Gov bonds

[Guest Lester Weevils]

Am ignorant of the stock market.

In the recent dips, the man on the TV explained that one reason the stocks dip is that people are worried about gov debt. So they have been selling stocks and buying gov bonds for safety. They did that back in the 2007-2008 slide too.

Huh?

People do whatever seems most rational, but if one sells stocks worried about gov insolvency then how does it make sense to reinvest the money in gov bonds for "safety"?

[Caster]

Don't make much sense. Worried about stability, why would you buy ANYTHING gov. backed?

People are better off buying non perishable commodities, and silver.

[MacGyver]

It should tell you a lot about peoples' mindset right now!

People are panicking and trying to park their money somewhere. The stock market is so volatile right now that a lot of investors are essentially saying that despite the fact that they're actually losing a little bit of money by buying governement debt (interest rate paid isn't equal to or greater than inflation over the same period), they're still thinking it's the best option available.

[Oh Shoot]

It should tell you a lot about peoples' mindset right now!

People are panicking and trying to park their money somewhere. The stock market is so volatile right now that a lot of investors are essentially saying that despite the fact that they're actually losing a little bit of money by buying governement debt (interest rate paid isn't equal to or greater than inflation over the same period), they're still thinking it's the best option available.

If the US totally tanks, what's going to be worth anything except physical goods or skills with which you can barter? Even if you were making better return in foreign markets, it has to be translated into US dollars to be spent here.

If the USD totally melts down with hyper-inflation, even gold and silver aren't going to be worth much of anything in the short run, except again in more of a barter sense for those who still trust its value in an intrinsic sense.

Though it does seem illogical to bet on what's become a Ponzi economy, it's still the safest bet until the house of cards collapses.

- OS

[Caster]

^ He's right again. If you want to invest right now, invest in something you can hold in your hand ANYTIME you want to or invest in yourself skill and health wise.

I'm spending money I wouldn't normally spend to get myself in better physical shape and the rest I put into things I can go lay my hands on right now. I don't like gold, the value is too high, and hard to trade in a barter system. Silver is a better bet. Also, don't forget copper! Pre '83 pennies will be worth (and are now!!!) substantially more than face value.

[MacGyver]

If the US totally tanks, what's going to be worth anything except physical goods or skills with which you can barter? Even if you were making better return in foreign markets, it has to be translated into US dollars to be spent here.

If the USD totally melts down with hyper-inflation, even gold and silver aren't going to be worth much of anything in the short run, except again in more of a barter sense for those who still trust its value in an intrinsic sense.

Though it does seem illogical to bet on what's become a Ponzi economy, it's still the safest bet until the house of cards collapses.

- OS

I'm with you here. Skills and physical goods are what would determine survivors. Cigarettes and toilet paper will be worth more than all your gold or silver. Not to mention the immediate worth of food as a calorie source.

The gold people have always made me laugh a bit. Everybody rightfully bad mouthes fiat currencies, but gold is really kind of a 4,000 year old fiat currency. It's only worth what someone(s) decides it's worth. In a TEOTWAWKI scenario, I don't know that a soft, albeit corrosion resistant heavy metal is going to really be worth much. It's certainly unlikely to help me stay alive. "Currency" will be decided by the strongest survivors who stick around. I wouldn't bet on gold.

The T-Bill situation is interesting. It's essentially the global pool of money weighing in and saying that they don't see a recovery happening anytime soon. Why it's so tough for the Fed's to see (or why they're being deceived and thus deceiving the public while the economy is being pillaged) is the interesting question.

[QuietDan]

Gold. Take your change in Silver. Silver. Take your change in Lead (copper jacketed).

[Guest Lester Weevils]

Thanks everyone for the good ideas.

By definition at least half the stock market players are above average at the game. Not challenging their playing ability. Just seems that selling stocks and buying gov bonds if you are worried about gov solvency, makes the same kind of sense as selling stocks and buying Bank CD's if you are worried about bank solvency.

I too favor assets close to home and tangible assets better than computer bits in an account. If it has to be computer bits in an account, maybe better at a place close to home where you could at least join the pitchfork and torch crowd out front if they default.

Dunno what the best tangible assets would be. Some would depend on whether there are simply very bad economic times but the economy and social structure continues to basically limp along. Versus TEOTWAWKI.

McGyver's suggestions of essentials such as food, toilet paper, coffee, booze and cigarettes seem no-brainers regardless. Even if the economy continues to limp along, such things will never go out of style or lose innate worth.

Will search the survival section to find if there is a pre-existing thread about the best trade/barter goods. If there is not a good one there already, might be a good thread to start.

[Guest lostpass]

Stocks are generally seen as wealth generating while bonds are wealth preserving. If you are worried about stocks going down you jam all you can into bonds. The model assumes that the government will be around a long time.

That is the simple explanation the longer explanation is that people are not really worried about the long term stability of the US government. They are worried about they the effect the same gov has on the short term markets.

Everyone thinks that toilet paper and coffee are your friends for the end of the world/economic breakdown scenario, and one supposes they are correct in a step back scenario but in a real end of the world scenario people can get by with out those things. Offer someone a bag of beans or a twelve pack of charmin in the starving parts of africa and see which one they pick.

In a massive depression scenario the coffee and tp probably wins, in a real breakdown scenario you are way better off with some damn food or arable land. If I were investing, and I am, I'd go long on stocks and buy like crazy right now. Chances are I'll make a ton of money. If I were also worried about a collapse I'd put some of my investments in food. It wouldn't cost much and the payoff would be living while others starved.

Is that the world I want to live in? Probably not. Is that the world humans have lived in for the majority of their time on earth? Probably so.

[Guest ArmyVeteran37214]

Gold. Take your change in Silver. Silver. Take your change in Lead (copper jacketed).

I wouldn't put any money in Gold right now, however Silver looks to be the best option. +1 for stocking up on ammo. You can never have to much ammo.

[zapfbroad]

I love the mag articles, tv commercials & radio spots from companies willing to sell you gold & silver based upon their altruistic need to inform you of the risks of the economy & how those two commodoties are the only safe bets. And yet they will help you to acquire supplies in exchange for the same U.S. currency they say will be worthless. STREETWK05 is right +1 to more ammo. In a SHTF scenario commodoties may aid you for a temporary duration & allow you to recover sooner. But in a true TEOTWAWKI situation it won't provide any benefits. You need ammo to hunt food, whether that ammo is brass cased or arrows or fishing lures. You need ammo for defense of you & yours from whatever assails you in your daily fortifications or permanent residence. What benefit would the first pilgrims have had for gold, silver bars, ingots, or coins outside of decorative jewelry in bartering with native americans? If you are a roving nomad or maintain a defensible permanent perimeter you can trade ammo for consumable goods or offer protection, those are true survival needs.

via EPIC4G SRF1.1.0 by Android Creative Syndicate

[Guest Lester Weevils]

Yes it seems a contradiction to advertise, "Money gets more worthless every day and gold has lasting value, so give me your worthless money and I will give you my gold."

On the other hand there is an angle to everything. A true believer in gold who is a good horse trader would be able to move mass quantities of gold, picking off the dollars commission from every transaction, and then sink most of his dollar profits into his own personal gold store. A dealer could believe in gold and still use dollars to mediate the transactions without any real contradiction.

It would be about the same as a stock broker who churns stock sales and then sinks his profits into personal stock. Or a bond broker. Or a real estate tycoon. If a person thinks that real estate is the safest bet then if he is a good horse trader he can sell a lot of what he considers valuable in the process of acquiring his own portfolio of paid-off real estate. A little off the top on each transaction.

[Guest Lester Weevils]

I should plan for scenarios of possible bad economic times where social order does not completely fall apart. Except possible short emergencies up to a few months. If a short emergency stretches past a few months then it may degenerate into a permanent emergency-- Some flavor of TEOTWAWKI. Like Katrina with no national guard and no rescue supplies.

I'm old enough and close enough to population centers that the odds of surviving TEOTWAWKI are slim to none. There are a couple of rural situations I could try to move to, but it is not likely an old computer nerd could pull his own weight in that situation. They would be better off recruiting younger people more likely to improve group survivability.

So am planning mostly for non-anarchic survivable hard times. A moderate stash of food, tp, booze, cigs would seem handy for short emergencies and would not go out of style even if hard times are miraculously avoided. After a few weeks without cigarettes, the phrase, "I would kill for a cigarette" might become more fact than exaggeration!

All investments carry risk. Assuming that we can rely on the gov to always pay off bonds then even if they merely print money to redeem the bonds-- For the little guy iBonds might be a no-brainer. iBonds are set up to always SLIGHTLY beat inflation and in periods of deflation they do not go backwards. If Bernanke goes full-zimbabwe but the gov continues to faithfully redeem the bonds, then if you bought $5 in iBonds today and then in the future a hamburger costs $1000, then that $5 of iBonds would still buy a burger. Assuming that the gov would remain honest enough to properly calculate the CPI in the future. If they substitute ramen noodles for hamburger in a future CPI calculation then the $5 of iBonds would only buy a pack of ramen noodles.

Dunno if we can rely on the gov to always pay off its bonds. If inflation gets so bad that it hurts the hereditary rich then the oligarchy will force politics to default bonds rather than allow runaway inflation. A plurality of our bond debt is in social security and they are already searching for a "graceful" way to default the SS bonds. There is no guarantee that the SS bonds are the only ones to default.

Until inflation kicks into overdrive I think survivalists under-rate paper money. People are heavily conditioned to consider the green paper valuable. I think that people are so conditioned to lust after green paper that the average guy might keep acceptiing paper for payment up to the point that it is obvious to everybody that the paper truly is worthless. There could be a transition period possibly lasting years where it would be easier to barter goods using green paper rather than silver bars.

[Guest Lester Weevils]

I don't think that the economy is well-understood enough that anybody knows exactly why or how it behaves. People have theories why the economy gets bad or why it recovers, but the theories are not good enough to predict or engineer the economy. People also have theories about the weather, but weather predictions and engineering remain quite weak.

Just sayin, even though the economic outlook looks bad, it isn't impossible that it will just decide to pick up on its own accord. That is what the democrats were expecting with their stimulus. The old witch doctor volcano dance. Usually the volcano quits grumbling regardless whether you sacrifice virgins to the volcano god. But if you intervene with the volcano god dance, then you can claim credit when the volcano quits grumbling. Unfortunately this time the volcano didn't quit grumbling on schedule, so the natives are not happy about the stimulus spending. It seemed a sure thing that the economy ought to have recovered within at least 4 years and so in 2008 it looked a perfect time for Democrats to spend a bunch of money on pet projects and then when election time rolls around, claim credit for saving the economy.

If Republicans get power in 2012 it will be the same gamble. Regardless what they do, if the economy recovers by 2016 then it will be trotted out as "proof" of wise conservative principles. If it doesn't improve by 2016 then they are toast again.

After years of economists reporting "unexpected bad news", it isn't impossible that we might run into a streak of equally "unexpected good news."

Just sayin, if or when we get some "unexpected good news" and the economy picks up again, then precious metals will tank. Look at historical precious metals prices from 1950 to present. Whenever the economy picks back up, precious metals will drop back to Clinton Bubble low prices. There should be some latency in the drop, because today many people have been conditioned to think that metals are valuable, so it will take awhile for people to change outlook and realize they bought a pig in a poke. On the other hand, once people start selling, it could drop really fast. Look at previous metals price crashes.

I bought modest amounts of metals years ago and have made a big profit "on paper". Maybe am an idiot not to buy more metals but seems too risky at today's prices. If it looks too good to be true then it is probably not true. Even if the economy picks up and metals plummet, I probably won't lose money because I bought cheap. If I could be wise enough to see the first true "green shoots" of the economy, would dump all the metals at the high point and sink it into maybe real estate before real estate gets expensive again.

Unfortunately am likely not smart enough to time it that good.

On the other hand if we go full-zimbabwe and metals continue to rise-- It is nice to have some metals as long as people remain willing to trade lots of greenbacks for small amounts of metal (at whatever the exchange rate happens to be at the time).

[G27]

The US government still hasn't defaulted on bond payments, so while the long term outlook isn't good, as a short term parking spot for your wealth it's a good idea.

PMs are also a good idea - not as an investment, but for protection of wealth against the devaluation of the dollar...

[greenego]

US will not default on bonds. After all government can print money. Don't have to have anything to back it up. Gold is a good bet as long as someone will give you something for it that has greater value to you. Companies, (stock) still make and sell things. As long as the companies you invest in are doing that they will be of value. Most of the good companies pay a good dividend, profits from the sell of what they make.

[Oh Shoot]

The US government still hasn't defaulted on bond payments, so while the long term outlook isn't good, as a short term parking spot for your wealth it's a good idea....

Yeah, thing about them is that they're worth the same as the money under your mattress plus a dribble of interest. If they go "bust", your mattress money isn't worth anything either.

- OS

[Guest ArmyVeteran37214]

After all government can print money.

Printing more money will further devalue the dollar worse and that's how our country will eventually default on the nearly 15 trillion dollar debt.

[G27]

US will not default on bonds. After all government can print money. Don't have to have anything to back it up. Gold is a good bet as long as someone will give you something for it that has greater value to you.

Which is why more and more people are investing in PMs. Gold's 'price increase' is not just demand related - it's a great example of the devaluation of the US currency via inflation (aka quantitative easing).

[Oh Shoot]

Printing more money will further devalue the dollar worse and that's how our country will eventually default on the nearly 15 trillion dollar debt.

Nope, that's the only way we can ever possibly pay it off, by paying back, including interest, in dollars that are worth much less than the dollars that were borrowed.

- OS

[G27]

Nope, that's the only way we can ever possibly pay it off, by paying back, including interest, in dollars that are worth much less than the dollars that were borrowed.

Yah, it's a real catch-22 - devaluation of the dollar inherently weakens the economy, which directly hurts tax revenue, yet it's the only option to try to avoid default.

Granted, unless we curb the out-of-control spending we've seen over the last 10 years, it really doesn't matter.

[Guest Lester Weevils]

The average joe can just temporarily park money in a bank account, safe, or a mason jar buried in the back yard. The average joe would likely buy gov bonds for a longer haul than temporary storage (if he had some motivation to buy them at all).

Dunno nothin and can't predict the future. I'd like to think they would simply print money and keep paying the bonds. I'd like to think they would figure out how to quit borrowing so much money.

But they are already trying to weasel out on the SS bonds, with happy approval of many folks on this forum. That blue bar on the lower left is pretty big, but wiping it out still leaves a lot of debt. If they decide to deal with obligations by weaseling out, then other colored rectangles are at risk.

On the other hand if they decide it is feasible to pay back all the other pretty colored rectangles just by printing money then they ought to be able to do the same for SS.

[greenego]

Printing more money will further devalue the dollar worse and that's how our country will eventually default on the nearly 15 trillion dollar debt.

This is very true. Our great leaders are already talking about QE3. What the definition of insanity?

Until they come to the fact that spending must be brought under control and government needs to stop their anti jobs policies, we will continue down this path.

Edited August 21, 2011 by greenego

[Guest Lester Weevils]

Yah, it's a real catch-22 - devaluation of the dollar inherently weakens the economy, which directly hurts tax revenue, yet it's the only option to try to avoid default.

Granted, unless we curb the out-of-control spending we've seen over the last 10 years, it really doesn't matter.

Hi crimsonaudio

One aspect is that some schools of thought consider inflation beneficial as long as it is also associated with real economic growth. Keynsians sometimes think thataway though Keynes sometimes wrote about inflation as a bad thing.

The "multiplier effect" is about money in motion. If I pay you $10 for services and you immediately pay OS the $10 for services and OS immediately pays StreetWK05 the $10 for services-- The longer that $10 stays in motion then the more jobs it sustains. Even if somebody down the line spends the $10 for gold and buries the gold in his back yard, the money keeps going if the gold dealer pays the mine and the mine pays the miner and the miner buys goods and services.

When people become afraid to spend or they have the innate belief that saving is morally superior to spending, then the money eventually hits somebody who hangs onto the dollars rather than sending them down the line. If the dollars get saved in banks then it can still do useful work if the bank is making loans and people are borrowing. Similarly if the money goes into corporate bonds or stock it helps finance economic activity. Though I'm not certain that all the ebbs and flows of stocks directly assist corporations with new capital. Perhaps people boost the economic engine the most when they buy stock direct from the corp rather than an intermediate stockholder? Even if there is brisk trade in old baseball cards, that brisk trade doesn't directly send any new money to the baseball card printing company. It would not be impossible for there to be brisk trade in old baseball cards while the baseball card printer goes out of business from lack of new baseball card sales.

Keynsians believe that the economy can reach stable situations where everything is working fine except maybe 20 percent of the people do not have jobs. The interventions are intended to move the economy to a new stable balance as close to full employment as possible. Dunno if theory ever proves itself in practice however.

That is why Pelosi can make statements that Unemployment, Welfare and Food Stamps create jobs. People don't save that money. They spend it all right away. If the recipients of the spending send that money down the line, then the welfare bucks trickle thru the economy passing thru many hands and help create jobs. If the grocer saves every little bit of food stamp profit in a mason jar buried in his back yard, then the grocer's profit part of the food stamp money gets removed from the system and does not help create jobs farther down the line. It is the grocer's biz what to do with his profits, but it would help the economy better if the grocer would hire a carpenter for a home remodel or invest in a USA corporation.

I would love it if there were no inflation. Saving for the geezer years would be so simple. Just stuff extra paper money in a pillowcase and bury it in the back yard. $5 I save today would buy a burger any time in the future. It would be so simple.

Back in the 1930's some economists wanted to increase the velocity of money. To force frightened people to spend. There were suggested schemes where money would have a "use-by" date like groceries. For instance if you get paid in dated dollars then you better spend the bucks before the expiration date or they will be worthless. Force people off the dime and get em passing money around. Get people working.

I think that is one of the reasons some people think permanent inflation is a good thing. To encourage a "use it before you lose it" state of mind in consumers. If you have some extra dollars and you keep em in a mason jar then inflation will eventually dwindle them to nothing. Permanent inflation is almost the same end-result as money which is worthless after an expiration date.

In permanent inflation, the logical thing to do is either spend the dollars right away or invest the dollars somewhere that may yield returns to beat inflation. The "use it before you lose it" aspect of inflation tends to force idle dollars into some kind of benefit for the economy, either direct economic activity or capitalization. I personally do not appreciate being manipulated into actions I wouldn't otherwise take.

Maybe one problem is that the bathtub is leaking. Money goes to walmart and some of the money recirculates via paychecks to walmart employees, but a lot of the money "leaks" out of the system to China. China doesn't buy enough of our goods and the USA severely restricts what China can buy in the USA (real estate, corporations, etc.) Therefore china has all those dollars and not much way to get rid of them unless they buy USA goods. I wish they would just buy USA goods, which would keep the money moving in a benficial fashion.

A lot of the leaked money comes back in the form of USA Fed Bonds. Since so much money is leaking out of the system, the gov borrows the leaked money from china and runs stimulus and welfare programs to try to pump up the economy. But a lot of that money goes via walmart to china and leaks out again. So the gov borrows more leaked money and tries to pump us up again. Like trying to inflate a leaky tire. Am just using walmart as an example. Its about the same deal at sears, staples or home depot.

So the money is still going round and round but it doesn't appear to be making the rounds in a beneficial way.

Giant sucking sound?

[Guest 6.8 AR]

If you had permanent inflation, even a small amount each year, that would be the amount of wealth that

is destroyed each year. Inflation only destroys. I can't buy anyone's argument about inflation being good.

Inflation artificially increases the cost of all goods. How can that be a good thing?

As far as the dollar being devalued, notice what happens to gold prices when that happens. Gold is gold.

It is a benchmark by which the value is measured. You can say someone thousands of years ago set it

up that way, and that's right, but it still is the benchmark.

As far as inflating the number of dollars in circulation, that's the same as inflation. More dollars = less

value per dollar. Even if they print more money to pay the debt off, which some think will work, I don't,

the dollar becomes more "funny money", and countries like China and Japan will have to adapt their

currency to reflect our devalued currency. China is already moaning and groaning about it. It's the kind

of stuff that causes trade wars, and other types of wars, too.

All any of this stuff causes is inflation and economic woes for everyone. Bernanke can try all the Keynseian

crap he wants and we will be the ones to suffer.

Keynes was proved wrong when FDR tried that crap. The only thing that saved us then was the size of our

economy, at the time, and WWII.

I sure wish some of you folks would look up Milton Friedman or Hayek. They both had a lot to say on the subject.

All Keynes was was a useful idiot for the socialists.

Bernanke is destroying our currency allegedly to try to save it. That makes a Hell of a lot of sense, doesn't

it?