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When that occurs the debt service instantly consumes at least 1/3 of the revenues.
Is the debt a variable rate or fixed? I'd think it was fixed, so why would that impact the debt service?
When that occurs the debt service instantly consumes at least 1/3 of the revenues.
Is the debt a variable rate or fixed? I'd think it was fixed, so why would that impact the debt service?
Don't know. The experts are saying that the interest will effect it so I guess it has to rolled over one way or another at the current rate
And back into the stock market
After the crash was over.
Correct and the question still remains-will that happen again-are the circumstances the same, can the fed pull off another market "put" or have they already expended themselves with QE?
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?
To overpaying for overpriced houses.
Maybe it goes no where-just sits in cash-hard to drive home sales and prices higher if people have less money after a stock market crash
Good question, wherever the return is the best, maybe just cash?
You think that during a crash caused by a confidence crisis in the dollar, investors are going to go to dollars?
If that is the reason for the crash, then gold, silver, foreign currencies and crypto currencies would be the places dollars would flow, not dollar positions or treasury bonds
When that occurs the debt service instantly consumes at least 1/3 of the revenues.
Is the debt a variable rate or fixed? I'd think it was fixed, so why would that impact the debt service?
Its fixed but much of it is short term and will be needed to be rolled over at higher rates
Don't know. The experts are saying that the interest will effect it so I
guess it has to rolled over one way or another at the current rate
Most federal debt is fixed rate (except TIPS and EE bonds for example), however - it is variable term. That is, when bonds/bills/notes mature they must be paid, and the Treasury must sell additional bonds/bills/notes to pay the old debt (unless they have cash, which as we know they do not as there is a deficit)
And they publish a report that outlines the debt by average interest rate and time to matuirty.
November 2013 unaudited here:
http://www.treasurydirect.gov/govt/reports/pd/feddebt/feddebt_nov13.pdf
What you find is that about 12% of Debt is held in long term (over 10 year) Bonds. About 20% is held in very short term notes (less than 1 year) or TIPS. And the balance is held in medium term bills (1 to 10 years)
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 - for the past 5 years, old high interest 30 year debt (orginated in the early 1980s at 10%+) has matured - muting the effect of lowering interest rates. The same thing will occur in the next several years - short and medium term debt will be renewed at higher interest rates, but there will be a backlog of older debt also rolling off that was sold before the past 5 years at higher interest rates than we have today - or will likely have in the next several years.
And if interest rates continue to climb it will be a trailing indicator of inflation, which is an indicator of increased demand in a growing economy.
but there will be a backlog of older debt also rolling off that was sold before the past 5 years at higher interest rates than we have today - or will likely have in the next several years.
What percentage of the debt is this?
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?
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.
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.
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?
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
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?
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.
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
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?
What Will You Do If/When The Stock Market Crashes?
Skull-fuck a banker and cultivate my yams.
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.
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
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!
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
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
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
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.
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
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
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?
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.
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
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?
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.
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
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.
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Stock market crashes are inevitable. Since 1987 all stock market crashes corrected fairly quickly because of Fed intervention.
Will the next one be different?
What will the Fed do if faced with a stock market/economic/real estate market collapse?
Would the Fed reverse course and increase QE?
Would it have any impact on interest rates?
Has the limit of Fed intervention been reached?
What will you do if the stock market crashes?
http://smaulgld.com/what-happens-after-the-next-stock-market-crash-poll/
#housing