The Inverted Yield Curve

[Bud]

Good point. However, every time I read about something that is not affordable for someone living on Social Security alone, I can’t help but think SOCIAL SECURITY IS NOT MEANT TO BE YOUR SOLE RETIREMENT INCOME SOURCE!

Now, I understand that many end up in that situation through events they can’t control. However, I think many end up in that situation through a lifetime of poor decisions. I think there are also many who end up in that situation simply due to ignorance (not a pejorative but they simply didn’t have the information).

Regardless, of how it happened there are many in that situation who need to be cared for now. I just hope that those younger than I are being better educated as to the nature of Social Security.

Social security tax is 12.4% paid half by employer and half by employee. If somebody makes $100,000 a year that would be 12,400 a year or $1033 amonth for 45 years at 2% interest is $900,807, principal is 557,820, total interest is $342,987

 

[Bigsfish]

Menzies congrats but SS is not a major milestone but Medicare is, your SS check will pay your Medicare and extra. It’s nice walking out of the hospital or doctor’s office and your payment is ZERO.

Enjoy.

 

[menzies]

Menzies congrats but SS is not a major milestone but Medicare is, your SS check will pay your Medicare and extra. It’s nice walking out of the hospital or doctor’s office and your payment is ZERO.

Enjoy.

Actually my retiree medical plan is backup to Medicare so I am not too concerned about that.

And I am taking my social security as soon as I can (next month) as I am doing something a wee bit different with that!

 

[Bigsfish]

I took mine as early as possible.

 

[BandB]

Good point. However, every time I read about something that is not affordable for someone living on Social Security alone, I can’t help but think SOCIAL SECURITY IS NOT MEANT TO BE YOUR SOLE RETIREMENT INCOME SOURCE!

Now, I understand that many end up in that situation through events they can’t control. However, I think many end up in that situation through a lifetime of poor decisions. I think there are also many who end up in that situation simply due to ignorance (not a pejorative but they simply didn’t have the information).

Regardless, of how it happened there are many in that situation who need to be cared for now. I just hope that those younger than I are being better educated as to the nature of Social Security.

Understand too that a lot of the current retirees lost their retirement various ways. Also, many are the post-pension fund group. At one time, most large companies had pension funds of various types. Those were largely ended during the 70's, 80's and 90's and replaced with 401-K's. At first companies did generous matches and that encouraged participation. But those matches became less generous and pay raises also less generous so voluntary participation didn't stay at the same levels. Some also have lost their savings to medical expenses along the way. Others lose it early to providing educations for their kids. I had a co-worker who had three daughters in college at the same time, In Duke, Wake Forest, and Davidson, all quite expensive.

Whether younger will be smarter, I don't know. I know many are scared social security won't be there for them. We have incredible participation by young people in 401-K's but it's because of our match and training we give them showing the benefits. Now some will make hardship withdrawals before retirement.

We have a very significant part of our population with no savings, living paycheck to paycheck while working and then in retirement while on social security.

 

[dhays]

I took mine as early as possible.

That is a whole other calculation. Currently, we are thinking that my wife will start to draw as soon as she is eligible at 62 and I’ll wait until I’m 70 1/2. We have a couple years before she gets to age 62. A lot can happen in that time. I’m planning on dying before my wife and my SS benefits are much higher than hers. OTOH, if it looks like I may screw up and live longer, then we may have her delay collecting until later. I think her benefits go up about 8% for every year she delays collecting.

Of course, if we need the money then we will have her start collecting earlier. If not, then we won’t. My projections are a bit odd. I have a couple of significant income streams that will end in a few years. If I also quit working around the same time, then have a major budget deficit unless we make very large changes in our lifestyle. OTOH, if we can get through those few years without depleting savings too much, then our assets are likely to just keep increasing baring some major financial crisis.

 

[Bigsfish]

When I think of what I paid into SS just for myself not what I matched for employees I get sick at how bad the government screwed up and now the socialist want the government to control everything. Glad I won’t live much longer.

 

[Insequent]

When I think of what I paid into SS just for myself not what I matched for employees I get sick at how bad the government screwed up and now the socialist want the government to control everything. Glad I won’t live much longer.

Hey, if I may interject! Forget the past, its no longer of any consequence. Enjoy today, look forward to tomorrow!

I'd invite you down-under, but sorry, we're full. Well, almost!

Our goal here is to outlive the vandals that are messing up a fabulous world, well past the time we swallow the anchor. You've got an obligation to continue amongst other things the FP gatherings. If I keep figuring I might just work out how to get there one day, and I'd like to put faces to names as well as sample the cooking and beverages.

 

[Bigsfish]

Fantastic a brother from the bottom side of the world maybe might make Fort Pierce. I’m impressed even if you don’t make it.

Cheers

 

[BruceK]

This comes from a Financial Report I get. Rather than comment on it, I will just put it up for observation. Worth noting however that elsewhere in the article, the author says the IYC is reversing back to something more normal.:
"Panic Stations
It’s been a while since we’ve seen a panic, but we saw one on Monday when the US repo rate spiked to 10%. The Fed stepped in and immediately flushed the market with US$53 billion in cash and then did another US$75 billion on each of the following three days.
This morning the Fed went even further, announcing two-week loans of up to US$90 billion to be spread over three days next week. It’s taking last Monday’s panic very, very seriously.
“Repo” stands for repurchase, and is the way banks lend to each other overnight, by selling and repurchasing bonds. The rate is the interest rate implied by the difference in price.
On Monday there was a sudden cash drought and a panic, sending the interest rate skywards. It shocked financial market participants and regulators around the world because it reminded everyone of the liquidity crunches that started happening in late 2007, and were the harbinger of the crisis a year later.
Author Jim Rickards reminds us via Twitter of the distinction between a panic and a recession: “Panics happen without recession (1987, 1994, 1998). Recessions happen without panics (1982, 1990). Sometimes they happen together (1929, 2008). Right now, recession risk is low. But repo signals possible panic.”
I witnessed all of those events, and he’s dead right, especially about 2008. During the week beginning September 15 that year there was a money market panic caused by the collapse of Lehman Brothers, which caused the Prime money market fund to “break the buck” (go below $1 per unit). It wasn’t the Lehman collapse that caused the recession but the panic that followed Prime breaking the buck.
Rickards is a gold bull and a pessimist, so when he says recession risk is low we should pay attention. But is panic risk high? Well, I agree that it’s higher than the risk of recession, but that’s not saying much. The risk of recession is quite low.
The repo rate normally matches the Fed funds rate, 2-2.25% up to Thursday morning our time, when it was lowered to 1.75-2%. What caused it to be 10%?
It doesn’t seem to have been the same sort of reasons that caused the liquidity events during 2007-08, which was fear and mistrust (banks not trusting each other). It seems to have been caused by a temporary mismatch of demand and supply.
Cash supply was down because September 15 was tax day. Companies had put money into money market funds to prepare. As tax day passed, they pulled it out.
In addition, US$54 billion in Treasury bonds went into the market, financing the deficit, creating a lot of demand for cash from people wanting to buy them.
These things on their own wouldn’t normally cause a conniption in the market, but it was against the background of quantitative tightening by the Fed, so there was both a simultaneous structural and cyclical shortage of cash.
It’s a sign of how central banking has changed that the Fed is going all out to make sure it doesn’t happen again. In 2007-08 it was pretty relaxed; not this time."

 

[BruceK]

Thanks Tom. It`s Alan Kohler`s article, a sensible analyst who doesn`t claim infallibility, and as I see it reports and comments objectively.
Our Prime Minister is currently on a US State visit with your President, staying at the guest residence on the White House campus. He`ll be walking the fine line of China as our biggest customer, US as our major investor and security ally. Our budget is back in surplus after 11 years of deficits,we won`t want that to change.

 

[Bud]

Thanks Tom. It`s Alan Kohler`s article, a sensible analyst who doesn`t claim infallibility, and as I see it reports and comments objectively.
Our Prime Minister is currently on a US State visit with your President, staying at the guest residence on the White House campus. He`ll be walking the fine line of China as our biggest customer, US as our major investor and security ally. Our budget is back in surplus after 11 years of deficits,we won`t want that to change.

Good article.
Thanks for posting it.
A couple of thoughts I have, The banks lending to each other at the end of each day to meet their leverage ratios, What is the incentive of bank one that is above their ratios on that day to lend to bank two? Is it just to make that little bit of interest stated? I would say thats not much and is this a case of banks not playing well with each other because of competitive reasons.(It is a challenging enviroment for them)
The other thought is, now that all these operatios are computerized was this exaggerated by an alogorythm like the flash crash we had in the market a while back?

 

[Bud]

I think the incentive is that tomorrow the position may be reversed, the bank which lent may be the one needing an overnight loan.
As I understand it, the published interest rate of central banks, ie the Fed, is the rate at which banks lend to each other. So, while it is "the official rate", other lending situations can be and usually are at different rates. Changes in the "official rate" don`t always result in equivalent changes to variable mortgage loan rates; some banks here pass on the full change to borrowers, others don`t.
"The official rate" is a blunt instrument in economy management, but seems about the only one central banks have. Years ago, our Government contrived to push house loan rates to 18%, to beat up a hot inflationary economy by forcing people to spend on mortgage interest instead of other things. It worked eventually, the economy went into reverse and a deep recession(our last one), which our PM called "the recession we had to have".
I get the impression sometimes Govt. economic policy and Central Bank interest adjustments are not in sync,one may even be trying to counteract the other. Our Central Bank is independent,so is yours I hope,despite the trenchant public abuse it receives by frequent tweet from your President.

I am not sure with all the new regs for banks and their increased leverage ratios (Dodd-Frank act) that this system they have to borrow from each other daily still works very well.
I think the tweets from potus about the fed are part of his negotiating scheme for the chinese trade agreement. If equities go down significantly he loses some negotiating leverage and people won't be so patient with the tariffs. The lower interest rates prop up equities and can weaken dollar. This buys him some time for the chinese to come around.

 

[BruceK]

..
I think the tweets from Potus about the fed are part of his negotiating scheme for the Chinese trade agreement. If equities go down significantly he loses some negotiating leverage and people won't be so patient with the tariffs. The lower interest rates prop up equities and can weaken dollar. This buys him some time for the Chinese to come around.

As I understand it, US unemployment is 3.7% of the workforce. I believe 1 in 20 of a workforce is essentially unemployable, so it`s full employment plus,with a "growing" economy. Why does it need stimulating by drastically dropping interest rates, or at all. Why is the Fed publicly called a bunch of idiots via media, tweet, etc for not doing it? It`s not pretty to watch.
Rather than a part of a China strategy, it could be as simple as POTUS wanting lower interest rates for Trump business interests. The China "strategy" if there is one,seems to change more often than the weather, and is way less predictable.

 

[FF]

"Why does it need stimulating by drastically dropping interest rates,"

In an election year the fed normally pumps up the economy , weather the pres is left or right.

Lowering the interest rate will also slow the hot money from countries where the interest rate is negative.

As the dollar rises we sell less to the world , and place a hardship on emerging countries that have to pay for imported oil with dollars.

 

[BandB]

I would just make the observation: If you are "happy" having gone through that self scrutiny you just explained, then your are diversified enough to feel financialy secure. If you do become worried you probably have a better idea now what you would change.

Good observation and we are happy. We'll likely reduce our Berkshire Hathaway at some point but right not there are just not attractive places to put it.

I do think it's helpful to see where you are and why you're there. Much of what we do is not planned ahead but just happens along the way and we're happy with it.

 

[FF]

"it sounds like an aggressive driving of the economy,which should not and I think does not need the added impetus of slashing interest rates."


To me the best driver of the economy is low fuel prices , rich or poor its extra cash.