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Posted: 10/25/2010 1:46:09 PM EDT
Paying the government for the privilege of lending it money.

Crazy times we live in.

"The Treasury sold $10 billion of five-year Treasury Inflation Protected Securities at a negative yield for the first time at a U.S. debt auction as investors bet the Federal Reserve will be successful in sparking inflation."




Link Posted: 10/25/2010 1:47:43 PM EDT
Explain to n00b, please?
Link Posted: 10/25/2010 1:47:45 PM EDT

What does this mean for us simple folk?
Link Posted: 10/25/2010 1:50:00 PM EDT
Basically instead of lending money and getting a return on the loan, you are paying someone to hold your money for you.
Link Posted: 10/25/2010 1:52:22 PM EDT

Originally Posted By capnrob97:
Basically instead of lending money and getting a return on the loan, you are paying someone to hold your money for you.

so now it makes no sense to sell our bonds because we pay them?
Link Posted: 10/25/2010 1:52:57 PM EDT
WTF?
Link Posted: 10/25/2010 1:55:08 PM EDT
So NOW it begins .
Link Posted: 10/25/2010 1:59:38 PM EDT
Worldwide Economic Collapse could be just posts away...

Link Posted: 10/25/2010 2:02:38 PM EDT

Originally Posted By Merrell:
Worldwide Economic Collapse could be just posts away...



Link Posted: 10/25/2010 2:04:20 PM EDT
[Last Edit: 10/25/2010 2:05:54 PM EDT by Shockergd]
Ouch..............

Although it's a interesting game when the government is controlling the inflation #s too.
Link Posted: 10/25/2010 2:06:10 PM EDT
Originally Posted By capnrob97:

Originally Posted By Merrell:
Worldwide Economic Collapse could be just posts away...


http://www.youtube.com/watch?v=NoBFhdeR9PE


The great economic bubble may be about to bust!!!



Link Posted: 10/25/2010 2:07:04 PM EDT
Originally Posted By capnrob97:
Basically instead of lending money and getting a return on the loan, you are paying someone to hold your money for you.



Question - so if the FOMC goes along with QE2 next week, wouldn't it make sense for a bond seller to just put that newfound (QE) money right back into TIPS to protect their balance sheet rather than dumping that money into the economy? Isn't that a completely contradictory policy? Or might this be a sign Bernanke was bluffing about QE2?
Link Posted: 10/25/2010 2:08:08 PM EDT
So much FAIL.
Link Posted: 10/25/2010 2:09:27 PM EDT
These are inflation protected bonds, so if inflation goes through the roof, your principal grows at the inflation rate.

A lot of people are betting on some good inflation coming along.


Link Posted: 10/25/2010 2:10:55 PM EDT
Originally Posted By capnrob97:
These are inflation protected bonds, so if inflation goes through the roof, your principal grows at the inflation rate.

A lot of people are betting on some good inflation coming along.




Is there a cap?

What if inflation goes haywire???
Link Posted: 10/25/2010 2:12:51 PM EDT
Tagged for updates.
Link Posted: 10/25/2010 2:12:54 PM EDT
I have a couple questions for any of you financial guys.

1. Is it at all possible for the US to service the debt we have?
2. Is the only viable option of the fed to cause massive inflation as a better alternative than currency deflation?
Link Posted: 10/25/2010 2:25:29 PM EDT
Originally Posted By capnrob97:
These are inflation protected bonds, so if inflation goes through the roof, your principal grows at the inflation rate.

A lot of people are betting on some good inflation coming along.





This is what I was headed to say.

The investors are not expecting to lose any money...they are expecting to gain some as inflation increases.
Link Posted: 10/25/2010 2:28:53 PM EDT
Originally Posted By DerekCB:
I have a couple questions for any of you financial guys.

1. Is it at all possible for the US to service the debt we have?
2. Is the only viable option of the fed to cause massive inflation as a better alternative than currency deflation?


1. Yes, the debt is still smaller, relative to GDP, than the debt was at the end of WWII.



2. No, Massive inflation would be a disaster. They are aiming for not so massive inflation. Some times compared to being just a little bit pregnant.

Link Posted: 10/25/2010 2:38:51 PM EDT
Here is the NYT version.
NYT - Inflation Bonds Are Sold With Negative Yield for First Time
Inflation-protected securities sold at negative yields as traders anticipate that the Fed will start a round of asset purchases.


So the investor is paying the feds to loan it money, is that the drift?
Link Posted: 10/25/2010 2:47:43 PM EDT
TIPS interest paid have two components - one is the inflation rate, and the other is a small fixed rate. The small fixed rate has gone negative.

If you expected the inflation rate to skyrocket, TIPS would be a good thing to have.

Treasury I series Bonds are much the same thing, they have a fixed component + an inflation component that gets set every six months. The fixed component on those hit zero a couple years ago, but the inflation hasn't kicked in yet. Since the fixed part of I bonds bottoms at zero, they would be an interesting choice, yielding more than TIPS. Too bad each person can only buy a limited amount each year.

Link Posted: 10/25/2010 2:49:15 PM EDT
Originally Posted By 2tom2:
Originally Posted By capnrob97:
These are inflation protected bonds, so if inflation goes through the roof, your principal grows at the inflation rate.

A lot of people are betting on some good inflation coming along.





This is what I was headed to say.

The investors are not expecting to lose any money...they are expecting to gain some as inflation increases.


Inflation as calculated by... the Federal Government?


How's that indexed-to-inflation welfare program.... um... Social Security doing for seniors right now?

Not saying there won't be inflation with the trillions printed, securitized and subsidized, but I don't think the government index of inflation used for TIPS is going to be terribly accurate.

It's ALWAYS a gamble when you bet against the House, and the House makes all the rules, holds all the cards and rolls the dice manufactured in the back room.
Link Posted: 10/25/2010 2:51:13 PM EDT
Uh oh.

Posted Via AR15.Com Mobile
Link Posted: 10/25/2010 2:52:41 PM EDT
Cool.
Link Posted: 10/25/2010 2:55:11 PM EDT
Originally Posted By grendelbane:
Originally Posted By DerekCB:
I have a couple questions for any of you financial guys.

1. Is it at all possible for the US to service the debt we have?
2. Is the only viable option of the fed to cause massive inflation as a better alternative than currency deflation?


1. Yes, the debt is still smaller, relative to GDP, than the debt was at the end of WWII.



2. No, Massive inflation would be a disaster. They are aiming for not so massive inflation. Some times compared to being just a little bit pregnant.



Thanks. Hopefully 'they' get the not so massive inflation thing right.
Link Posted: 10/25/2010 2:57:18 PM EDT
If anybody wants in on this deal, I am willing to hold your money if you pay me!
Link Posted: 10/25/2010 3:08:49 PM EDT
Originally Posted By SoonerBorn:
If anybody wants in on this deal, I am willing to hold your money if you pay me!


Let's say a loaf of bread costs $1.

I give you $100 today, and you get to keep 1% ($1).

Except, you have to return the $99 in loaves of bread, calculated at today's prices. So I am expecting 99 loaves.

If the price of bread is still $1 a loaf (or less) then great, you made money.
If bread is now $5 a loaf....

You don't actually have to give me loaves, just enough money to buy those loaves at the current price.


The only advantage the government has in this situation is the ability to calculate the inflation rate (Bureau of Labor Statistics) and the ability to manipulate the currency market (US Treasury, the Fed)

I've been expecting inflation to come along for a while now, but fortunately for the government it seems to be in check. Servicing the debt will get a lot more expensive if/when interest rates rise.
Link Posted: 10/25/2010 3:10:38 PM EDT
Terrible.
Link Posted: 10/25/2010 3:12:28 PM EDT
I'm buying canned dog and cat food futures. For da seniors.
Link Posted: 10/25/2010 3:29:19 PM EDT
Originally Posted By RRA_223:
Originally Posted By 2tom2:
Originally Posted By capnrob97:
These are inflation protected bonds, so if inflation goes through the roof, your principal grows at the inflation rate.

A lot of people are betting on some good inflation coming along.





This is what I was headed to say.

The investors are not expecting to lose any money...they are expecting to gain some as inflation increases.


Inflation as calculated by... the Federal Government?


How's that indexed-to-inflation welfare program.... um... Social Security doing for seniors right now?

Not saying there won't be inflation with the trillions printed, securitized and subsidized, but I don't think the government index of inflation used for TIPS is going to be terribly accurate.

It's ALWAYS a gamble when you bet against the House, and the House makes all the rules, holds all the cards and rolls the dice manufactured in the back room.



<.gov>One for you 10 for me, One for you 10 for me<.gov>
Link Posted: 10/25/2010 5:08:06 PM EDT
Even if the gov't inflation index is accurate and appropriate, the TIPs still have one major problem. The gov't taxes you on the inflation as well as the interest.

Now, if they dropped taxation of the inflation component, I bet they would sell more TIPS.
Link Posted: 10/25/2010 5:58:58 PM EDT
Originally Posted By DerekCB:
Originally Posted By grendelbane:
Originally Posted By DerekCB:
I have a couple questions for any of you financial guys.

1. Is it at all possible for the US to service the debt we have?
2. Is the only viable option of the fed to cause massive inflation as a better alternative than currency deflation?


1. Yes, the debt is still smaller, relative to GDP, than the debt was at the end of WWII.



2. No, Massive inflation would be a disaster. They are aiming for not so massive inflation. Some times compared to being just a little bit pregnant.



Thanks. Hopefully 'they' get the not so massive inflation thing right.


What are the odds of "them" getting it right? Ask the Germans.
Link Posted: 10/25/2010 6:06:36 PM EDT
Originally Posted By grendelbane:
Even if the gov't inflation index is accurate and appropriate, the TIPs still have one major problem. The gov't taxes you on the inflation as well as the interest.

Now, if they dropped taxation of the inflation component, I bet they would sell more TIPS.


If they dropped capital gains tax on investments too, then it would be a lot more attractive to be a rich man in this country

In both cases, even when you end up with less value in real terms (i.e., you can buy fewer loaves of bread with your money) they still want to take a share.

I guess it beats paying the "mattress tax"

Link Posted: 10/26/2010 4:14:04 AM EDT
Originally Posted By Merrell:
Originally Posted By capnrob97:
These are inflation protected bonds, so if inflation goes through the roof, your principal grows at the inflation rate.

A lot of people are betting on some good inflation coming along.




Is there a cap?

What if inflation goes haywire???


Here's the cool part. This .gov has already shown they will smoke the bearings on the printing presses...

TXL
Link Posted: 10/26/2010 4:14:45 AM EDT
Originally Posted By RRA_223:
Originally Posted By 2tom2:
Originally Posted By capnrob97:
These are inflation protected bonds, so if inflation goes through the roof, your principal grows at the inflation rate.

A lot of people are betting on some good inflation coming along.





This is what I was headed to say.

The investors are not expecting to lose any money...they are expecting to gain some as inflation increases.


Inflation as calculated by... the Federal Government?


How's that indexed-to-inflation welfare program.... um... Social Security doing for seniors right now?

Not saying there won't be inflation with the trillions printed, securitized and subsidized, but I don't think the government index of inflation used for TIPS is going to be terribly accurate.

It's ALWAYS a gamble when you bet against the House, and the House makes all the rules, holds all the cards and rolls the dice manufactured in the back room.


This.

Buy gold. Real gold, not ETF's They don't control it.

TXL
Link Posted: 10/26/2010 4:43:46 AM EDT

Originally Posted By grendelbane:
Originally Posted By DerekCB:
I have a couple questions for any of you financial guys.

1. Is it at all possible for the US to service the debt we have?
2. Is the only viable option of the fed to cause massive inflation as a better alternative than currency deflation?


1. Yes, the debt is still smaller, relative to GDP, than the debt was at the end of WWII.



2. No, Massive inflation would be a disaster. They are aiming for not so massive inflation. Some times compared to being just a little bit pregnant.



Bingo.

Link Posted: 10/26/2010 10:27:36 AM EDT
Originally Posted By SultanOfBrunei:
Explain to n00b, please?


Well, contrary to Sherrick's advice. I would buy precious metals

It's gonna get bad...

TXL
Link Posted: 10/26/2010 10:38:19 AM EDT
The future looks GOLDEN.....
Link Posted: 10/26/2010 10:51:49 AM EDT
[Last Edit: 10/26/2010 10:57:34 AM EDT by bigshooter81]
Originally Posted By sherrick13:

Originally Posted By grendelbane:
Originally Posted By DerekCB:
I have a couple questions for any of you financial guys.

1. Is it at all possible for the US to service the debt we have?
2. Is the only viable option of the fed to cause massive inflation as a better alternative than currency deflation?


1. Yes, the debt is still smaller, relative to GDP, than the debt was at the end of WWII.



2. No, Massive inflation would be a disaster. They are aiming for not so massive inflation. Some times compared to being just a little bit pregnant.



Bingo.



servicing that debt takes something like 13% of GDP..........may have been higher during WWII, but we had nothing in social programs and liabilities like we do now.

Anybody who chooses to believe that this can work without severe consequences is a fool.

The math doesn't give a shit about politics or ideology.

not aiming for massive inflation?, BULLSHIT.

WTF is this shit then?




Link Posted: 10/26/2010 2:37:17 PM EDT
It's already gotten bad. it's just going to get worse.

The best investments I've made are to be found in my gun locker, the ammo vault, and that can buried in the back yard with 'them coins.

Having a flock of sheep, both tasty and self replicating, is also one of my better decisions.

Got food?
Link Posted: 10/26/2010 2:41:17 PM EDT
Originally Posted By bigshooter81:
Originally Posted By sherrick13:

Originally Posted By grendelbane:
Originally Posted By DerekCB:
I have a couple questions for any of you financial guys.

1. Is it at all possible for the US to service the debt we have?
2. Is the only viable option of the fed to cause massive inflation as a better alternative than currency deflation?


1. Yes, the debt is still smaller, relative to GDP, than the debt was at the end of WWII.



2. No, Massive inflation would be a disaster. They are aiming for not so massive inflation. Some times compared to being just a little bit pregnant.



Bingo.



servicing that debt takes something like 13% of GDP..........may have been higher during WWII, but we had nothing in social programs and liabilities like we do now.

Anybody who chooses to believe that this can work without severe consequences is a fool.

The math doesn't give a shit about politics or ideology.

not aiming for massive inflation?, BULLSHIT.

WTF is this shit then?

http://market-ticker.org/akcs-www?get_gallery=524




that graph shows the latest recession as being over - not by a long shot. (of course they are saying if the recession continues, it would be a different one - such a load of crap)
Link Posted: 10/26/2010 2:46:03 PM EDT
In 2008 regular treasuries briefly went negative. how quickly sentiment changes.
Link Posted: 10/26/2010 2:52:27 PM EDT
it doesn't matter.

The fed is buying most of the treasuries and the ones they don't buy, the big banks buy after the fed loans them the money to do it.
Link Posted: 10/26/2010 2:59:16 PM EDT

Originally Posted By capnrob97:
These are inflation protected bonds, so if inflation goes through the roof, your principal grows at the inflation rate.

A lot of people are betting on some good inflation coming along.



If these are the kind of bonds I'm thinking of. It'll be like the 1970s where people were dumping everything they could into bonds which paid 30+% every single year.
Link Posted: 10/26/2010 3:40:44 PM EDT
Originally Posted By capnrob97:
These are inflation protected bonds, so if inflation goes through the roof, your principal grows at the inflation rate.

A lot of people are betting on some good inflation coming along.




The Fed has promised as much. They've been floating trial ballons for weeks and Election day (or the day after), they're meeting to vote on the idea.
Link Posted: 10/26/2010 3:44:34 PM EDT
Originally Posted By DerekCB:
I have a couple questions for any of you financial guys.

1. Is it at all possible for the US to service the debt we have?
2. Is the only viable option of the fed to cause massive inflation as a better alternative than currency deflation?


I think there are some in the Fed that are trying to deliberately trigger what the Weimar Bank did by incompetence / accident. Hyperinflation and the wiping out of debts, with the Fed still holding the printing presses to make the NeoDollar.

Link Posted: 10/26/2010 4:43:10 PM EDT
Originally Posted By Tekka:

Originally Posted By capnrob97:
These are inflation protected bonds, so if inflation goes through the roof, your principal grows at the inflation rate.

A lot of people are betting on some good inflation coming along.



If these are the kind of bonds I'm thinking of. It'll be like the 1970s where people were dumping everything they could into bonds which paid 30+% every single year.


These didn't exit in the 70s. Created/copied in the 90s.
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