Gyroscopic Investing

Ad Orientem wrote: The man's incompetence on very basic matters of policy, coupled with his temperament, disqualify him from consideration as a serious candidate for president. Barring a criminal indictment, the wicked witch will be the next POTUS.

jafs wrote: Another facet of this is that interest rates for US treasuries are low precisely because they're seen as a safer investment.

Higher risk investments usually compensate investors for taking that risk with higher interest rates.

sophie wrote: No particularly good candidates come to mind.

rickb wrote:

sophie wrote: No particularly good candidates come to mind.

Hillary.

jafs wrote: Another facet of this is that interest rates for US treasuries are low precisely because they're seen as a safer investment.

Higher risk investments usually compensate investors for taking that risk with higher interest rates.

sophie wrote: In that event, what do you all think would replace US Treasuries as the safe haven of choice?  Or would Treasuries continue to be regarded as the safest option despite a default?  I think we'd have to wait and see, because the answer is not obvious.

curlew wrote: David Stockman likes the idea.....

http://davidstockmanscontracorner.com/t ... ic-policy/

goodasgold wrote: Looks like especially bad news for long-term treasury bonds; the prospects for I-bonds and TIPS ain't looking so good either.

As Craig and Medium T noted concerning TIPS in their book: "Don't buy fire insurance from arsonists and don't buy inflation insurance from inflationists." [IIRC] Looks like in the next edition they'll need to add: "And don't buy bankruptcy medicine from serial bankrupts like Donald Trump." But the problem, if Trump and Stockman are correct, is that all politicians will eventually have to face the music and deal with the reality of our bankrupt nation. Stormy weather ahead, shipmates.

jafs wrote: Well, that's just on the edge of what's considered a good debt/income ratio according to a couple of sites I looked at.

The bigger concern would be the huge unfunded liabilities, though, wouldn't it?  Looks like those are about 33x the income levels.

jafs wrote: I'm not at all sure that's true.

What's in those unfunded liabilities?  If it's stuff like SS/Medicare, there are legal obligations about those (they could be changed, but it would require laws, and those programs are extremely well-entrenched by now).

jafs wrote: If it's not in the constitution, it's not "constitutionally" protected.  I wouldn't call that the same as not legally protected, if there are laws that protect it.

https://www.ssa.gov/history/nestor.html wrote:The fact that workers contribute to the Social Security program's funding through a dedicated payroll tax establishes a unique connection between those tax payments and future benefits. More so than general federal income taxes can be said to establish "rights" to certain government services. This is often expressed in the idea that Social Security benefits are "an earned right." This is true enough in a moral and political sense. But like all federal entitlement programs, Congress can change the rules regarding eligibility--and it has done so many times over the years. The rules can be made more generous, or they can be made more restrictive. Benefits which are granted at one time can be withdrawn, as for example with student benefits, which were substantially scaled-back in the 1983 Amendments.

There has been a temptation throughout the program's history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. That is to say, if a person makes FICA contributions over a number of years, Congress cannot, according to this reasoning, change the rules in such a way that deprives a contributor of a promised future benefit. Under this reasoning, benefits under Social Security could probably only be increased, never decreased, if the Act could be amended at all. Congress clearly had no such limitation in mind when crafting the law. Section 1104 of the 1935 Act, entitled "RESERVATION OF POWER," specifically said: "The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress." Even so, some have thought that this reservation was in some way unconstitutional. This is the issue finally settled by Flemming v. Nestor.

In this 1960 Supreme Court decision Nestor's denial of benefits was upheld even though he had contributed to the program for 19 years and was already receiving benefits. Under a 1954 law, Social Security benefits were denied to persons deported for, among other things, having been a member of the Communist party. Accordingly, Mr. Nestor's benefits were terminated. He appealed the termination arguing, among other claims, that promised Social Security benefits were a contract and that Congress could not renege on that contract. In its ruling, the Court rejected this argument and established the principle that entitlement to Social Security benefits is not contractual right.

jafs wrote: So treasury bonds aren't constitutionally protected?

jafs wrote: It's not as iron-clad as a constitutional right, but it's better than nothing.  Given how entrenched SS is, it would be political suicide to try to eliminate it.