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The Fed is trapped: It can’t raise too much since trillions of debt rely on very low rates. If it doesn’t raise enough then inflation will cause a recession.

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MR4D 5y ago
It’s even worse - if the Fed actions tank the markets, then millions of retirees who have been enjoying high market values are screwed and have no other source of wealth or income. I do not envy the position the Fed is in.
- thehappypm 5y ago
  Oh no! Boomers will lose 401(k) value! The horror!
  - kipchak 5y ago
    Unfortunately most people with 401(k)s are in SPY as the default, boomers or not
    - thehappypm 5y ago
      Time in the market > timing the market. It’ll go back up.
    - tootie 5y ago
      SPY is up >2% today. I think the market wants inflation to be tamped more than they want cheap money right now.
  - colordrops 5y ago
    Phrased less sarcastically: "Millions of retirees won't have enough money to survive until they pass away."
    - budoso 5y ago
      Phrased sarcastically again, but from the opposite point of view: “Jerome Powell wants your grandma to starve!”
    - throwawayboise 5y ago
      Or: Your elderly parents need to move in with you because they cannot afford to live on their own.
    - foogazi 5y ago
      Savings diluted by inflation or artificial asset growth? Can you have it both ways ?
    - akvadrako 5y ago
      Lots of people live on social security alone.
  - xienze 5y ago
    You won’t be laughing when you find out it’s your responsibility to bail them out.
    - thehappypm 5y ago
      Sadly this is probably the case.
  - moltke 5y ago
    We can always just bring in more immigrants since that seems to be the solution to every problem like this. /s
    - rhexs 5y ago
      I’m actually quite impressed they haven’t started that push yet —- guessing COVID still sort of being a thing but no longer spoken about due to it polling poorly makes this a non-ideal time. On the other hand, as there’s effectively no border enforcement during this administration, I guess they’re already accomplishing their goals without needing the media to ram “Americans can’t/won’t do the jobs” down your throat.
  - Qub3d 5y ago
    That's a bit callous of you, not to mention shortsighted. If the Baby Boomer generation loses financial security, they will as a group A) tighten their spending habits and B) not retire. Either of these effects on their own would hurt the younger generations, and together would make the already slow wealth building hit a brick wall. (I'm 25, for the record, and I don't expect to be debt-free or a homeowner until well into middle age) While it really shouldn't be true, and at the level of financial mechanics probably isn't, the stock market has become the measure of the economy. Remember, pensions are dead and buried, and the nuclear family standard means that relying on your children (read: you and I) is not the bulwark it once was. That means 401(k) performance is really, really important, as terrible as that may be -- its just the reality right now.
    - thehappypm 5y ago
      It’s really not callous. If a boomer’s 401(k) is still heavy on stocks they’re being greedy! De-risk, people. I don’t want to let inflation tank my economy to protect a generation of greedy grandparents.
      - Qub3d 5y ago
        Generally 401(k) plan ratios are not managed individually. Most will have target date funds[0] that automatically transition in to progressively less-risky investments as you get closer to retirement. The problem is... almost no financial instruments outside of stocks can provide a meaningful return any more, so even the target date funds are almost all stock. I noted your other "time in the market beats timing the market" comment, which suggests you are an active investor. That's great! But very few Americans are active investors, and expecting them to become so is unrealistic. Its a problem of realpolitik, which is why, going back to my original comment, you should still care, if only for how it will affect you. [0]: Here is an example prospectus of a 2055 target date fund. Note the graph showing the changing allocation of stocks/bonds/money-market funds (or CDs). By retirement, nearly half the portfolio is still stocks. https://prospectus-express.broadridge.com/summary.asp?clientid=adpretpre&fundid=02507F373 https://prospectus-express.broadridge.com/summary.asp?client...
  - amanaplanacanal 5y ago
    A big chunk of those boomers have almost nothing. The only thing they'll have to look forward to is poverty.
    - analyst74 5y ago
      Poor boomers are affected more by inflation than market crash.
    - thehappypm 5y ago
      So these boomers have “almost nothing” yet have a 401(k) that’s set up in the riskiest way possible, when they’re near retirement age?
  - sillyquiet 5y ago
    What a horrific ageist and bigoted comment. This literally could mean the difference between living independently or not for a lot of people. Not to mention everybody working today with a 401k as their retirement plan will lose value no matter their age, which means they have to work longer than planned. This is a real life impact to a lot of people.
    - dragonwriter 5y ago
      > This literally could mean the difference between living independently or not for a lot of people. Given that quality of assistive care matters, it could literally mean the difference between living and not for people. Of course, on the other hand, so could runaway inflation for lots of people into the same age group (not every elderly person is self-sufficient on retirement income; many are supported by younger, working family members.)
      - thehappypm 5y ago
        If your retirement portfolio crumbles with a stock market correction when you’re actively retired, you have made terrible investment choices.
        dragonwriter 5y ago
        I have no idea why you thought that a subthread on estate tax and what it says about younger people's interest in older folks savings was the most germane place to post that, but I hope you feel better having gotten it off your chest.
    - pastor_bob 5y ago
      If you're in all stocks (growth particularly) and retired, you're living pretty foolishly.
      - nightski 5y ago
        Depends. If you plan to draw down your savings to 0 to survive retirement maybe. But if you have enough saved up for a safe withdrawal rate to survive retirement, why not keep it invested normally and have more for your inheritors?
- anonporridge 5y ago
  It's rough. On the one hand, retirees bring nothing of real value to the economy. We serve them because of the obligations they built up over their working careers. But, they get the focus of attention because a) they have all the money, b) they have all the time to be engaged in politics, and c) they vote. But they're purely an extractive cost center. A kind of economic parasite that keeps getting bigger and bigger with the magic of compounding interest. On the other hand, the younger working class generations, who are the real engines of the economy that keep us all fed and served, are legitimately suffering and failing to acquire a significant stake in the economy. Sure, employment is high but pay is low compared to their parents. When shit hits the fan, the young generations are largely gonna shrug, because who fights to defend something they don't have a stake in? It really seems like a powder keg for revolution.
  - mrmuagi 5y ago
    > retirees bring nothing of real value to the economy. Sure they may not be producing anything, but is there any value to the idea they consumers still? A lot of FIRE philosophy is you work hard so you can earn retirement early too -- people aren't going to work all their lives either, there has to be a light at the end of the tunnel. It is saddening that it may not be the case for many.
    - duncan-donuts 5y ago
      Apparently retirees aren't allowed to hold investments
  - dc-programmer 5y ago
    Probably not. Estate taxes are low
    - mikeyouse 5y ago
      Estate taxes don't exist for 99.7% of people. A married couple can exempt the first $24M of their estate from any Federal taxes. https://www.kiplinger.com/taxes/601639/estate-tax-exemption-2022 https://www.kiplinger.com/taxes/601639/estate-tax-exemption-... Mind you, this also avoids a ton of tax that would otherwise be due had they not died via the step-up in basis... it's a massive giveaway to the rich. https://www.investopedia.com/terms/s/stepupinbasis.asp https://www.investopedia.com/terms/s/stepupinbasis.asp
- vineyardmike 5y ago
  This is always the case though, there are always retired people. They have raised rates and damaged market values in past. Its a decision they are comfortable taking. Plus, at least current US retirees have social security, which may not last another 20+ years in current form (unfortunately for people paying in today).
  - lotsofpulp 5y ago
    There is no reason the US federal government would have to nominally end federal social security benefits. The federal government has the power to simply create new money. However, it would be prudent to assume that the social security benefits will have less and less purchasing power (since each USD will have less and less purchasing power), and the government will not increase the amount of the benefits sufficiently to offset the decrease in purchasing power.
    - nebula8804 5y ago
      Biden has attempted to cut social security numerous times. The elite will eventually get their way because it represents such a vast source of untapped value to extract from. Will it be in my lifetime? (im in my 30s). That I don't know but I do know that they are gunning for it as well as Medicare and Medicaid and if a US bankruptcy does not wipe it out then eventually they will find a way to take it. [1]:https://www.youtube.com/watch?v=9X3UiSvgle0 https://www.youtube.com/watch?v=9X3UiSvgle0
      - lotsofpulp 5y ago
        If the federal US government is borrowing in a currency they control, I do not see why US leaders would choose to go bankrupt over simply issuing new money to meet debt obligations? And Social Security and other government benefits/services are continuously cut, at least where I live as far as I am concerned since they never keep up with price increases for the things I buy.
        nebula8804 5y ago
- fuzzer37 5y ago
  Won't somebody please think of the poor poor boomers with millions of equity in their houses! Cry me a river.
  - throwawayboise 5y ago
    Most "boomers" have a house maybe worth a few 100K, if they even own their own home. Very few live in million dollar homes.
    - joshkrycerick 5y ago
      California would like a word.
      - throwawayboise 5y ago
        That's a small segment of "boomers"
    - whateveracct 5y ago
      Young people just want someone to blame their own lack of success on.
- SamuelAdams 5y ago
  I’m surprised this is top comment. Everyone ought to rebalance their assets as they get closer to retirement. If you are retired you should have a minimum of 3-10% of your portfolio in bonds, which typically fluctuate less than stocks. Then you draw from your bond assets to actually get money. As long as your stock assets aren’t touched for 3-5 years it doesn’t matter what the market does in the next few months.
  - godmode2019 5y ago
    You should have 60% bonds and 40% stocks As you get older 80% bonds 20% stocks. Source: The intelligent investor (famous finance book) People these days have 80% house, 15% crypto and 5% stocks
    - voisin 5y ago
      I think this particular advice from The Intelligent Investor is unreliable. Back then, bond yields were substantially higher, dividend yields were significantly higher, equity valuations we significantly lower, etc etc. The rest of the book is top notch though.
    - MR4D 5y ago
      The Intelligent Investor was not written in a time when interest rates were zero (and real interest rates were negative). Using the suggested approach would demolish a bond portfolio. Assuming Barclays Aggregate index as a proxy, if interest rates rise to 7%, then half the value of the bonds would be lost. Note that correlation of rising rates and rising stock market exists until about the 4-6% rate region before the market starts to be truly negatively correlated with bonds above that number. Based on all my reading over the past several years, this is the first time in history that so many bonds have been priced at or near zero (including below zero rates). I think Benjamin Graham would be writing a supplement to his book if he were alive today.
- pastor_bob 5y ago
  The Fed's mandate is to control inflation and unemployment. It's not meant to have anything to do with the stock market.
- woobar 5y ago
  Only small fraction (2.5%) of retirees rely on their 401(k) plans as a single source of income. The majority relies on social security. High inflation will affect many more people, and not just retirees. [1] https://www.cnbc.com/2020/01/17/heres-where-most-americans-are-really-getting-their-retirement-income.html https://www.cnbc.com/2020/01/17/heres-where-most-americans-a...
- lastofus 5y ago
  A typical retiree portfolio should have a significant portion in bonds (or more likely, bond funds). Initially this will hurt, but over time, higher rates mean higher bond returns Equity markets can take a hit at pretty much any time for completely unforeseen reasons. This is expected and should be factored into a "safe" withdrawal rate (see Bill Bingham and the 4% rule). Anyone who was relying on an equity market that never tanked, to survive retirement, was doomed from the outset.
  - MR4D 5y ago
    Two thoughts on this: 1 - holding bonds versus bond funds are very different, as in the first case, you control the timing of the sale, and in the second, the fund does. That has all sorts of implications about losses (as well as capital gains) in any particular year. 2 - Interest rates have been at zero (ignoring this week's interest rate hike). Using the Barclay's Agg duration of 6.7 (as of this week), then you are just asking for pain in your bond holdings. Stocks may or may not go up or down, but bonds are either going to go down or generate basically zero cash flow. Many people have embraced TINA as a result. [0] [0] - https://www.ellevest.com/magazine/investing/tina-alternatives-resilient-portfolios#:~:text=In%20the%20investing%20industry%20TINA,nowhere%20to%20go%20but%20stocks https://www.ellevest.com/magazine/investing/tina-alternative....
- paulpauper 5y ago
  Not once in my lifetime have I seen the fed tank the markets. It's more like the fed being tailwind. Since 2008 the pattern has been for the fed to be way behind the curve by keeping real interest rates negative and raising rates very slowly and with tons of advance warning even as the stock market and economy rips higher.
- code51 5y ago
  Shouldn't there be an "invisible hand" at work to settle this problem automatically when Fed over-raises or under-raises? With the invisible hand and free market arguments, this should have been a non-problem at the first place. But... since the initial move was not natural (lots of cash injection), the natural final move has to be sudden and forceful. These analysis-paralysis rate hikes seem like lots of pawns to be lost before the final blow. It just opens a window of opportunity for ahead-of-the-curve retirees to save their wealth, not helping to avoid the final effect.
- chiefalchemist 5y ago
  > I do not envy the position the Fed is in. Let's not be naive. The Fed put itself in this position. You're correct. Most of the rest of us will - once again - take a massive shot to the wallet. But to The Fed and its "fan base" it's simply another cycle in the process of moving more from the bottom to the top. Put another way, you or me are simply not The Fed's priority. I'm not sure why we voted for them. That last bit is sarcasm.
- techie128 5y ago
  I'm sorry but if they're 50+ and majority of their holdings are in stocks, not bonds they're at fault.
colechristensen 5y ago
That debt was already sold at low rates. Now it's going to get inflated away. New debt will be more expensive, old debt will be losing effectively 10% of its value as the price of everything else goes up.
thehappypm 5y ago
A recession may be all right. Americans have a gigantic amount saved up and so long as it’s mild enough it’ll probably strengthen the dollar.
- dragonwriter 5y ago
  > Americans have a gigantic amount saved up The median household savings is about $5k. Sure, the mean is a lot higher, but that gets thrown off by a few really rich people with enormous savings.
- qbasic_forever 5y ago
  Over half of America can't cover a surprise $1000 expense: https://www.cnbc.com/2022/01/19/56percent-of-americans-cant-cover-a-1000-emergency-expense-with-savings.html https://www.cnbc.com/2022/01/19/56percent-of-americans-cant-... You are not looking at the reality of the situation if you think the average American has a "gigantic amount saved up". The average American is working paycheck to paycheck and is lucky to have a couple hundred bucks for a rainy day or unexpected car repair.
  - notch656a 5y ago
    You've been played by a study designed to manipulate the view of American wealth. The median household has a gigantic amount of wealth, over $100k worth. Not having $1k in a checking account doesn't mean you can't afford $1k or even a $10k expense.
    - qbasic_forever 5y ago
      Sure if you define 'household' as home owners, of course their assets are well above $100k because of the hyper inflated housing market in the country. I would _love_ to see how someone renting an apartment and working minimum wage with less than $1k in their checking account can get a $10k loan. What are they going to do, go to the check cashing place around the corner and walk out with 10 grand? (that's saracasm btw)
matheusmoreira 5y ago
It is a position is of its own making. It shouldn't have allowed this massive debt to accumulate in the first place. Cheap credit and the massive debt that comes with it is the main cause of inflation. Now that the whole economy depends on credit and debt, solutions to inflation can't be applied since they negatively affect credit.
- deutschew 5y ago
  They've printed their way out of a recession since '08 by kicking the can down the road, and we can't kick it any further without creating a large number of losers. IMHO, it's a sign that American innovation has peaked. It's also reflected by the markedly decrease in intellectualism (as if American culture wasn't anti-intellectual to begin with). When I see young students from other countries and compare them to Americans, there is very little valuing education in fact the antagonism is occurring. For example, math is being scapegoated as systematically discriminating against the lowest performers while the highest performers are being subject to the equivalent of forced confessions, guilt and pushed ridiculous theories about race. Yet despite that camp's calls for equity, it is still okay for Asian Americans to be discriminated at academic institutions and various other fields while there are increased calls for virtue signaling towards other groups who do not get the same scrutiny and insanely high standards. Meanwhile the lowest end of the society are allowed to steal (as long as its under $950), commit crimes without consequences (take a trip to SF to see thanks to calls for community patrols post-Floyd) and descend into the inhumane (mental health issues from drug addictions and poverty being normalized) because there is now a sort of compassion industrial complex armed with the loudspeaker that is social media to manipulate opinions while cancelling out the rational as the enemy. Meanwhile, the military are increasingly spending large amount of money in video games, making young Americans idolize military & war, if not evident from the war mongering cries out of America for a conflict that they largely put in the groundwork to trap their old enemy, censoring, cancelling any opposing view to their narrative. We are all confused, angry, quick to point fingers at one another, instead of nuanced takes, whatever narrative invokes emotions strongest drowns out other side, regardless of whether they are grounded on reality or outright fabrication. This is the trickle down effect I notice also at YC, I see increasingly bad ideas being pushed like blockchains without any real adoption, trading of unregistered securities, and SaaS companies without real revenues raise ton of money but with no real business plan or use case. It's clearly a race to IPO and find exit liquidity. ex) Coinbase This is all a giant mess and I ponder, how did America stoop this low, where did it all go wrong?
paulpauper 5y ago
people say this every time rates go up. The fed is not trapped. Rates went up from 0% in 2015 to 2.25% by 2018 and nothing bad happened. Inflation remained low, bonds did well.
chiefalchemist 5y ago
The problem is, The Fed* is the sole creator of this situation. Again and again. * An entitity with unprecedented powpower, unelected, and is effectively - due to a lazy and incompotent Congress - unregulated. What could go wrong.

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MR4D 5y ago

It’s even worse - if the Fed actions tank the markets, then millions of retirees who have been enjoying high market values are screwed and have no other source of wealth or income. I do not envy the position the Fed is in.

thehappypm 5y ago
Oh no! Boomers will lose 401(k) value! The horror!
- kipchak 5y ago
  Unfortunately most people with 401(k)s are in SPY as the default, boomers or not
  - thehappypm 5y ago
    Time in the market > timing the market. It’ll go back up.
  - tootie 5y ago
    SPY is up >2% today. I think the market wants inflation to be tamped more than they want cheap money right now.
- colordrops 5y ago
  Phrased less sarcastically: "Millions of retirees won't have enough money to survive until they pass away."
  - budoso 5y ago
    Phrased sarcastically again, but from the opposite point of view: “Jerome Powell wants your grandma to starve!”
  - throwawayboise 5y ago
    Or: Your elderly parents need to move in with you because they cannot afford to live on their own.
  - foogazi 5y ago
    Savings diluted by inflation or artificial asset growth? Can you have it both ways ?
  - akvadrako 5y ago
    Lots of people live on social security alone.
- xienze 5y ago
  You won’t be laughing when you find out it’s your responsibility to bail them out.
  - thehappypm 5y ago
    Sadly this is probably the case.
- moltke 5y ago
  We can always just bring in more immigrants since that seems to be the solution to every problem like this. /s
  - rhexs 5y ago
    I’m actually quite impressed they haven’t started that push yet —- guessing COVID still sort of being a thing but no longer spoken about due to it polling poorly makes this a non-ideal time. On the other hand, as there’s effectively no border enforcement during this administration, I guess they’re already accomplishing their goals without needing the media to ram “Americans can’t/won’t do the jobs” down your throat.
- Qub3d 5y ago
  That's a bit callous of you, not to mention shortsighted. If the Baby Boomer generation loses financial security, they will as a group A) tighten their spending habits and B) not retire. Either of these effects on their own would hurt the younger generations, and together would make the already slow wealth building hit a brick wall. (I'm 25, for the record, and I don't expect to be debt-free or a homeowner until well into middle age) While it really shouldn't be true, and at the level of financial mechanics probably isn't, the stock market has become the measure of the economy. Remember, pensions are dead and buried, and the nuclear family standard means that relying on your children (read: you and I) is not the bulwark it once was. That means 401(k) performance is really, really important, as terrible as that may be -- its just the reality right now.
  - thehappypm 5y ago
    It’s really not callous. If a boomer’s 401(k) is still heavy on stocks they’re being greedy! De-risk, people. I don’t want to let inflation tank my economy to protect a generation of greedy grandparents.
    - Qub3d 5y ago
      Generally 401(k) plan ratios are not managed individually. Most will have target date funds[0] that automatically transition in to progressively less-risky investments as you get closer to retirement. The problem is... almost no financial instruments outside of stocks can provide a meaningful return any more, so even the target date funds are almost all stock. I noted your other "time in the market beats timing the market" comment, which suggests you are an active investor. That's great! But very few Americans are active investors, and expecting them to become so is unrealistic. Its a problem of realpolitik, which is why, going back to my original comment, you should still care, if only for how it will affect you. [0]: Here is an example prospectus of a 2055 target date fund. Note the graph showing the changing allocation of stocks/bonds/money-market funds (or CDs). By retirement, nearly half the portfolio is still stocks. https://prospectus-express.broadridge.com/summary.asp?clientid=adpretpre&fundid=02507F373 https://prospectus-express.broadridge.com/summary.asp?client...
- amanaplanacanal 5y ago
  A big chunk of those boomers have almost nothing. The only thing they'll have to look forward to is poverty.
  - analyst74 5y ago
    Poor boomers are affected more by inflation than market crash.
  - thehappypm 5y ago
    So these boomers have “almost nothing” yet have a 401(k) that’s set up in the riskiest way possible, when they’re near retirement age?
- sillyquiet 5y ago
  What a horrific ageist and bigoted comment. This literally could mean the difference between living independently or not for a lot of people. Not to mention everybody working today with a 401k as their retirement plan will lose value no matter their age, which means they have to work longer than planned. This is a real life impact to a lot of people.
  - dragonwriter 5y ago
    > This literally could mean the difference between living independently or not for a lot of people. Given that quality of assistive care matters, it could literally mean the difference between living and not for people. Of course, on the other hand, so could runaway inflation for lots of people into the same age group (not every elderly person is self-sufficient on retirement income; many are supported by younger, working family members.)
    - thehappypm 5y ago
      If your retirement portfolio crumbles with a stock market correction when you’re actively retired, you have made terrible investment choices.
      - dragonwriter 5y ago
        I have no idea why you thought that a subthread on estate tax and what it says about younger people's interest in older folks savings was the most germane place to post that, but I hope you feel better having gotten it off your chest.
  - pastor_bob 5y ago
    If you're in all stocks (growth particularly) and retired, you're living pretty foolishly.
    - nightski 5y ago
      Depends. If you plan to draw down your savings to 0 to survive retirement maybe. But if you have enough saved up for a safe withdrawal rate to survive retirement, why not keep it invested normally and have more for your inheritors?
anonporridge 5y ago
It's rough. On the one hand, retirees bring nothing of real value to the economy. We serve them because of the obligations they built up over their working careers. But, they get the focus of attention because a) they have all the money, b) they have all the time to be engaged in politics, and c) they vote. But they're purely an extractive cost center. A kind of economic parasite that keeps getting bigger and bigger with the magic of compounding interest. On the other hand, the younger working class generations, who are the real engines of the economy that keep us all fed and served, are legitimately suffering and failing to acquire a significant stake in the economy. Sure, employment is high but pay is low compared to their parents. When shit hits the fan, the young generations are largely gonna shrug, because who fights to defend something they don't have a stake in? It really seems like a powder keg for revolution.
- mrmuagi 5y ago
  > retirees bring nothing of real value to the economy. Sure they may not be producing anything, but is there any value to the idea they consumers still? A lot of FIRE philosophy is you work hard so you can earn retirement early too -- people aren't going to work all their lives either, there has to be a light at the end of the tunnel. It is saddening that it may not be the case for many.
  - duncan-donuts 5y ago
    Apparently retirees aren't allowed to hold investments
- dc-programmer 5y ago
  Probably not. Estate taxes are low
  - mikeyouse 5y ago
    Estate taxes don't exist for 99.7% of people. A married couple can exempt the first $24M of their estate from any Federal taxes. https://www.kiplinger.com/taxes/601639/estate-tax-exemption-2022 https://www.kiplinger.com/taxes/601639/estate-tax-exemption-... Mind you, this also avoids a ton of tax that would otherwise be due had they not died via the step-up in basis... it's a massive giveaway to the rich. https://www.investopedia.com/terms/s/stepupinbasis.asp https://www.investopedia.com/terms/s/stepupinbasis.asp
vineyardmike 5y ago
This is always the case though, there are always retired people. They have raised rates and damaged market values in past. Its a decision they are comfortable taking. Plus, at least current US retirees have social security, which may not last another 20+ years in current form (unfortunately for people paying in today).
- lotsofpulp 5y ago
  There is no reason the US federal government would have to nominally end federal social security benefits. The federal government has the power to simply create new money. However, it would be prudent to assume that the social security benefits will have less and less purchasing power (since each USD will have less and less purchasing power), and the government will not increase the amount of the benefits sufficiently to offset the decrease in purchasing power.
  - nebula8804 5y ago
    Biden has attempted to cut social security numerous times. The elite will eventually get their way because it represents such a vast source of untapped value to extract from. Will it be in my lifetime? (im in my 30s). That I don't know but I do know that they are gunning for it as well as Medicare and Medicaid and if a US bankruptcy does not wipe it out then eventually they will find a way to take it. [1]:https://www.youtube.com/watch?v=9X3UiSvgle0 https://www.youtube.com/watch?v=9X3UiSvgle0
    - lotsofpulp 5y ago
      If the federal US government is borrowing in a currency they control, I do not see why US leaders would choose to go bankrupt over simply issuing new money to meet debt obligations? And Social Security and other government benefits/services are continuously cut, at least where I live as far as I am concerned since they never keep up with price increases for the things I buy.
      - nebula8804 5y ago
fuzzer37 5y ago
Won't somebody please think of the poor poor boomers with millions of equity in their houses! Cry me a river.
- throwawayboise 5y ago
  Most "boomers" have a house maybe worth a few 100K, if they even own their own home. Very few live in million dollar homes.
  - joshkrycerick 5y ago
    California would like a word.
    - throwawayboise 5y ago
      That's a small segment of "boomers"
  - whateveracct 5y ago
    Young people just want someone to blame their own lack of success on.
SamuelAdams 5y ago
I’m surprised this is top comment. Everyone ought to rebalance their assets as they get closer to retirement. If you are retired you should have a minimum of 3-10% of your portfolio in bonds, which typically fluctuate less than stocks. Then you draw from your bond assets to actually get money. As long as your stock assets aren’t touched for 3-5 years it doesn’t matter what the market does in the next few months.
- godmode2019 5y ago
  You should have 60% bonds and 40% stocks As you get older 80% bonds 20% stocks. Source: The intelligent investor (famous finance book) People these days have 80% house, 15% crypto and 5% stocks
  - voisin 5y ago
    I think this particular advice from The Intelligent Investor is unreliable. Back then, bond yields were substantially higher, dividend yields were significantly higher, equity valuations we significantly lower, etc etc. The rest of the book is top notch though.
  - MR4D 5y ago
    The Intelligent Investor was not written in a time when interest rates were zero (and real interest rates were negative). Using the suggested approach would demolish a bond portfolio. Assuming Barclays Aggregate index as a proxy, if interest rates rise to 7%, then half the value of the bonds would be lost. Note that correlation of rising rates and rising stock market exists until about the 4-6% rate region before the market starts to be truly negatively correlated with bonds above that number. Based on all my reading over the past several years, this is the first time in history that so many bonds have been priced at or near zero (including below zero rates). I think Benjamin Graham would be writing a supplement to his book if he were alive today.
pastor_bob 5y ago
The Fed's mandate is to control inflation and unemployment. It's not meant to have anything to do with the stock market.
woobar 5y ago
Only small fraction (2.5%) of retirees rely on their 401(k) plans as a single source of income. The majority relies on social security. High inflation will affect many more people, and not just retirees. [1] https://www.cnbc.com/2020/01/17/heres-where-most-americans-are-really-getting-their-retirement-income.html https://www.cnbc.com/2020/01/17/heres-where-most-americans-a...
lastofus 5y ago
A typical retiree portfolio should have a significant portion in bonds (or more likely, bond funds). Initially this will hurt, but over time, higher rates mean higher bond returns Equity markets can take a hit at pretty much any time for completely unforeseen reasons. This is expected and should be factored into a "safe" withdrawal rate (see Bill Bingham and the 4% rule). Anyone who was relying on an equity market that never tanked, to survive retirement, was doomed from the outset.
- MR4D 5y ago
  Two thoughts on this: 1 - holding bonds versus bond funds are very different, as in the first case, you control the timing of the sale, and in the second, the fund does. That has all sorts of implications about losses (as well as capital gains) in any particular year. 2 - Interest rates have been at zero (ignoring this week's interest rate hike). Using the Barclay's Agg duration of 6.7 (as of this week), then you are just asking for pain in your bond holdings. Stocks may or may not go up or down, but bonds are either going to go down or generate basically zero cash flow. Many people have embraced TINA as a result. [0] [0] - https://www.ellevest.com/magazine/investing/tina-alternatives-resilient-portfolios#:~:text=In%20the%20investing%20industry%20TINA,nowhere%20to%20go%20but%20stocks https://www.ellevest.com/magazine/investing/tina-alternative....
paulpauper 5y ago
Not once in my lifetime have I seen the fed tank the markets. It's more like the fed being tailwind. Since 2008 the pattern has been for the fed to be way behind the curve by keeping real interest rates negative and raising rates very slowly and with tons of advance warning even as the stock market and economy rips higher.
code51 5y ago
Shouldn't there be an "invisible hand" at work to settle this problem automatically when Fed over-raises or under-raises? With the invisible hand and free market arguments, this should have been a non-problem at the first place. But... since the initial move was not natural (lots of cash injection), the natural final move has to be sudden and forceful. These analysis-paralysis rate hikes seem like lots of pawns to be lost before the final blow. It just opens a window of opportunity for ahead-of-the-curve retirees to save their wealth, not helping to avoid the final effect.
chiefalchemist 5y ago
> I do not envy the position the Fed is in. Let's not be naive. The Fed put itself in this position. You're correct. Most of the rest of us will - once again - take a massive shot to the wallet. But to The Fed and its "fan base" it's simply another cycle in the process of moving more from the bottom to the top. Put another way, you or me are simply not The Fed's priority. I'm not sure why we voted for them. That last bit is sarcasm.
techie128 5y ago
I'm sorry but if they're 50+ and majority of their holdings are in stocks, not bonds they're at fault.

colechristensen 5y ago

That debt was already sold at low rates. Now it's going to get inflated away. New debt will be more expensive, old debt will be losing effectively 10% of its value as the price of everything else goes up.

thehappypm 5y ago

A recession may be all right. Americans have a gigantic amount saved up and so long as it’s mild enough it’ll probably strengthen the dollar.

dragonwriter 5y ago
> Americans have a gigantic amount saved up The median household savings is about $5k. Sure, the mean is a lot higher, but that gets thrown off by a few really rich people with enormous savings.
qbasic_forever 5y ago
Over half of America can't cover a surprise $1000 expense: https://www.cnbc.com/2022/01/19/56percent-of-americans-cant-cover-a-1000-emergency-expense-with-savings.html https://www.cnbc.com/2022/01/19/56percent-of-americans-cant-... You are not looking at the reality of the situation if you think the average American has a "gigantic amount saved up". The average American is working paycheck to paycheck and is lucky to have a couple hundred bucks for a rainy day or unexpected car repair.
- notch656a 5y ago
  You've been played by a study designed to manipulate the view of American wealth. The median household has a gigantic amount of wealth, over $100k worth. Not having $1k in a checking account doesn't mean you can't afford $1k or even a $10k expense.
  - qbasic_forever 5y ago
    Sure if you define 'household' as home owners, of course their assets are well above $100k because of the hyper inflated housing market in the country. I would _love_ to see how someone renting an apartment and working minimum wage with less than $1k in their checking account can get a $10k loan. What are they going to do, go to the check cashing place around the corner and walk out with 10 grand? (that's saracasm btw)

matheusmoreira 5y ago

It is a position is of its own making. It shouldn't have allowed this massive debt to accumulate in the first place. Cheap credit and the massive debt that comes with it is the main cause of inflation. Now that the whole economy depends on credit and debt, solutions to inflation can't be applied since they negatively affect credit.

deutschew 5y ago
They've printed their way out of a recession since '08 by kicking the can down the road, and we can't kick it any further without creating a large number of losers. IMHO, it's a sign that American innovation has peaked. It's also reflected by the markedly decrease in intellectualism (as if American culture wasn't anti-intellectual to begin with). When I see young students from other countries and compare them to Americans, there is very little valuing education in fact the antagonism is occurring. For example, math is being scapegoated as systematically discriminating against the lowest performers while the highest performers are being subject to the equivalent of forced confessions, guilt and pushed ridiculous theories about race. Yet despite that camp's calls for equity, it is still okay for Asian Americans to be discriminated at academic institutions and various other fields while there are increased calls for virtue signaling towards other groups who do not get the same scrutiny and insanely high standards. Meanwhile the lowest end of the society are allowed to steal (as long as its under $950), commit crimes without consequences (take a trip to SF to see thanks to calls for community patrols post-Floyd) and descend into the inhumane (mental health issues from drug addictions and poverty being normalized) because there is now a sort of compassion industrial complex armed with the loudspeaker that is social media to manipulate opinions while cancelling out the rational as the enemy. Meanwhile, the military are increasingly spending large amount of money in video games, making young Americans idolize military & war, if not evident from the war mongering cries out of America for a conflict that they largely put in the groundwork to trap their old enemy, censoring, cancelling any opposing view to their narrative. We are all confused, angry, quick to point fingers at one another, instead of nuanced takes, whatever narrative invokes emotions strongest drowns out other side, regardless of whether they are grounded on reality or outright fabrication. This is the trickle down effect I notice also at YC, I see increasingly bad ideas being pushed like blockchains without any real adoption, trading of unregistered securities, and SaaS companies without real revenues raise ton of money but with no real business plan or use case. It's clearly a race to IPO and find exit liquidity. ex) Coinbase This is all a giant mess and I ponder, how did America stoop this low, where did it all go wrong?

paulpauper 5y ago

people say this every time rates go up. The fed is not trapped. Rates went up from 0% in 2015 to 2.25% by 2018 and nothing bad happened. Inflation remained low, bonds did well.

chiefalchemist 5y ago

The problem is, The Fed* is the sole creator of this situation. Again and again. * An entitity with unprecedented powpower, unelected, and is effectively - due to a lazy and incompotent Congress - unregulated. What could go wrong.