, while many foreign stocks are not. Plus, investors will get the tailwind benefit of rising currency values with stocks denominated in foreign currencies.

Investing directly in foreign currencies is also an option. Some believe the currency market provides the most effective way to position oneself to protect and profit from the implications of such monetary policies.

Other, like legendary investor Jim Rogers, believe the big fortunes of the coming decade or two may well be made in agriculture.

Begin investing in gold. The price of the yellow metal may go to $5,000 per ounce. Why? Private citizens are re-instituting a gold standard on their own; troubled currencies will tie to gold rather than dollars; central banks have become the biggest buyers of gold, instead of sellers; mining companies are buying back short positions; short covering will cause gold to rise; Wall Street will rediscover gold.

The last step is to stay liquid and turn adjustable-rate loans into fixed-rate ones while interest rate are still artificially suppressed.

There are plenty of plays. But if you're not uncomfortable with the current economic climate and think things are humming along in business as usual mode, and not the reality that we are in uncharted economic seas, then just hang on for the ride.
__________________
"Winners take imperfect action, while losers are busy perfecting their plan"
StuartR is offline  
Old 09-27-2012, 06:04 PM   #58
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,412
Quote:
Originally Posted by StuartR View Post
The first step is to “rethink your stock portfolio.” Given a falling dollar, investors can trade in their U.S. shares for investments in foreign companies. U.S. stocks are overvalued, while many foreign stocks are not. Plus, investors will get the tailwind benefit of rising currency values with stocks denominated in foreign currencies.

Investing directly in foreign currencies is also an option. Some believe the currency market provides the most effective way to position oneself to protect and profit from the implications of such monetary policies.

Other, like legendary investor Jim Rogers, believe the big fortunes of the coming decade or two may well be made in agriculture.

Begin investing in gold. The price of the yellow metal may go to $5,000 per ounce. Why? Private citizens are re-instituting a gold standard on their own; troubled currencies will tie to gold rather than dollars; central banks have become the biggest buyers of gold, instead of sellers; mining companies are buying back short positions; short covering will cause gold to rise; Wall Street will rediscover gold.

The last step is to stay liquid and turn adjustable-rate loans into fixed-rate ones while interest rate are still artificially suppressed.

There are plenty of plays. But if you're not uncomfortable with the current economic climate and think things are humming along in business as usual mode, and not the reality that we are in uncharted economic seas, then just hang on for the ride.
Make sure to leave room for some ammo and canned provisions. Tin foil for the select few.
__________________
MichaelB is online now  
Old 09-27-2012, 06:18 PM   #59
Thinks s/he gets paid by the post
 
Join Date: May 2008
Posts: 3,416
Think about whether the people who repeatedly cite Greece as a warning have a certain type of fiscal agenda or not.

Are they only pointing out a cautionary tale?

Are the comparisons valid? Actually, I just heard by some measures, the UK may be worse in some fiscal metrics than Greece, despite being on austerity for over a year now.
__________________
explanade is offline  
Old 09-27-2012, 07:27 PM   #60
Recycles dryer sheets
 
Join Date: Feb 2007
Posts: 197
Quote:
Originally Posted by StuartR View Post
Thanks, M for the correction - or at least partial correction that the Fed was not the leading buyer at least in the first quarter of this year. But that does not change the narrative that they have been the primary. But more importantly, that they will be the primary buyer again because China will cease to roll over into new treasuries. Here's why.

The People's Bank of China owns almost $1.2 trillion in U. S. Treasury debt. It is the largest holder. Close behind is Japan. You can see which nation owns how much of U.S. Treasury debt in the Treasury Department's monthly TIC report.

Take a look at the report. China held a maximum of a little over $1.3 trillion in July 2011. Then it began to reduce its holdings by about $140 billion by January. The official policy of the bank is for greater diversification. This is a code phrase for "selling Treasury debt."

We know this: by mid-2011, China had gotten rid of almost all of its T-bills, meaning 90-day IOUs. It was holding U. S. bonds. So, when it ceases to buy bonds that come to maturity, its holdings fall. It does not have to sell T-bonds. It simply lets them mature. The U.S. Treasury must then credit China's account with this money. The central bank takes the money and runs.

The quiet way to get out of the dollar is to do nothing. Just take the dollars from the Treasury and invest them elsewhere in U.S. markets, or sell them for other currencies.

It is not clear that China has begun a bank run on the Treasury. But word is beginning to get out. If the bank's present policy continues – a refusal to roll over maturing debt – the Treasury Department will have to find new buyers.

There will come a day when the refusal of creditors to roll over the debt will increase. Then, without warning, the rollovers will cease. The creditors will decide to keep their dollars and forgo the rollover. On that day, the Treasury will have to go to the FED and demand that the FED buy its debt.

The first indications of a bank run by China have begun. There is no panic yet. The system is bumping along. But if China does not reverse itself soon, it will become clear that the U.S. Treasury is over-leveraged. It has more debt than its income can sustain.

So now when you see Japan surpass China as largest foreign debt holder, you'll know it no cause for celebration.
Thanks for posting your reply. When M's post, I wanted to reply but all I had was my phone which would have been very painful.

As you mentioned, CNBC's article is of a specific timeframe (first quarter), and as the article even states:
Quote:
The Fed, meanwhile, actually slightly decreased its net holdings, not a surprise since its latest quantitative easing endeavor begun in September — nicknamed Operation Twist — was designed to be balance sheet-neutral. The central bank is selling short-dated notes and buying an equal number of longer-duration issues in an effort to drive down borrowing rates and boost risk.
So,
1) Twist was designed to be neutral, and came after the huge central bank purchases of Treasury debt (in 2011).
2) Twist was designed to push down rates on the long end of the curve by buying longer dated maturities while selling shorter dated maturities. This chart: Market Matrix US Sell 2 Year & Buy 10 Year Bond Yield Spread Analysis - USYC2Y10 - Bloomberg shows a one year history of the 10 year rate minus the 2 year rate. While the Fed is only one player (but a big one), you can see that Twist (or the knowledge of it) had an effect on the spread. On this older graph: http://2.bp.blogspot.com/_nSTO-vZpSg...d%2BTIPS10.png you can see where the spread went down dramatically in late 2008 as inflation expectations (which is what the spread is an indicator of) collapsed...which makes perfect sense as credit defaults are deflationary. Then, during QE (before twist), the spread and inflation expectations climbed back.


Quote:
Originally Posted by explanade View Post
Think about whether the people who repeatedly cite Greece as a warning have a certain type of fiscal agenda or not.

Are they only pointing out a cautionary tale?

Are the comparisons valid? Actually, I just heard by some measures, the UK may be worse in some fiscal metrics than Greece, despite being on austerity for over a year now.
So, since you "just heard", what measures are those?

Greece is a "cautionary tale" because it shows what happens when a countries population thinks it can continue to live beyond its means indefinitely and without serious repercussions. In the old, old days when their was a gold standard, austerity was automatically enforced in the sense that a currency was backed by gold. So, the owed party could demand payment in gold. Greece's currency can't devalue (making their exports more competitive). One of the major issues in Europe (as compared to the USA) is that there is much less mobility of labor. In the USA, if one part of the country is sucking wind, but another is doing good, labor will migrate. This is one factor allowing us to have a single currency.

Regarding stocks, they can do OK in a hyper-inflationary environment, and did so in the Weimar Republic hyper-inflation (expressed in real terms, e.g. converted into US $). (OK means mostly held their own.)

Bad stuff:
Contracts in fixed prices (e.g. Rentals, my PENSION)
Longer dated notes/bonds that aren't inflation adjusted
Stock's with little ability to raise prices

Good stuff:
Food. Land, especially if it can be used for food or fuel. Maybe precious metals (but you can't eat them). Inflation hedged debt instruments (assuming the hedge is fairly accurate plus the risk of non-payment). Guns? Ammo? Beer.
Stock with real backing assets and ability to raise prices.
Currencies from those few countries not racing to the bottom in terms of monetary policy, especially in asset rich countries.

I dunno, looking for ideas.

I just added a new section to my net worth/holdings spreadsheet, where I am trying to guess estimate the % of inflation hedge from the asset. For example, long term non-inflation adjusted bonds would be 0%. Gold 100%? Inflation adjusted US Treasuries 90%? And so on. With this, I can guess estimate my overall portfolio inflation hedge.
__________________

__________________
copyright1997reloaded is offline  
Closed Thread


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 05:05 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.