Stock Market Sell off

wrbix said:
Stagflation is what many expect.
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The bond market is the real indicator of inflation expectations. Stagflation is possible if inflation rises but wages don't. That was the 70's, and Nixon's attempt at price controls. That was an ugly time.
 
coloradobluesky said:
Let's see. The US Treasury issues bonds. The Federal Reserve buys those bonds. The US Treasury pays interest on those bonds to the Federal Reserve. The Federal Reserve makes a profit on those bonds by collecting the interest. Those profits get transferred to the US Treasury.....
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Except the Fed does not purchase treasury bonds directly from the Treasury. The Fed buys and sells bonds to member banks on the secondary market to inject or remove liquidity from the economy. The Fed does not participate or influence Treasury auctions.
 
coloradobluesky said:
Yes, The Fed has to buy them "second hand". Small detail.
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It's rather a large detail, because the Fed's impact is on bank reserves, not treasury debt. There has been no shortage of buyers of Treasury debt at auction.
 
The Fed just goes out and buys bonds in the secondary bond market. Thats how that works. But that's not the point for someone trying to understand it. Most people don't even know the difference between the US Treasury and the Federal Reserve.

The point is, the Fed buys US Treasuries and the Treasury department pays the Fed interest. And that interest is profit that is paid back to the Treasury. That is what needs to be understood. The details of the mechanics of all that is just a distraction from the fundamental understanding of what is going on.
 
coloradobluesky said:
The Fed just goes out and buys bonds in the secondary bond market. Thats how that works. But that's not the point for someone trying to understand it. Most people don't even know the difference between the US Treasury and the Federal Reserve.

The point is, the Fed buys US Treasuries and the Treasury department pays the Fed interest. And that interest is profit that is paid back to the Treasury. That is what needs to be understood. The details of the mechanics of all that is just a distraction from the fundamental understanding of what is going on.
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Respectfully, what needs to be understood is the Fed works both ways, buying and selling bonds and securities to control the money supply, and therefore target inflation. The funds do not go only one way. when inflation heats up, the Fed buys to take money out of circulation. The Fed is the independent instrument of monetary policy, not a market maker or trading arm for Treasury.

But you are correct in that any trading "profits" are returned to the treasury, and they are considerable.
 
I have been told it is also possible for the Fed to lose money. Have a loss. I don't really know how. Do you understand how that would work? Has it ever happened?
 
Sure, why not? Interest rates rise, the capital value of the bonds in the portfolio decreases. I don't have any figures on hand, but it's possible. However, via accounting practices and charter, the Fed doesn't have to realize it's losses and holds the number on the books as a deferred asset. It then holds any future income to make up the deferment before it starts sending funds to Treasury again. There will probably be some hefty losses when the Fed starts selling bonds to unwind QE, as rates will be higher and the low interest bonds worth less. of course, they can also hold to maturity and lose no face value.

The figure I do have on hand is the Fed returned almost $98 billion to Treasury last year.
 
The thing to bear in mind is that the Fed only sets very short term rates. Anything longer, 3 yr plus, is set by the market. when those rates rise and fall, the capital value of the bonds rise and fall inversely.
 
overdrive148 said:
Where do/did you guys learn this stuff? I did macro and microeconomics in college but not much of this stuff is familiar.
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I learned my 'Buy high, sell low' strategy through years of practical experience. o_O

Nauga,
inverted
 
wrbix said:
Nothing in Constitution addresses this.
Got a reference?
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14th amendment.

"The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void."
 
mtuomi said:
14th amendment.

"The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void."
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No....doesn't address your original claim:
"In the end they realized, that not paying the debt would be against the Constitution, so not an option."
Don't believe maintaining national debt or deficit spending is unconstitutional.
As a matter of fact, many would/and have argued that placing a CEILING on the national debt is unconstitutional.
 
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wrbix said:
No....doesn't address your original claim:
"In the end they realized, that not paying the debt would be against the Constitution, so not an option."
Don't believe maintaining national debt or deficit spending is unconstitutional.
As a matter of fact, many would/and have argued that placing a CEILING on the national debt is unconstitutional.
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How so? The phrase "authorized by law" in the amendment seems to limit the debt to that which congress authorizes since they write the laws and control the budget. So congress placing a ceiling on it is within their authority.
 
SkyDog58 said:
How so? The phrase "authorized by law" in the amendment seems to limit the debt to that which congress authorizes since they write the laws and control the budget. So congress placing a ceiling on it is within their authority.
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That is a matter of recent debate amongst constitutional scholars that is above my pay grade....but I still contend that "not paying the debt" is not addressed herein. Any student of macroeconomics has been taught that deficit spending and resultant national debt is a useful tool of financial stimulus.
Again, I only have issue with your original contention of:
"In the end they realized, that not paying the debt would be against the Constitution, so not an option."
 
The bond market is just now seeing more debt coming? Where has it been the last 8 years (as interest rates continued to trend down)?
 
rpadula said:
The bond market is just now seeing more debt coming? Where has it been the last 8 years (as interest rates continued to trend down)?
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Just to put it in perspective, historically the market has described a "spike in rates" as a 2-3% jump in the 10 yr. Since the election two business days ago, ( bonds didn't trade Fri) the 10 yr has jumped nearly 17%. Why? A lot of spending proposed by the winning candidate, along with a $7 trillion tax cut.

That's more debt on the horizon.
 
overdrive148 said:
Where do/did you guys learn this stuff? I did macro and microeconomics in college but not much of this stuff is familiar.
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For me, a lot of it has been self taught and through my father that's been actively trading for years. Watch the market for awhile and trade with "real" money, you'll learn fast. They teach alot of useful things in the classroom but it's never truly learned until you get real world experience.
 
Recommended:

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10yr rate up another 5% at the open this am. If the gov. checkbook does come out, the fiscal stimulus could be a good thing for stocks short-term. Wages will need to rise as well.

'Course, it'll all still be on the cuff.
 
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Chip Sylverne said:
10yr rate up another 5% at the open this am. If the gov. checkbook does come out, the fiscal stimulus could be a good thing for stocks short-term. Wages will need to rise as well.

'Course, it'll all still be on the cuff.
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Wages will take a while to follow inflation up. Most people don't even realize they're getting a 3% pay cut every year that they don't get a 3% raise.

They think they're "doing as well as they've been doing for the last few years" when their companies announce that no raises will be paid in any particular year.

It's a big enough disconnect that it has to get semi-ugly before people demand higher wages.
 
Warren Buffett last week on CNBC. " this country is strong. Compared to 2008 it's a miracle...in great shape. The growth has been slow but steady. I don't think people realize how close we were to a full blown depression. " unquote. I'll go with Warren.
 
Jimmy cooper said:
Warren Buffett last week on CNBC. " this country is strong. Compared to 2008 it's a miracle...in great shape. The growth has been slow but steady. I don't think people realize how close we were to a full blown depression. " unquote. I'll go with Warren.
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well....we ain't out of it yet. Folks in Peoria don't have all their jobs back....and wages are depressed....and the folks in the rust belt are ****ed.
 
Definitely depends on where you live, and if you had the money to invest in stocks...
 
mscard88 said:
Yeah but with 401Ks one almost has no choice but to invest in stocks.
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I would not know about "most" 401(k)s, but the one I have gives you the option of many things, stock funds, bond funds, funds that resemble cash...

But my point was that since we are in a 7-year bull market, those that didn't invest in stocks are probably "behind" those that did, financially anyway.
 
Everskyward said:
I would not know about "most" 401(k)s, but the one I have gives you the option of many things, stock funds, bond funds, funds that resemble cash...

But my point was that since we are in a 7-year bull market, those that didn't invest in stocks are probably "behind" those that did, financially anyway.
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and those who stayed in since 07 are back to even or slightly a head. :D
 
Everskyward said:
I would not know about "most" 401(k)s, but the one I have gives you the option of many things, stock funds, bond funds, funds that resemble cash...QUOTE]

Most do have options like what you listed. Some even have company stock, and people put all there money in company stock vs being diversified.
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