patrick.net

control point says

So if interest rates rise, yes, the average interest rate paid on debt will rise. But it will not be as bad as you think

This all makes sense. And, if a lot of the debt has been accrued in the last decade, a lot won't rollover until the next decade I reckon.

And if a large chunk of that is internal debt, then the increase in interest means that American people or business or whatever will simply get a higher return, which makes it relatively moot, right?

indigenous says

What percentage of the debt is this?

Page 21.

Its almost 2 years old but doubtful the profile has changed much. In fact in the face of all time low interest rates, would think they attempted to extend the life of debt on renewal if possible.

http://www.treasury.gov/resource-center/data-chart-center/quarterly-refunding/Documents/TBAC%20Discussion%20Charts%20Feb%202012.pdf

About a third has maturity date of 5 years or greater.

I don't think there will be a general crash, but I think a lot of big cap stocks will be revalued.

The buying opportunity is in small caps.

control point says

indigenous says

From what I read it will be catastrophic along with the bond market.

Where is the money going to go? Out of stocks, out of bonds - to what?

What money? The new 6 Trillion we printed out of thin air?

I will back up the truck and buy similar to what I did during the last one. You think the way things are today that the stock market will be allowed to be held down for an extended period of time?

CL says

control point says

So if interest rates rise, yes, the average interest rate paid on debt will rise. But it will not be as bad as you think

This all makes sense. And, if a lot of the debt has been accrued in the last decade, a lot won't rollover until the next decade I reckon.

And if a large chunk of that is internal debt, then the increase in interest means that American people or business or whatever will simply get a higher return, which makes it relatively moot, right?

that is right but doesn't take into account any NEW debt that needs to be issued to cover increased borrowing costs- all of that will need to be issued at the higher rate

Analyzer says

I will back up the truck and buy similar to what I did during the last one. You think the way things are today that the stock market will be allowed to be held down for an extended period of time?

You are right, the Fed will not want to "allow" stocks to remain down BUT will they have the firepower to fix things this time?

smaulgld says

Analyzer says

I will back up the truck and buy similar to what I did during the last one. You think the way things are today that the stock market will be allowed to be held down for an extended period of time?

You are right, the Fed will not want to "allow" stocks to remain down BUT will they have the firepower to fix things this time?

Question is do they need actual firepower or merely creative accounting?

If you missed the last boat on either the stock market or housing crash, fear not there will be more to come. Just be prepared this time.

Aren't we about due for another recession anyway?

I'll do as I always do: Stockpile cash and also invest in the stock market. My investments have gone up significantly over the past 2 years. I bought some of these at the trough of the last crash when everyone else was running for the exits. Best investments I've made in years.

What is certain: crashes and bubbles are a see-saw thing and they always inflate and deflate. We are now in a new housing and possibly a stock market bubble. Both will likely pop at some point as they always have only to eventually recover. The stock market will recover much faster than housing, just as it has this latest time around.

Its all cyclical.

Analyzer says

Question is do they need actual firepower or merely creative accounting?

They used creative accounting too in addition to QE last time the creative accounting was allowing banks to mark all of their junk mortgage bonds to a higher price to make their balance sheets look better- as they Fed then printed money out of thin air to buy these junk securities from the banks!

It will respond until it won't, but I think it will for a long time to come because QE and your government is in many ways .. all that's left of your economy, it's only the faith in the dollar itself keeping the float going.
smaulgld says

everything says

No different, except now our crashes are a little more global in nature, the fed will standby, not much they can do initially being the root cause of events themselves. QE is all they really know, it will work until it doesn't.

Rates will have to stay dirt low, this will keep equities happy and good until they've exploited low interest rates to the point where the stock market will crash. What will I do?, nothing I can do.

The poll asks the question and I suppose the "nothing" answer in the poll is "stay in cash" Rates will have to stay low but can the Fed keep them low with more QE? Would the stock market respond to more QE?

smaulgld says

What Will You Do If/When The Stock Market Crashes?

Skull-fuck a banker and cultivate my yams.

control point says

About a third has maturity date of 5 years or greater.

Ok, but to put this in context all of this is rearranging the deck chairs on the Titanic, there are around 100 trillion dollars in unfunded liabilities that WILL cause huge inflation.

edvard2 says

The stock market will recover much faster than housing, just as it has this latest time around.

Its all cyclical.

Housing should recover slowly as it requires financing. Stocks can double in an hour

everything says

It will respond until it won't, but I think it will for a long time to come because QE and your government is in many ways .. all that's left of your economy, it's only the faith in the dollar itself keeping the float going.

Agree-there may be more life in the faith than we believe!

smaulgld says

everything says

It will respond until it won't, but I think it will for a long time to come because QE and your government is in many ways .. all that's left of your economy, it's only the faith in the dollar itself keeping the float going.

Agree-there may be more life in the faith then we believe!

Awesome, pretty much how I live my life on a 'wing and a prayer' and I'm not particulary religious.

Survey results so far:

If the stock market corrects more than 20% will you:

invest in the stock market 11.11% (7 votes)

remain in cash 15.87% (10 votes)

buy gold or silver 52.38% (33 votes)

buy real estate 14.29% (9 votes)

buy treasury bonds 0% (0 votes)

buy foreign currencies 1.59% (1 votes)

buy crypto currencies like bitcoin or litecoin 5% (3 votes)

Total Votes: 63

Call it Crazy says

Wasn't the list I was expecting.... some other choices are missing...

Foreign stocks are missing as are fine art and other collectibles
What else?
The main point of the survey was to flush out whether people would dive back into the stock market like they have for the past 25 years

sbh says

Then the second hard part ensues: waiting, doing nothing while nothing happens. "Reminiscences of a Stock Operator" is an entertaining read, in which he says, among many other things, he never made more than by doing nothing.

the old not to decide is to decide

indigenous says

Ok, but to put this in context all of this is rearranging the deck chairs on the Titanic, there are around 100 trillion dollars in unfunded liabilities that WILL cause huge inflation.

How so? Isn't the Fed buying assets? What is unfunded?

I didn't read all the posts I am coming in late so I am just going to reply to the OP.

If the stock market were to crash I'd buy stock as they would be so cheap. My bet is the scenario will play out like the last time. Stocks crash, people bailed and put their money into treasuries. The government bails out the banks and starts QE driving up the price of gold and silver to astronomical levels. Eventually though I believe the world will lose faith in the dollar and we'll be exposed to high inflation then hyperinflation.

It worked the last time for us but I don't think the world is going to buy it this time.

CL says

indigenous says

Ok, but to put this in context all of this is rearranging the deck chairs on the Titanic, there are around 100 trillion dollars in unfunded liabilities that WILL cause huge inflation.

How so? Isn't the Fed buying assets? What is unfunded?

The unfunded liabilities refer to outstanding obligations under Medicare and social security for which reserves have not been accumulated

spydah_hh says

I didn't read all the posts I am coming in late so I am just going to reply to the OP.

If the stock market were to crash I'd buy stock as they would be so cheap. My bet is the scenario will play out like the last time. Stocks crash, people bailed and put their money into treasuries. The government bails out the banks and starts QE driving up the price of gold and silver to astronomical levels. Eventually though I believe the world will lose faith in the dollar and we'll be exposed to high inflation then hyperinflation.

It worked the last time for us but I don't think the world is going to buy it this time.

That is the point of the original post- the fed may not be able to prop up the markets again

CL says

ndigenous says

Ok, but to put this in context all of this is rearranging the deck chairs on the Titanic, there are around 100 trillion dollars in unfunded liabilities that WILL cause huge inflation.

How so? Isn't the Fed buying assets? What is unfunded?

Since the our wonderful president lbj put all SS money in the general fund there is nothing in the coffers for medicare or SS but IOUs.

Now with the baby boom moving into retirement age we are going to owe 100 trillion more than we are taking in.

The most likely outcome will be to pay for this by inflating the currency.

If the FED is buying assets they are doing it with money printed out of thin air. E.g. Bernanke has printed an extra 6 trillion in the last 6 yr, 1 trillion per year so you take the money supply and and divide it by 1 + 1 trillion and that gives you the value of the money rinse and repeat and you can use one of those inflation calculators to determine how badly we are being ripped off. E.g. a dollar today would have been worth a nickel in 1913.

Or they could just say we are going to default on our debts. But odds are they are going to inflate.

So no matter how you look at it there is going to be a lot of inflation in the future. The only question is when it going to start?

smaulgld says

Total Votes: 63

This is ridonkulous.

smaulgld says

That is the point of the original post- the fed may not be able to prop up the markets again

Maybe they're thinking now that everyone who sort-of qualifies is in a nice, safe fixed loan, it won't matter if house prices go down. People don't sell their house because the price goes down, right? It's not like stocks. They'll just sit. They probably planned to stay anyway, right? So who cares about house prices.
That seems to leave the stock market to the rest of us. I can't figure out how people live in the Bay Area, own a house AND invest in the stock market. If they do, they have more money to work with than me.

Straw Man says

smaulgld says

Total Votes: 63

This is ridonkulous.

Another 11 ridonkulous votes:

If the stock market corrects more than 20% will you:

invest in the stock market 12.16% (9 votes)

remain in cash 14.86% (11 votes)

buy gold or silver 51.35% (38 votes)

buy real estate 14.86% (11 votes)

buy treasury bonds 0% (0 votes)

buy foreign currencies 1.35% (1 votes)

buy crypto currencies like bitcoin or litecoin 5.41% (4 votes)

Total Votes: 74

John Bailo says

I don't think there will be a general crash, but I think a lot of big cap stocks will be revalued.

The buying opportunity is in small caps.

Is the Russell index of small caps overvalued more than any other index?

indigenous says

there are around 100 trillion dollars in unfunded liabilities that WILL cause
huge inflation.

That is an outrageous amount - that I am sure you got from some right wing blog.

By using my own math and a few conservative assumptions (2.5% inflation on the annuity stream, 4% GDP growth, flat tax rates as a % of GDP, 85 years life expectancy), to get to $100 trillion in "unfunded" liabilities assumes current deficit of $1.4 trillion per year. Since the current deficit is $744 billion and heading lower, this is almost 2x that. You must look at the deficit in totality - otherwise the "unfunded" part of the equation doesn't really hold water.

What they are probably doing is assuming the current $1.85T of annual payments to SS and medicare and subtracting SS and medicare tax revenues, 1.03T. That leaves $820 billion deficit per year. So they must be assuming 2.5% inflation of entitlement payments, no GDP growth (so no new revenues), and 87 years. This means the SS and medicare deficit would grow to almost $5T in 87 years.

If you assume the cost of entitlements increases at the same rate as the revenue to pay for the entitlements, so flat $820B (Real) deficit every year, and discount this for the time value of money of 1% over inflation, it maxes at $82T.

So I just don't see how they get to $100T, unless you put in a bunch of doomsday scenarios where GDP doesn't grow for 87 years but there is inflation in entitlement payments (absolutely zero chance) and are not counting assumed surplus on the non-entitlement side of the budget.

And add a buffer. But $100T sounds scary.

I could make some equally (if not more) plausible assumptions that would eliminate any unfunded liabilities for the next 87 years.

control point says

that I am sure you got from some right wing blog.

Here you go from Gannett's USA TODAY-a not a right wing publication

Unfunded liabilities:

Medicare $24.8 Trillion (which they say is "likely an underestimate"

Social security at $21.4 trillion

http://usatoday30.usatoday.com/news/washington/2011-06-06-us-debt-chart-medicare-social-security_n.htm

Keep in mind social security and medicare are outside what is considered the budget deficit

24.8+21.4 = 46.2, in 2011. Maybe 50T now. Roughly 50% of $100T.

$50T I can buy. $100T is liberatarian goldbug scare blog fantasy.

$50T I can buy. $100T is liberatarian goldbug scare blog fantasy.

Here is another one from the Washington Post putting it at around $30 trillion http://www.washingtonpost.com/blogs/fact-checker/wp/2013/10/23/does-the-united-states-have-128-trillion-in-unfunded-liabilities/

hyperbole, gold bugs, libertarians, Keynesians, socialists Krugmanites, rightwingers aside, the amount is massive and no amount of GDP growth or taxation or even confiscation of assets can ever pay it absent just printing the money which would be inflationary

smaulgld says

and no amount of GDP growth or taxation or even confiscation of assets can ever
pay it

Bullshit.

To eliminate the "unfunded" portion, you need to fill in the gap, $820 billion.

$820 billion is 5.2% of 15.7 Trillion, current US GDP. To eliminate the unfunded deficit, average tax rates as a % of GDP need to increase 5.2%.

indigenous says

Since the our wonderful president lbj put all SS money in the general fund there is nothing in the coffers for medicare or SS but IOUs.

Did he? I don't think so.

http://www.ssa.gov/history/InternetMyths2.html

I think this gets blended with the idea that money is borrowed (and paid back) into the trust fund. If the Government borrows money from China, why could it not borrow from the Trust fund? Don't the Trustees have the same responsibility that any pension plan or Insurance company would have, to make the fund grow at a rate commensurate with their expected outlays (in a responsible fashion)?

control point says

maulgld says

and no amount of GDP growth or taxation or even confiscation of assets can ever

pay it

Bullshit.

To eliminate the "unfunded" portion, you need to fill in the gap, $820 billion.

$820 billion is 5.2% of 15.7 Trillion, current US GDP. To eliminate the unfunded deficit, average tax rates as a % of GDP need to increase 5.2%.

Interesting I never thought about the math regarding this.

Considering that there has not been anything put aside since 1964 it sounded plausible to me.

The 4% number seems a bit optimistic, especially when military spending drops? and Yellin quits the QEs? which is creating the sugar high the economy is currently on.

It also seem a bit optimistic to think that the GDP would not change if you raise the taxes by 50% in order to balance the budget?

I notice that you do not mention that there is the possibility of balancing the budget by cutting spending. The fact is that if most (not all) of the crony subsidies were cut the budget would be balanced.

But to say the political realities of funding 50 t unfunded + 17 t current is not a problem is Bullshit.

Are all of these guys gold bugs?

http://news.investors.com/ibd-editorials/010314-684863-not-all-the-trends-are-bullish-as-2014-begins.htm?p=full

No market can crash anymore. If it starts to, the computers simply shut it down, and the next day the dumb money will come in and prop it back up.

CL says

indigenous says

Since the our wonderful president lbj put all SS money in the general fund there is nothing in the coffers for medicare or SS but IOUs.

Did he? I don't think so.

http://www.ssa.gov/history/InternetMyths2.html

I think this gets blended with the idea that money is borrowed (and paid back) into the trust fund. If the Government borrows money from China, why could it not borrow from the Trust fund? Don't the Trustees have the same responsibility that any pension plan or Insurance company would have, to make the fund grow at a rate commensurate with their expected outlays (in a responsible fashion)?

Yea that has been brought up here before but the reality is that is a lot of markers don't you think?

indigenous says

Yea that has been brought up here before but the reality is that is a lot of markers don't you think?

Not sure what you mean, but it would seem to me that no matter who is doing the borrowing, they are paying interest on that loan, and transfers money back into the fund when it matures. I don't see what the problem is, unless we doubt the faith and credit of the US, and we know they have options to make good on the debt(s). I'm open to counter points, but it seems logical to me.

CL says

indigenous says

Yea that has been brought up here before but the reality is that is a lot of markers don't you think?

Not sure what you mean, but it would seem to me that no matter who is doing the borrowing, they are paying interest on that loan, and transfers money back into the fund when it matures. I don't see what the problem is, unless we doubt the faith and credit of the US, and we know they have options to make good on the debt(s). I'm open to counter points, but it seems logical to me.

The debt is paid with money that is more and more printed out of thin air which means the debt is paid with money that is worth less and less.

Then there is the problem of a huge increase in demand from the baby boomers and Obamacare.

Then there is the overspending that just keeps the debt growing.