Savings Bonds

[slacker921]

GB... even the Federal Reserve admited there are "Storms on the Horizon" .. and the warning went unheeded. We elected someone who will NOT reign in the spending. Where will all of the Trillions come from? China has said multiple times in the last month that they're tired of buying our debt and will stop doing it. The dominoes will fall quickly.

[slacker921]

Do you know who holds the majority of government debt?

Yes I do.

So just who are these lenders? As of last June (the latest complete breakdown available), the biggest holder of Treasury debt was the U.S. government itself, with about 52 percent of the total $8.5 trillion in paper that's out there. Most of the government’s holdings are massive savings accounts for programs like Social Security and Medicare. Just as you may prefer to keep your Individual Retirement Account in the safe Treasury bonds, the folks who manage the Social Security Trust Fund are looking for a secure investment, too.

That’s leaves a little over $4 trillion in public hands. The biggest chunk (about 25 percent of the $8.5 trillion total) is held by foreign governments. Japan tops the list (with $644 billion), followed by China ($350 billion), United Kingdom ($239 billion) and oil exporting countries ($100 billion).

and much has changed since that article was written back in 2007...

China now owns over 650 Billion in US debt. They surpassed Japan.

[Goldenboy219]

Yes I do.


and much has changed since that article was written back in 2007...

China now owns over 650 Billion in US debt. They surpassed Japan.

That is correct, nearly 25% of the total stock debt is foreign own. That is a negative because eventually that debt will have to be repaid via the exportation of actual production.

Growing foreign holdings is a concern. Crowding out the private sector is a concern.

But the fact that the debt is "increasing" is much less of a concern than the two mentioned above.

[CUnknown]

GoldenBoy... it is almost too much at once to refute everything you say line by line...

Let me start by congratulating you -- your opinions and people like you who hold them are what is keeping the dollar strong. Good job.

I was in the same situation as the OP, myself. I had some bonds, but cashed them in late last year and bought an agriculture ETN -- JJA. I've made some money and I expect to make more. I know JJA is a bond, but honestly I think I trust the solvency of Barclays more than I do the US gov at this point. Besides, I'm not planning on holding it to maturity in any case.

But buying gold is clearly the "safe" move, and I would recommend it over a bond if you want to be safe. You're right that gold is not really an investment, its a safe storage for your money, maybe the only safe place. It will always be worth something, unlike US gov bonds. You have to admit that China at any moment could decide to make those bonds worthless. China cannot and will not ever be able to do the same with gold.

Now let's talk about your claim that the Fed can prevent inflation by buying back dollars. In theory, yeah, they could. But to do so would cause deflation -- the same thing we're trying to prevent now. Our monetary system is so messed up that we "need" constant inflation or else everything falls apart. Obama says that the US is going to run trillion dollar deficits for years to come. What he doesn't tell you is that the deficits are never coming down. We will be running bigger and bigger deficits every year, just as we have been doing for almost my entire lifetime (with the exception of the dot com era, and the prosperity of that era was illusionary). This year it's 1.2 trillion, next it may be 2 trillion, next maybe 2.5 trillion, etc. Do to anything else will cause a collapse of the monetary system and the economy. However, if you keep doing that, the country will be bankrupt in short order.

So, your story is... the country will be on the verge of bankruptcy... and we're going to be buying back dollars to contract the money supply? That is insane.. that will never happen. They will continue printing dollars in a vain attempt to keep everything afloat just a little longer.

Now, let's talk about your claim that gold is not a long-term investment, that it does not stack up against stocks in the long run. What do you think the future holds? That the stock market will continue to rise exponentially? This is lunacy. The system is breaking down, if you can't see that... well... I guess nothing I say will help you.

I agree that gold is not an investment, really. But it seems likely to do better than stocks in the future, I believe. Or at least, it is certainly a safer bet. Sure, some stocks will rise like crazy, but you have to be either very lucky or very smart to pick out those few. If you're talking about a safe place to put your money for the future, for retirement, then the stock market is not that place. Just ask anyone right now who's about to retire. I bet they wish they had some gold in their portfolio about now, instead of their 401k.

[Goldenboy219]

Buddy, have ever heard of anything called "unfunded liabilities?" Why don't you factor them in, then come back and debate us. Or perhaps read a newspaper, and ask yourself how the government will fund Obama's Newer Deal?

You're employing rational skepticism, which I normally applaud, however, if you're going stick up for the financial solvency of the federal government, you have a lot of work cut out for you...

LOL, define "unfunded liabilities". Actually a time frame would be even more helpful.

All i am saying is the sky is not falling... Things were in much worse shape, and we pulled through it.

I am not sticking up for anybody, its just i have to give a rational side to "sell all your bonds and buy food and gold" sentiment.

[CUnknown]

You're saying buying food and gold is not even rational now?

I like to eat food... food is good. It will rise in price -- global food stocks are at an all time low. There were food riots around the world last year, and there will be again this year. How is buying a useful good at a low price not rational?

Buying gold is a safe haven. Lots of people buy gold when the economy starts to tank...now you're saying they're all irrational?

If you don't think gold is going up in price, say you disagree with the strategy. But saying it is irrational is just plain incorrect.

[slacker921]

"Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon."

i.e. there is no pool or source of money to pay for the medicare, medicaid, and social security for the US citizens who are currently alive.

[Goldenboy219]

GoldenBoy... it is almost too much at once to refute everything you say line by line...

Let me start by congratulating you -- your opinions and people like you who hold them are what is keeping the dollar strong. Good job.

I have the same interest of keeping the dollar strong as anyone here. With that said, it is most definitely not my intention...

I was in the same situation as the OP, myself. I had some bonds, but cashed them in late last year and bought an agriculture ETN -- JJA. I've made some money and I expect to make more. I know JJA is a bond, but honestly I think I trust the solvency of Barclays more than I do the US gov at this point. Besides, I'm not planning on holding it to maturity in any case.

Come on now, if the US government defaults, all debt based assets will dry up.

But buying gold is clearly the "safe" move, and I would recommend it over a bond if you want to be safe. You're right that gold is not really an investment, its a safe storage for your money, maybe the only safe place. It will always be worth something, unlike US gov bonds. You have to admit that China at any moment could decide to make those bonds worthless. China cannot and will not ever be able to do the same with gold.

Safe in the sense that if inflation comes, you can be protected. The day China begins devaluing their reserve currency is the day sheer panic and outbreak occur. All of Asia collapses, as all of their banks hold US debt as reserve. Kinda like the same impact of an asteroid.

Now let's talk about your claim that the Fed can prevent inflation by buying back dollars. In theory, yeah, they could.

No no, i never said prevent. They can reduce inflation by open market activities, which tends to create recessions......... But, with rates so low, even a 1000% increase in the Federal Funds rate brings it to >2.5%. Thinking about it from the sense of their specific rate deductions, the FFR going from 5% to 4.5% was a reduction of 50 basis points (10%). In a healthy economy, this is enough to easily spawn inflationary signals (price rises). You have to admit the Feds power to fight inflation, with rates so low, and prices continuing to decline, has never been stronger.

But to do so would cause deflation -- the same thing we're trying to prevent now.

It would actually push towards price stability. They would never take the money out of the system when prices were falling, so deflation at that stage is considered undesired.

Our monetary system is so messed up that we "need" constant inflation or else everything falls apart.

That is not necessarily true. Price stability seems to be the forgotten option...

Obama says that the US is going to run trillion dollar deficits for years to come. What he doesn't tell you is that the deficits are never coming down.

Opinion

We will be running bigger and bigger deficits every year, just as we have been doing for almost my entire lifetime (with the exception of the dot com era, and the prosperity of that era was illusionary).

I seriously doubt it. Also, what was "illusionary" about the dot com prosperity?

This year it's 1.2 trillion, next it may be 2 trillion, next maybe 2.5 trillion, etc. Do to anything else will cause a collapse of the monetary system and the economy. However, if you keep doing that, the country will be bankrupt in short order.

Of course you are aware that Obama will most likely increase taxes once their "AD Shortfall" is cleared up. It worked under Eisenhower and Kennedy

So, your story is... the country will be on the verge of bankruptcy... and we're going to be buying back dollars to contract the money supply? That is insane.. that will never happen. They will continue printing dollars in a vain attempt to keep everything afloat just a little longer.

No, that is a mix between your story and some risky assumptions. I for one do not believe the country will be bankrupt anytime soon, because lets face it, our debt to gdp ratio is not the least bit catastrophic. Currently Japan has a debt to GDP ratio around 120%-130%, all while their yen is literally creaming all other currencies.

Now, let's talk about your claim that gold is not a long-term investment, that it does not stack up against stocks in the long run. What do you think the future holds? That the stock market will continue to rise exponentially? This is lunacy. The system is breaking down, if you can't see that... well... I guess nothing I say will help you.

I tend not to have a gloomy outlook on the future of the world. Doing so is a pathway that can race my future to the bottom, waiting for things to fail. Personally i would much rather facilitate the idea's of the actual "change" needed to get this country back on track. Or maybe plan for the future, instead of waiting for it to end. The bottom line is i find it a waste of time to be worrying about the end of civilization as we know it. If it happens, fine, but its really not somewhere i want to be regardless of how much gold, food, and ammo i have.

I agree that gold is not an investment, really. But it seems likely to do better than stocks in the future, I believe. Or at least, it is certainly a safer bet. Sure, some stocks will rise like crazy, but you have to be either very lucky or very smart to pick out those few. If you're talking about a safe place to put your money for the future, fore retirement, then the stock market is not that place. Just ask anyone right now who's about to retire. I bet they wish they had some gold in their portfolio about now, instead of their 401k.

I agree to a point. Like i said, in the short term gold could be a strong investment. Yet there are a few caveats... Say for instance gold does go up (and i believe it will), it will not nearly as liquid during high price spikes. The commodities market, especially the precious metals and stones market, is extremely volatile. Failure to assess the risks in a logical manner can cost you, over the long run, big time!

[Goldenboy219]

"Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon."

i.e. there is no pool or source of money to pay for the medicare, medicaid, and social security for the US citizens who are currently alive.

If this is true, then how come the elderly still receive social security and medicaid? The "unfunded liabilities" line is used as a scare tactic by the conservative right, in their attempt to reduce government spending. What is really ironic is that they use this line all the time so to preserve the government spending their constituencies desire.

Once the outlays overtake influx, they will most likely "double" fica as Reagan did in 1983.

[CUnknown]

Come on now, if the US government defaults, all debt based assets will dry up.

Yeah, you're right. I brought this up just to say that I have personally been in the same situation as the original poster and I chose to cash in my bonds. I did not mean to say that my ETN is a safer investment than a US bond. I have rational reasons to believe that agriculture will become more valuable in 2009-2010, I don't actually think that the US gov will default in that time frame.

Let's stick to the situation of cashing in bonds to buy physical gold, then.

Safe in the sense that if inflation comes, you can be protected. The day China begins devaluing their reserve currency is the day sheer panic and outbreak occur. All of Asia collapses, as all of their banks hold US debt as reserve. Kinda like the same impact of an asteroid.

Safe in the sense that it will maintain its value over long periods of time. Gold is a limited resource that people value. It is a safe place to keep your money. Some would say that it is money.

China would suffer for dropping their dollars, no doubt. For the time being, China needs us and cannot do this. But this will certainly not always be the case. There is no doubt about that -- China is a booming economy and the day will come when they no longer need us. The question is, will China drop their dollars in our lifetimes? No one can be sure, but the possibility of that happening makes having gold and other commodities in your portfolio very attractive.

Seriously, the people who have listened to your advice are hurting big time right now. They wish they had gold... is there a better argument than that? Those are the facts. How can you argue with cold hard facts? The dollar hasn't even collapsed yet and its true that gold is a far better long-term investment than stocks.

No no, i never said prevent. They can reduce inflation by open market activities, which tends to create recessions......... But, with rates so low, even a 1000% increase in the Federal Funds rate brings it to >2.5%. Thinking about it from the sense of their specific rate deductions, the FFR going from 5% to 4.5% was a reduction of 50 basis points (10%). In a healthy economy, this is enough to easily spawn inflationary signals (price rises). You have to admit the Feds power to fight inflation, with rates so low, and prices continuing to decline, has never been stronger.

Let me paraphrase, and remember that low interest rates tends to create inflation -- you are saying "With interest rates so low, inflation is sure to not happen!"

Well, I do understand what you are saying, and, yes to an extent it's true to say that the Fed has lots of power to fight inflation at this moment. But, will it use its power? The answer for most of my life has been no. I guess that guy Volker actually used the Fed's power to fight inflation, but he has been the only one. And to do what he did now, would be an absolute disaster for our economy. They simply don't have the stomach for it.

Our monetary system is so messed up that we "need" constant inflation or else everything falls apart.

That is not necessarily true. Price stability seems to be the forgotten option...

No, it is true. If we had 0% inflation in this country, the way our monetary system works, it would pitch over to deflation. Price stability is an impossibility. The best we can have is a very low level of inflation (2-3% is the Fed's target, I believe).

We will be running bigger and bigger deficits every year, just as we have been doing for almost my entire lifetime (with the exception of the dot com era, and the prosperity of that era was illusionary).

I seriously doubt it. Also, what was "illusionary" about the dot com prosperity?

Why do you doubt something that has been true for nearly the past 40 years? You say you don't see a pattern developing since then?

The dot com era was a bubble. You must not have gotten the memo.

So, your story is... the country will be on the verge of bankruptcy... and we're going to be buying back dollars to contract the money supply?

No, that is a mix between your story and some risky assumptions. I for one do not believe the country will be bankrupt anytime soon, because lets face it, our debt to gdp ratio is not the least bit catastrophic. Currently Japan has a debt to GDP ratio around 120%-130%, all while their yen is literally creaming all other currencies.

We are nearly bankrupt now. The way we pay for things is by taking from social security, printing money and borrowing... where have you been? Once the baby boomers start getting paid out of social security and medicare instead of paying in, we are on bankruptcy's doorstep. And that is 100% certain to happen.. there is no plausible scenario in which that does not happen.

Every "deficits do not matter" person always brings up debt/GDP ratio. But remember, GDP fluctuates and the level of our debt does not. Does not fluctuate downwards, it sure goes up pretty well. If we ever do have a particularly lean set of years back to back (hmm... is something like that happening now..?), our debt/GDP ratio skyrockets. We need to get our level of debt down to somewhere reasonable, or we are especially vulnerable to recessions.

Personally i would much rather facilitate the idea's of the actual "change" needed to get this country back on track.

What exactly do you think this website is all about?

The bottom line is i find it a waste of time to be worrying about the end of civilization as we know it. If it happens, fine, but its really not somewhere i want to be regardless of how much gold, food, and ammo i have.

If it happens, fine?? You sound unconcerned. That is amazing given the state of the country and the world..

Please stick around on this site and listen to the other posters here, perhaps you will change your mind. Everyone should be concerned about the state of our country right now.

[Goldenboy219]

Safe in the sense that it will maintain its value over long periods of time. Gold is a limited resource that people value. It is a safe place to keep your money. Some would say that it is money.

Yes, gold can be used as a medium of exchange.

China would suffer for dropping their dollars, no doubt. For the time being, China needs us and cannot do this. But this will certainly not always be the case. There is no doubt about that -- China is a booming economy and the day will come when they no longer need us. The question is, will China drop their dollars in our lifetimes? No one can be sure, but the possibility of that happening makes having gold and other commodities in your portfolio very attractive.

Possessing less than 10% of the total stock debt, China would be hard pressed to push the yields up by more than that same 10%. What this would accomplish is an Asian market crash, along with many countries in Western Europe. Reserve requirements have to be kept up

Again, it would be more harmful to China and the rest of the world, which is why i find that scenario highly unlikely...

Seriously, the people who have listened to your advice are hurting big time right now. They wish they had gold... is there a better argument than that? Those are the facts. How can you argue with cold hard facts? The dollar hasn't even collapsed yet and its true that gold is a far better long-term investment than stocks.

Retirement accounts on average (not counting Madoff) are down, what, 35% tops? The yields and assets alone more than eclipse that of gold. Your argument would be completely sound if say markets were down 60%-80%. Hindsight is always 20/20.

Let me paraphrase, and remember that low interest rates tends to create inflation -- you are saying "With interest rates so low, inflation is sure to not happen!"

Price inflation!

Well, I do understand what you are saying, and, yes to an extent it's true to say that the Fed has lots of power to fight inflation at this moment. But, will it use its power? The answer for most of my life has been no. I guess that guy Volker actually used the Fed's power to fight inflation, but he has been the only one. And to do what he did now, would be an absolute disaster for our economy. They simply don't have the stomach for it.

Never before has the economy been flooded with this level of liquidity. Never before have interest rates been this low. As prices begin to rise, interest raise hikes of 100% and greater will be all too common. Back in the late 70's early 80's, they never ever ever ever increased rates more than 50%, yet they induced a recession by curbing inflation. Rates were @ 21% in 1981

They do not have to induce recession to combat inflation, theoretically of course

No, it is true. If we had 0% inflation in this country, the way our monetary system works, it would pitch over to deflation. Price stability is an impossibility. The best we can have is a very low level of inflation (2-3% is the Fed's target, I believe).

Price stability is impossible with a central bank that manipulates interest rates. Remember, i am not pro Fed.

Why do you doubt something that has been true for nearly the past 40 years? You say you don't see a pattern developing since then?

The baby boomers are on their way out. My generation seems to be a bit more rational.

The dot com era was a bubble. You must not have gotten the memo.

I never claimed it was not. On the other hand, you claimed it was "illusionary" otherwise known as "non existent". Now we both know this is not true, because if it were, we would not be able to have this conversation.

We are nearly bankrupt now. The way we pay for things is by taking from social security, printing money and borrowing... where have you been? Once the baby boomers start getting paid out of social security and medicare instead of paying in, we are on bankruptcy's doorstep. And that is 100% certain to happen.. there is no plausible scenario in which that does not happen.

As i said before, they will increase FICA as the situation arises. Of course, who will want to pay a 12% SS/medicaid tax?

Every "deficits do not matter" person always brings up debt/GDP ratio. But remember, GDP fluctuates and the level of our debt does not. Does not fluctuate downwards, it sure goes up pretty well. If we ever do have a particularly lean set of years back to back (hmm... is something like that happening now..?), our debt/GDP ratio skyrockets. We need to get our level of debt down to somewhere reasonable, or we are especially vulnerable to recessions.

I never stated that debt and deficits do not matter. Unless unemployment pushes up past 17% in a single year, i see no possible way GDP slips by over 35%. Even if deficits eclipse $1 trillion annually, the possibility is still years and another great depression away.

What exactly do you think this website is all about?

Agreed. But there is a self admitted sentiment that takes great joy out of other peoples bad news. I find it quite immature for people to be wishing for our government to collapse, all while telling people to liquidate their assets into gold.

If it happens, fine?? You sound unconcerned. That is amazing given the state of the country and the world..

If it happens, i don't want to be around. Try not to put words in my mouth...

Please stick around on this site and listen to the other posters here, perhaps you will change your mind. Everyone should be concerned about the state of our country right now.

I intend to. We need more classically liberal views to help show the rest of the world that all Libertarians are not essentially anarchists.

[weatherbill]

sell em all and get out of america

[CUnknown]

Retirement accounts on average (not counting Madoff) are down, what, 35% tops? The yields and assets alone more than eclipse that of gold.

Check out gold over the last 10 years against the S&P500. The S&P500 is negative over that time frame, even when there has been some significant inflation. Gold has quadrupled. The stock market, even an index fund, is not a safe place to put your money over the long term, especially as the world leaves the oil age behind.

They do not have to induce recession to combat inflation, theoretically of course

I think that they do. The system is so broken at this point that that is where we are. Although I will admit I don't have the numbers and can't back up that statement.

As i said before, they will increase FICA as the situation arises. Of course, who will want to pay a 12% SS/medicaid tax?

This would almost certainly induce recession. The government can't afford to raise taxes anymore than we can afford deflation.

Agreed. But there is a self admitted sentiment that takes great joy out of other peoples bad news. I find it quite immature for people to be wishing for our government to collapse, all while telling people to liquidate their assets into gold.

I see what you are saying... something does seem wrong with cheering bad news, as people do often on this site. I do it sometimes, too. But, the reasoning behind that is the prevalence of horrifically misguided views people have... we hear the talking heads drone on and on about how great things are going to be, even though the policies they espouse are too flawed for words. Sometimes we get pleasure in being proven right. It happens.

I intend to. We need more classically liberal views to help show the rest of the world that all Libertarians are not essentially anarchists.

Welcome to the forums.

[slacker921]

If this is true, then how come the elderly still receive social security and medicaid? The "unfunded liabilities" line is used as a scare tactic by the conservative right, in their attempt to reduce government spending. What is really ironic is that they use this line all the time so to preserve the government spending their constituencies desire.

Once the outlays overtake influx, they will most likely "double" fica as Reagan did in 1983.

You're kidding, right? I mean.. you're just trolling? Or are you really that uninformed?

[Brassmouth]

Things were in much worse shape, and we pulled through it.

In the GD era we had sound money and a rather large trade surplus, as well as a much smaller welfare state. Things have never been worse then they are now. Wake the $#@! up.

Also:

http://en.wikipedia.org/wiki/United_...ed_obligations

Not too difficult.

[Goldenboy219]

In the GD era we had sound money and a rather large trade surplus, as well as a much smaller welfare state. Things have never been worse then they are now. Wake the $#@! up.

Also:

http://en.wikipedia.org/wiki/United_...ed_obligations

Not too difficult.

LOL, your highly mistaken. FDR rushed the US off the gold standard, and committed a handful of constitutional atrocities...

You are aware that the fact the Fed more than quadrupled their balance sheet, and we do possess some sort of assistance in social security and unemployment prevents high levels of unemployment. Whether you agree with them or not, they do happen to prevent wide scale depression (assuming there is no government default). They also consolidate a ton of power to the federal government.

Wake the $#@! up, its not as bad as you make it out to be.

Using your same line of logic, the existence of 99.9% of humanity is an "unfunded obligation".