<p>All sorts of snide comments are coming to mind, but I’ll resist.</p>
<p>And why won’t it happen? You trust these (fill in the blank) people to work together to take care of business and not spend the next few months arguing and posturing so it doesn’t happen?</p>
<p>Ha! A remote possibility exists.</p>
<p>Because the govt can print money…</p>
<p>If the govt defaults because of these politicians, what do you think will happen?</p>
<p>^Fire and brimstone coming down from the skies. Rivers and seas boiling.
Forty years of darkness. Earthquakes, volcanoes… The dead rising from the grave.
Human sacrifice, dogs and cats living together. Maybe?</p>
<p>Or perhaps just the market crashing. Treasuries losing value. US debt being downgraded.
Something like that. Lower bond prices, but higher bond yields…which I don’t know if that would be a good or bad thing for TIPS.</p>
<p>Without the inflation, lower bond prices, and higher rates would be bad for TIPs.</p>
<p>Existing tips would drop in price…</p>
<p>TIPs have done well because the real rate of returns on bonds declined ( bond prices rose).</p>
<p>Inflation is not rising 6 percent a year. Part of the return from tips is investors have been paying up for bonds. Investors in bonds have been willing to accept less real return in bonds. Investors have been paying up for bonds. The fed has been buying bonds too.</p>
<p>Okay then, thanks.</p>
<p>Ok…I edited my post. I hope you caught the edit…</p>
<p>I think the last time we had this debt ceiling crisis, bond prices ended up rising. This helped tips. I don’t know why but, Bond investors didn’t seem to care about the debt downgrade.</p>
<p>Maybe this time, things willbe different. Who knows?</p>
<p>The real return is the return above inflation.</p>
<p>[Whatever</a> Happened to the Bond Vigilantes? - Yahoo! Finance](<a href=“http://finance.yahoo.com/news/central-bank-buying-runs-bond-232216928.html;_ylt=AssX4y.9naGynJg0ND0AgTCiuYdG;_ylu=X3oDMTQ4bjdlb29rBG1pdANDTkJDIFRvcCBTdG9yaWVzBHBrZwMxMDBlZGRmNS02ODgxLTM5NmEtOTU3NS1mODAxNDgwZDExYzUEcG9zAzEEc2VjA01lZGlhQkxpc3RNaXhlZExQQ0FUZW1wBHZlcgM3MWY5MjMzZi01ODVhLTExZTItYjdkOS1mOTI3M2FjN2IwNDA-;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3]Whatever”>http://finance.yahoo.com/news/central-bank-buying-runs-bond-232216928.html;_ylt=AssX4y.9naGynJg0ND0AgTCiuYdG;_ylu=X3oDMTQ4bjdlb29rBG1pdANDTkJDIFRvcCBTdG9yaWVzBHBrZwMxMDBlZGRmNS02ODgxLTM5NmEtOTU3NS1mODAxNDgwZDExYzUEcG9zAzEEc2VjA01lZGlhQkxpc3RNaXhlZExQQ0FUZW1wBHZlcgM3MWY5MjMzZi01ODVhLTExZTItYjdkOS1mOTI3M2FjN2IwNDA-;_ylg=X3oDMTFpNzk0NjhtBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANob21lBHB0A3NlY3Rpb25z;_ylv=3)</p>
<p>Yes, I just looked at the edit. </p>
<p>Interesting article. I guess it reinforces your point.</p>
<p>When you mentioned default it did not occur to me you were talking about the debt ceiling issue. </p>
<p>Some of these politicians really have no clue what they are doing. Wall Street will go crazy…and I don’t just mean the markets…the firms on wall street will go crazy if the politicians set up policies that cause a default. Since Wall Street supports the politicians financially, I would think that would also be a reason for no default.</p>
<p>However, even though there is no rational reason for a default, some
politicians are ignorant, or crazy, so who knows?</p>
<p>So what’s wrong with this simple interpretation of tips; it pays nominal interests plus inflation rate. A little like a variable mortgage?</p>
<p>What I don’t like about TIPS is that you could lose money on them. </p>
<p>However, I always max out my allocation of I-bonds, which are inflation protected savings bonds. They are guaranteed to have a positive real return, and never go down in nominal value. </p>
<p>Each person can buy $10K/yr on Treasury Direct and can get another $5K/yr by taking your refund in paper bonds. DW and I get $25K/yr that way. After a number of years, you can build up a pretty sizable allocation. It’s also all tax-deferred since you only pay taxes when you take the money out.</p>
<p>TIPs with shorter durations are not paying nominal rates plus inflation right now.</p>
<p>[Daily</a> Treasury Real Yield Curve Rates](<a href=“Interest Rate Statistics | U.S. Department of the Treasury”>Interest Rate Statistics | U.S. Department of the Treasury)</p>
<p><a href=“http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm[/url]”>http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm</a></p>
<p>These bonds used to be really good deals when an investor was paid a decent rate plus inflation.</p>
<p>We don’t own tips any more. Sold them a few months ago. Just too complicated for my taste.</p>
<p>ClassicRockerDad, Thanks for the “Tips” on I-bonds! Somehow I never really took a good look at them. I think you are right. They seem to work like TIPS only better, the better part being they seem to have a lower limit of zero while TIPS can and do trade at negative nominal and real interest rates. I am going to open some new Treasury Direct accounts and buy them. Too bad I didn’t hear about these in December - just lost a year and $20k worth, (wife and I). It is a fairly low annual limit. I had a Treasury direct account for many years (possibly back to 1980) but a few years ago closed the account because they started charging an annual fee and I could efficiently and cheaply buy US Treasuries from Schwab. </p>
<p>If I sit back and think about what could hurt us the most over the next 5 or 10 years, the obvious answer is a complete market collapse because we own stocks, but we also maintain high cash balances which are earning almost zero. A close second in the threat department is a resurgence of inflation. What seems like a comfortable amount of money (cash) today could seem like a piddling amount after 5 or 10 years of moderate inflation… 5 - 7%, lets say.</p>
<p>ClassicRockerDad, thanks. Ibonds do look interesting.</p>
<p>Inflation is the one thing that can kick my butt. That and negative interest rates. I also am sitting on cash.</p>
<p>I also closed my treasury direct account and went to Schwab when fees were enacted.</p>