Alex Frakt wrote: LH wrote: Alex Frakt wrote:
Day9 wrote:Thanks all for the replies. While I don't think treasurydirect would default, I am worried they might use a lowball metric and I-bonds will yield way less than what my family experiences in inflation.
Can anyone speak to this worry of mine?
It's been covered here dozens of times. Try searching CPI-U understate
. I like this one viewtopic.php?t=68396
But the short answer is that the metric is set by law and the components and prices are publicly published. You can assume that any attempt to game the prices would be quickly uncovered and any attempt to change it would meet with considerable resistance in both the court of public opinion and the actual courts.
Well since Alex brought "resistance in both the court of public opinion and the actual courts" up, you can actually read about a close parallel to this issue by goggling "chained cpi" in regards to SS, or just watching current events unfold on this an other issues. Or reading history like 1933 event that private US gold holders or "hoarders" as per 1933 US law, experienced financially. There are varying degrees of "resistance" that are possible and some are not successful, some are.
You are right to have concerns.
When these things hit, very few likely have concerns beforehand. Its almost unbelievable to the people who experience it I would posit. Imagine someone saying in 1929 that gold would be confiscated at 2/3rds or so of its value within 5years, in the "modern" US of its time, with all the "modern" knowledge they had. Or that stocks would fall what, 90 percent. No way that would happen. They would likely laugh themselves silly at the statements.
Financial history is great. Go back and read the proclamations at that time, nice and authoritative.
What I really find in common, is the more there is simple ad hominem attack instead of to the point reasoning, the more there is to worry about
I always wonder about the historical question that if one polled about SS being able to pay out as promised in 1950, 1960.1970 etc. what would be the answer? Possibly overwhelmingly, would be that SS was good as gold, or better than gold even, being backed by a "modern" US government ( with a printing press, etc), at first, especially when law was first passed. Somewhere, its gotten to 67 payout projection now though by government SS sheet.
Say Argentina 2001, people had deposits in banks in dollars. Well, the government force-ably changed them to pesos, then devalued the pesos. Those people thought they were safe almost certainly.
Its kinda like the IMF 2007 report about the economy before the crash, smoooooth sailing ahead in regards to all these issues : )
The US is no longer top rated anymore in credit worthiness, for good reason.
I think you have valid concerns.
I think he doesn't. None of the examples you gave include a default on US debt and we have been through far worse troubles than we currently face. And the chained CPI discussion supports my position that public opposition would scuttle attempts to statutorily game I-bond payments. As soon as the public became aware of the chained CPI proposal and started responding, legislators started to run away from it. The same thing happened with the proposed bank account "tax" (i.e., confiscation) in Cyprus.
Note to the OP. Some people always see economic doomsday around the corner. There were thousands of posts on this forum about imminent hyperinflation as the TARP and auto bailouts were underway in 2008/9. I don't recall any of those posters admitting how completely wrong they were. I do see that several of them still think hyperinflation is coming, they have just shifted their rationale and timeframe.
Well, just because one country has not defaulted, does not mean it will not, just like housing never falling meaning it will not in the future, but I would disagree about the lack of default.
In terms of "default on US debt" that you bring up specifically, I did mentioned 1933 US gold.http://www.amazon.com/This-Time-Differe ... +different
Is a great book, a bit boring to read compared to say Eichengreen books, but nonetheless a great book. Hey, Paul Krugman even vouches for it here: http://www.nybooks.com/articles/archive ... tion=false
Great book, more than anything else, if you have a bit of background (to the OP), and can slog through it, its a good read.
anyway, I cant pull the text off my kindle version, but here is a NYT economix blog reference to the historical event:http://economix.blogs.nytimes.com/2011/ ... t-default/
Then in 1933, in the midst of the Great Depression, the United States had another domestic debt default related to the repayment of gold-based obligations.
The 1933 US gold maneuvers, are in fact considered to be a "debt default" by the US, per Reinhart and Rogoff.
So there it is, but not even the lack of it would mean much going forward in a nation with circa 200years of history. Almost all governments default sooner or later historically, its just a matter of when : )
Its interesting to read about creditors to the Kings of old, good way to lose ones head in debt defaults, er "technical restructurings", er, well, beheading of said creditor. fini. no debt....
In terms of "always see economic doomsday", well, thats not me. My allocation speaks for itself: 81 percent stocks, 16 percent bonds, 3 percent gold, and I am not even at 3 percent gold yet.
I will leave the OP with another doom and gloomer, WSJ Jason Zwieg, who appears to have some misgivings, and even talks about US debt default, he touches upon Reinhart as well in:
"Own Government Bonds? Here's Why You Should Be Worried "http://online.wsj.com/article/SB1000142 ... inance_PF2
(if this link does not work, google the title above)
He mentions the "the U.S. has flirted with technical default before. In April and May 1979, amid computer malfunctions, heavy demand from small investors and in the wake of Congressional debate over raising the debt ceiling, the U.S. failed to make timely payments on some $122 million in Treasury bills. " The bondholders sued, (presumably incurring costs/loss even with back interest due to lawyers etc. fees, unless those fees were covered too along with back interest?, dunno), before they were finally paid with back interest.
Now, primarily in the end, he focuses more on repression, which is spot on, but... he undoubtedly has at least some concerns about default, he is not mentioning default randomly.
So we agree to disagree : )
My position is take heed, keep your eyes open, consider the issue.
Was not too long ago, what 5 years, they were saying US ATMS might not dispense cash on the local news. hmmmm.
Hopefully we turned the corner, that is what I think is most likely, (for what its worth, nothing : )) but its the downside, that one has to consider, more or less, depending on where you are in your lifecycle/earnings ability.
Reading history, just the past 100 years US even, I have little faith in anyones prognostication, and when things go bad, they go bad quickly and unexpectedly.
I enjoy the conversation and my thanks for all you do on this great discussion board,