The 'Fasten Seat Belt' Sign Is On
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2019-08-14 10:09 by Karl Denninger
in Editorial , 468 references Ignore this thread
The 'Fasten Seat Belt' Sign Is On
[Comments enabled]

There's only one problem -- your belt sucks and even a 5-point harness wouldn't help with what's coming.

I've been warning about this for a long time.  I've been laughed at too, especially as the market screamed higher over the last few years.  But as I've repeatedly noted, stock prices are immaterial until and unless you sell your holdings; they're nothing more than a ghost in a machine until you do that.

This is very different than $100 bills in your safe, or alleged cash in a savings or checking account -- provided, of course, that said amount is below FDIC limits (go ask depositors OVER FDIC limits when IndyMac blew up how that worked out for them.  And oh, by the way, it was later proved that IndyMac collapsed due to accounting fraud that the FDIC knew about and deliberately ignored with the individual who overlooked the backdating of deposits having done the same thing during the S&L crises decades earlier; that is the government caused those depositors to be screwed out of their money -- on purpose.)

Treasury Direct is another place, provided you never allow a negative rate to come in.  Right now you can at least (into the range of a few million) buy a short term (e.g. 13 week or 4 week) bill and let it roll into a CofI -- that pays no interest, but at least it doesn't have a negative rate.  Incidentally, if Treasury intends to allow that horsecrap to happen here they'll have to ban the CofI, as otherwise why would anyone accept it?

Oh wait -- Greedscam says it doesn't matter and is just a number.  He "justifies" this as there being such a thing as a negative time preference.  He's wrong, for a whole host of reasons, not the least of which is that simply holding currency or a CofI doesn't have a negative time preference and nobody will take that which they can evade under such circumstances; you'd have to be criminally insane to do so and, if you're running someone ELSE'S money, you'd be committing criminal fraud.

No, "gold" doesn't evade this either.  Ask the people who got blackballed for 30 years how that worked out for them in the 1930s.  The majority of the "smartest people in the room" died before they could redeem their "protection" and spend it.  Nor will Bitcon or any other so-called "cryptocurrency" do anything other than lead you straight into a prison cell; the latter is in fact the worst of all worlds as every transaction, ever, is indelibly cryptographically signed and thus can be traced to each individual transacting party forevermore and once linked to a person every transaction all the way back to the inception of said crypto that you participated in is linked to you.

If you won't and didn't shoot the government over "civil forfeiture" (stealing from people without convicting of a crime first) why would they fear you'll shoot them if they simply lock down gold as they did the last time -- or something even more outrageous, such as laying a 2% or 5% annual tax on all assets no matter what form?  Oh, never mind -- you won't be able to shoot anyone given the continued press for "gun control"; are you really so stupid as to not have figured out why they want it yet?

The 2/10 yield inversion, which has now occurred (this morning) has happened before every recession in the modern era.  There are plenty of people who think this time its different due to all the global central bank games and negative bond yields all over the world.  But you have to understand that nobody buys a negative yielding bond for the coupon; they are all speculating that the yield will go more negative and before time value decay destroys the spread the current price will rise due to new bonds being even more negative and thus they'll make money selling that bond to someone else.

The utter insanity of this, especially when done with leverage which can be applied in unlimited amounts since sovereign bonds have a zero "risk weighting" -- that is, you need hold no reserve against re-pledging them as collateral, is even more insane.  Yet our regulators have done that with the banks here, in this country.  Thus, a yield profile that unwinds on a disorderly basis can bankrupt every single financial institution at once.

Historically you always had to hold 10% in reserve as a financial institution -- always.  That's what "fractional reserve" means.  But Bernanke, ********** that he was and is, got inserted into the final TARP bill that passed a little one-sentence change in the rules allowing the reserves to be set to any amount by the Fed including zero.

I wrote about this at the time and said it would destroy our economy and markets -- not immediately, but certainly.  It was one of the worst-read and worst-circulated articles in the history of the Ticker.  Not one Congress-****youer has ever questioned The Fed about this during their semi-annual testimony.  Not one.  Just like none did so after I faxed all 535 of those criminal jackasses at my own expense documenting that in 2008 as the market was collapsing the NY Fed's own data proved that Bernanke actually pulled tens of billions of system liquidity out instead of adding liquidity as he claimed he was doing.  Oh, who ran the NY Fed at the time?  Anyone?  Tim Geithner, who Obama later tapped to run his fraudulent schemes at Treasury.  Did that SOB go to prison for intentionally exacerbating the crash?  Of course not.  How convenient.

Oh, and nobody went to prison for the millions of fraudulent mortgages and fraudulent, perjured foreclosure filings either.  Nobody.  Once again you sat on your ass even as millions of Americans were ripped off for literally everything they had to save a bunch of criminal bankers from the bankruptcies and prison terms they so richly deserved.

Well, here we go folks.  The ****storm is coming now.

Is the recession "now"?  Maybe, maybe not.  Remember that recessions are only declared by the NBER in hindsight.  The problem when there's a recession isn't the recession itself -- those are ordinary business events.  It's the leverage that was taken on that bankrupts people and even nations, not the recession.  If you have no leverage then you simply make less money for a while and tighten your belt.  For every turn of the crank in leverage, however, that expense ratio is multiplied and can easily drive your cash flow negative enough that you can't pay the interest, at which point you're economically dead.

Governments tend to think they're immune from this.  They're wrong.  Ask Greece.  The common chestnut is that a sovereign that issues bonds in its own currency can't go bankrupt.  Sure it can.  It can have an obligation that requires it to issue more bonds to cover the interest payments and a buyer's strike that makes them unable to be issued under any economically-reasonable terms.  No nation can protect against this -- the only "alternative" if it happens is to ignore the premise of bonds entirely and print currency directly; once you do that the value of all existing bonds is instantly decimated by the percentage in which you do so plus a time value penalty because having done it once the presumption is that you will do it again.  The very first such instance violates an implied covenant on the issue of your debt and having done so the net present value of all outstanding debt instruments in that currency is severely impaired, possibly rendering them an effective zero.

Trump was elected by the people to force manufacturing back here into the United States from slave labor shops like China and Vietnam and to shut down the illegal invading army of slave labor coming from Mexico and elsewhere.  He was also elected to put a permanent stop to the medical collusion and monopoly scam.  The people had been squeezed relentlessly since the bubble burst in 2007, which was a con job in the first place orchestrated by Greedscam and Bush.  Bush was probably too stupid to realize what he was doing to people but Greedscam was not; he knew damn well that in the 1990s he and Clinton had intentionally robbed the Treasury and lied about financial conditions and markets.  But, of course, the interests aligned between the Tech Bubble scammers and the Government, which wanted to spend more money than it took in and enable foreign theft of everything not nailed down and half of what was, mostly to China.  Hell, between radar systems and even nuclear warhead designs we let it all go and established the "Chinese miracle" along with NAFTA, both of which were nothing more than covering up massive fiscal fraud through stealing assets in all their forms via subterfuge while destroying the American middle class by offshoring their labor to Mexico and China at slave-level "wages", transferring the middle class American's assets to the 0.1% of corporate board members along with members of Congress and their lobbyists.

Trump never intended to do a single thing he promised -- something I warned about before the election and then put forward proof literally on the day following when all of his campaign promises on medical reform disappeared at the very moment it was declared he had won over Hillary.  That prediction has proved up 100%: He hasn't done a ******n thing to fix any of the problems. He has in fact screwed you harder and more-resolutely straight up the ass.

We've spent the last 20 years making the bubble bigger and bigger, while screwing the American population more and harder.  And you, dear reader, have not only gone along with all of it you've embraced it -- on one side of the aisle or another, as DemonScat or ReThuglican.  Both parties have done their best to prostrate themselves in front of Xi of China specifically, blowing that jackass repeatedly and offering you up as his financial rape-slave.  Rather than tell firms like Apple and Spamazon to go blow a goat you cheer on every time their stock ticks higher and a box with a crude smiley-face appears at your door.   It's clear that the people of this nation have redefined financial******into sex; after all the only difference between the two is consent.

The laws of mathematics and exponents are not suggestions.  The "belly" of the curve created by two exponential functions with one as the second derivative of the first always blows up in your face and if you try to "exploit" that "belly" and claim it's good you will get ****ed -- every single time.

This was the key take-away in Leverage and, as I pointed out when it was published in 2011, the screwing doesn't come immediately.

It does, however, come inevitably.

Welcome to inevitable.

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User Info The 'Fasten Seat Belt' Sign Is On in forum [Market-Ticker]
Jal
Posts: 718
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"The 'Fasten Seat Belt' Sign Is On"

I should never had gotten on that plane.
Aztrader
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Scottsdale, AZ
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Anyone see the retailers this morning? They are getting clocked on Macy's big miss and this pattern has been all to obvious in the past 2 years. The middle class has no money and lot's of debt. How can you fix this when the average credit card interest rate is over 17%? We are in recession and it's because the liquidity and credit access for the middle class is gone.
The fat cats at the top have been raping the system for the past 10 years and now the wealth inequality is coming to roost.
We now have the government screaming about white supremacy and white nationalism meaning that they know what will happen if they continue screwing the American people. They will do anything to get the guns and go after anyone spouting about excess government control like this kid did:
https://www.msn.com/en-us/news/us/shoot-....

People are getting angry simply because they haven't shared in the good part of the economy and at the same time are being raped financially on the other end. The health care debacle is a major issue because costs keep rising, while the ACA leech army keeps growing and getting it for free. I personally got my letter about the $200 a month increase next month when I turn 60. That will be $1000 a month with a $5000 deductible and how many people can afford that at this age?
How can they fix it? I still believe that if the left takes over in 2021, a debt jubilee will be their answer. The only problem is who gets it and for how much? The future is tenuous and will be interesting to watch.
Ktrosper
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Thank you for the great ticker. You were right about him (trump) from day one :(
KT

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The unexamined life is not worth living.-Socrates
The only stable state is the one in which all men are equal before the law.-Aristotle
Liberty exists now in the spaces government has not yet chosen to occupy.-Doc Zero
I anticipate that 10 Dallas Cowboys Cheerleaders will blow me this evening.-K.D

Gable
Posts: 933
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Retired in NC Mountains
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Excellent article. Spells out the how and why even for someone like me. I lost faith in government in the early 90s. I could see there was no difference between DsRS.

I do follow several economic blogs and many have been warning what Karl stated so clearly.

I am sorry to say I gave up thinking things could get fixed by the masses because they simply have been lied to for decades to with the MSM fully supporting the lies to the point they just do not know what is coming.

My plan is as many here. Prepare. Live in rural areas with like minded neighbors. Have plenty of supplies stockpiled.

Pray for the best outcome.

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In all of history, no government became more honest, less corrupt, or respected its citizens' rights more as it grew in size. E.L. 2016
Tickerguy
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Prayer will do nothing.

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Winding it down.
Iou
Posts: 1258
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A True American Patriot!
The Twilight Zone
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Let's get this **** over-with already! I think most here already know nothing would be done to fix this. We've been watching this slow motion train wreck for years. Let's get on with it! We'll either survive or we won't. No one can ever fully prepare for this but if you haven't been learning skills over this time you're in trouble. Stocking up on things is only good for as long as you can keep it.

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"When plunder becomes a way of life for a group of men living together in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it."- Frdric Bastiat
Drifter
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Pacific Northwest
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I don't care what the numbers say-- I've argued that we have been in a recession/depression since late '99. The air from the popped tech bubble just went into different investments. Look at old newsreals of soup lines in 1934, and imagine the soup lines now if people didn't have EBT cards.

I've watched rv parks on the OR coast, over the last ten years, get filled with the beat up rigs of people that have become permanent residents.

For business I go to a local mall every day, and have done so for the last 20 years. With my own eyes I can see the death of retail accelerating. I'm not sure if I buy into the assumption that it is Amazon's fault. Women love to shop and they have to try **** on to make sure it fits. Something else is afoot, and my hunch is that a good percentage of people leveraged their lifestyle and are at best barely making all of their payments.

Our thrift stores have never had such full parking lots.

The stock market is a rigged black box system that is divorced from our standard of living. People see the market going up, as well as their expenses. In addition to what AZtrader mentioned, local municipalities are still on spending sprees. On the ballot this year will be a new school, fire station, hospital addition, a school addition and a new city hall. Property taxes will be going through the roof.

Our economic reality makes it impossible for me to even make a life plan five years out. In a way I'm working for my employees-- if I up and quit, they probably won't be able to find jobs, except those at half their current income.

I want my ****ing meteor now.
Fumei
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I think the metaphor of being on the Titanic after hitting the iceberg is more accurate than the airplane seatbelt metaphor.

More accurate than either of those metaphors, is that it is early spring, 1975, and we are currently stuck in Beirut, Lebanon.
Crossthread
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Wilmington, NC
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Drifter says
Quote:
I don't care what the numbers say-- I've argued that we have been in a recession/depression since late '99. The air from the popped tech bubble just went into different investments. Look at old newsreals of soup lines in 1934, and imagine the soup lines now if people didn't have EBT cards.


Today, they are not called Souplines ..

Referred now as a "Foodbank" ..
We have several around Town here..

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Cognitive Co-Dependency is when a normal rational person, internalizes irrational illogical presentations, and somehow reconciles them to fit their scripted indoctrination of logical analysis.
Quote:
Samuel L. Clemens:There is NO Native Criminal Class; EXCEPT for CONgress
Aquapura
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South of Canada
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@Drifter - man on the street observations can be misleading. Where I am things look very much like time are good. Yes, the amount of homeless does seem more than 5-10 years ago but largely that nuisance is kept out of sight from new luxury apartments, crowded trendy restaurants and other enclaves of the wannabe rich. Granted I know most people are levered up to their eyeballs to maintain the lifestyle but so long as the credit cards keep working...

As Karl mentioned if you don't have leverage you just tighten the belt through a recession. Don't think that'll work out too well for many in the current world but until it hits things don't look so bad at the center of a large metro. The hipsters that are maxing out their credit to present a lifestyle on Instagram are the ones that need to fasten the seatbelt but I'm sure they're reading Buzzfeed and not Market-Ticker.
Dji
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The MCAS light is on

Hurry Trump crank the lever

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Don't be a bag holder-Me

What goes up Must come Down- Alan Parsons Project
Bluemarrow
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Earth
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Dontcha worry, mon. Everything be iry. Just have some ganja, and listen to da music:

https://m.youtube.com/watch?v=OD3F7J2PeY....

Movement of the Sheeple
Ktrosper
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ft collins co
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re: "buy a short term (e.g. 13 week or 4 week) bill and let it roll into a CofI"

Can you just let it sit there indefinitely?

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The unexamined life is not worth living.-Socrates
The only stable state is the one in which all men are equal before the law.-Aristotle
Liberty exists now in the spaces government has not yet chosen to occupy.-Doc Zero
I anticipate that 10 Dallas Cowboys Cheerleaders will blow me this evening.-K.D
Mannfm11
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DFW, Tx
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Is it possible to do anything? It appears to me Trump has attempted to do plenty, but DC is so shut down that almost no one up there does what they campaign on. Didn't he put out an executive order to force hospitals to post prices? Attempt to force drug companies to make adjustments in drug prices to more closely mirror world prices? Fought with the Chinese and to lesser extents the rest of the world on trade? Attempt to slow illegal immigration and stopped or slowed by a million lawsuits?

The truth of the matter is the DC policy has been to drain the middle class and hide the fact they are doing so. They are calling for socialism, which enshrines the elite in a different form. WE ALREADY HAVE SOCIALISM, which is a good reason why the country has slid down the hill. When you throw in tax shelter, medicine is likely already around 70% socialized, which is why it is ****ed up. Housing is largely socialized, though it is also heavily taxed. They plan has been to make the USA communist and it appears all the pieces are in place to do so, once they disarm us.

Speaking of the FDIC, wasn't Warren running it? The great secret is banks are always insolvent, once they start lending. The difference is people can't demand the money any more. All losses are paid out of deposits, which are the only means to pay the losses in the future, as there is no other money to take. QE merely increased the amount of money like funds in the system, which are also known as reserves. QE forced the banks to hold all the Fed money not held as currency. Liquid capital, not cash reserves, are most important.

Banking is a catch 22 system. They are expected to create loans now, but the money shown in your account is essentially nothing but the loans on the books. Being that compound interest is never created, there is never enough money to extinguish the loan, unless it is put back in the system as something other than a loan. It is used to covertly acquire property. When it doesn't work, we get the bill to cover for the bankers. It is an organized crime system that few understand. They create debits and credits. They don't loan money on the books.

One has to get beyond the education system to understand what creates depressions. The 29 depression was created by the US doing what China is doing today, run surpluses with bankrupts, expanding the economy on the trade, then not getting paid or the growth stopping. When you loan me all your money and I default, both of us are broke. Unless it is a natural disaster, all recessions and depressions are financial. People spend most of their money and they invest the rest in some fashion. Capital spending, not consumer spending, creates the business cycle.

Your book is sitting right in front of me. I'm going to read it again. I have been aware this debt game can't go on forever. The world can't finance itself out of the USA forever, which is basically what they have been doing for the past 70 years. China can't run a 50% capital spending economy forever and ever transition into a consumer economy. There is no way out of this, while the Chinese are supplying the rest of the world manufacturing. China's customers are broke and they are trying to confiscate as much of the world as possible. Our politicians sold us out.

Negative interest rates are deflationary. You can't invest at negative. Risk can't be negotiated at negative. A system based on compound interest rates, can't expand at negative. Someone gets free money and the others get screwed. Who gets the free money? The crooks in the government.

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
Aethor
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Tickerguy wrote..
But you have to understand that nobody buys a negative yielding bond for the coupon; they are all speculating that the yield will go more negative and before time value decay destroys the spread the current price will rise due to new bonds being even more negative and thus they'll make money selling that bond to someone else.


My understanding of bonds is a bit weak, so, a question:

Why would anyone else want to buy it at all? I mean, while the new bonds will be even more negative, a small negative still doesn't make anyone any money - unless they can find an even greater fool to resell it to.
So why would that someone else buy any bonds, those with a bigger negative yield or those with a smaller one?

Unless maybe if an organization is somehow obligated to buy bonds... (through some sort of capital adequacy rules?) and are simply looking for the least-negative one? Otherwise, no one would buy anything that just loses money, if they can avoid it. Or if there's some sort of financial shenanigans involved, with the end goal to enable the government to spend even more of other people's money.

Bluebird
Posts: 1899
Incept: 2008-05-02

SW Ohio
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In a Treasury Direct account, what is the advantage of rolling short term 4-week T-bills or 13-week T-bills into "C of I"? Those short term T-bills are paying some interest now, whereas "C of I" pays no interest.

What happens to the funds in the "C of I" if one passes away? The "C of I" is just a holding area, so where does it get paid to? Or does someone need to get a form from the Treasury to redeem the funds to a bank?

One more question, if I pass away, is it better to designate short term T-bills as "WITH" spouse, or "POD" to spouse?

Years ago, when I setup short term T-bills, I thought if the T-bills are setup "WITH" spouse, then if either spouse dies, then the surviving spouse automatically owns the T-bills. Whereas, if the T-bills are setup "POD", the surviving spouse would need to get a form from the Treasury to be able to redeem the funds to a bank.

I'm confused again, thanks for your help.
Tickerguy
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@Ktropser -
Quote:
Can you just let it sit there indefinitely?

Yes. You cannot buy a CofI directly, but you CAN roll into it, and there is no limit for how long it can stay. So buy a 4 or 13 week T-bill and let it roll into there.

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Winding it down.
Tickerguy
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@Bluebird -- A Treasury Direct account may be able to have a POD put on it; that's the easiest way to deal with it. If you're married and they're joint funds register it in both names.

@Aethor -- There are certain types of fiduciary arrangements where you MUST buy government securities. Well? As for why buy your negative one that's easy -- if the new one is more negative yours is worth more on a cash basis since it loses less. It's the same argument for buying an 18% bond when inflation was skyrocketing -- you don't buy it for the coupon, you buy it because you think bond rates will go down and if the new one has a 10% coupon you make a ******ned fortune since the value is the difference in yield times the remaining duration (more or less) which is a HUGE capital gain.

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Winding it down.
Tickerguy
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@Mannfm11 -
Quote:
Is it possible to do anything? It appears to me Trump has attempted to do plenty, but DC is so shut down that almost no one up there does what they campaign on. Didn't he put out an executive order to force hospitals to post prices? Attempt to force drug companies to make adjustments in drug prices to more closely mirror world prices? Fought with the Chinese and to lesser extents the rest of the world on trade? Attempt to slow illegal immigration and stopped or slowed by a million lawsuits?

Sorry, nope. Trump has repeatedly engaged in intentional losing arguments (e.g. the census bull****) never mind that he has exactly zero obligation to adhere to an out-of-jurisdiction "injunction" (e.g. one out of the 9th Circuit that is national; an out-of-jurisdiction order is facially void. Same reason a Florida cop can't pull you over if he sees you speeding in Alabama -- he can call an Alabama cop BUT unless he's in "hot pursuit" and the original offense happened IN HIS JURISDICTION his ability to do dick ended at the state line.)

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Winding it down.

Drifter
Posts: 310
Incept: 2016-02-11

Pacific Northwest
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@Blue-- Treasury Direct is easy. Link it with a bank account, and funds transfer back/forth seamlessly. The conjuction matters if you set it up with your spouse. Jane Doe AND John Doe or Jane Doe OR John Doe. I suggest the latter.

If I remember rightly, both my kids are listed as beneficiaries there.

You can roll over T- Bills 15 or 16 times automatically, if memory serves, then it will just stay in C n I until you manually reinvest it. I don't think the interest get reinvested, just the original capital.
1crzydmnd
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Bizarro World
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@Aethor - head over to Ann Barnhardt's site for a brief overview.

https://www.barnhardt.biz/2019/08/14/tol....

You won't like it. May or may not answer your question, but will raise both eyebrows.

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BFYTW
Little_eddie
Posts: 1270
Incept: 2009-04-30

Delaware
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With T direct you can put a different POD on each bond/note and link one account to many banks accounts to transfer money around.

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Think of how stupid the average person is, and realize half of them are stupider than that. - George Carlin

Bluebird
Posts: 1899
Incept: 2008-05-02

SW Ohio
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@Drifter -
Treasury bills are registered to 1 account owner. Another person can be "WITH" the owner or "POD" to someone. There are no options "AND" or "OR".

From my understanding, the option "WITH" is similar to joint account and transfers automatically upon death of the owner. The option "POD", is that the other person must get a form from the Treasury to inform Treasury whether to redeem the funds to a bank, or create a new T-Bill account. It is confusing.

Also, I am not an investor that I would want to transfer funds in "C of I" to something else. To me, it is more advantageous to roll over the T-bills that can be set 26 times to roll automatically.


Reason: edit for clarity
Tf0884
Posts: 8
Incept: 2010-06-26

England
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One thing that concerns me about my own personal situation is living in the UK.

We have very similar economic problems to the US, but magnified by a more advanced demographic and cultural decline. Perhaps more troubling, we have an almost record breaking population density for any major country.

I can see things getting very ugly. All over Europe, but especially here.

I rent and work in London. I deliberately never bought a home/put down roots in the South East of England because of the aforementioned problems and have saved like crazy (Karl you played a good part into goading me into this, so thank you very much).

I will shortly be moving to the outskirts of Hull. A city in the North East, and just taking the occasional contract in London for work.

Hull has hardly any jobs, but you can buy a home for 70k (circa 90k USD). It's also 95% white. For me it will be a cash purchase and in the UK we don't(yet) have an issue with property taxes, so at least that's one problem solved.

I am swapping economic security for physical security, but seeing as the former is disappearing for 99% of us it seems like the rational thing to do.
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