I’m nearing retirement. Over the last couple of years I’ve been adjusting my portfolio toward more bond funds and less equities. Most of my investments – including domestic equities, international, and bonds – are in index funds and ETFs, including Vanguard Long Term Bond ETFs and Vanguard Intermediate Term Bond ETFs. These are both down, one of them nearly 10% from my original purchase. Question: Am I on the right track using bond FUNDS (whether index or a managed fund) to diversify, or is it better to buy actual BONDS, where principal is protected at maturity, assuming no default and assuming my time horizon is long enough to the maturity of the bond?

I am retired and my portfolio is mainly in index funds, which have low expense ratios. I have used Vanguard bond funds for the fixed-income portion of my portfolio and, because I aim for funds with the lowest expenses, I recently invested in bond index funds. I have been rewarded with income from the funds, but the share price is down considerably. Since I thought the bonds held by these index funds would be high quality investment grade bonds, I am surprised…and disappointed!!!…with the loss. Can you please explain why this happened? Should I be buying individual binds instead of bond index funds?
Thanks you!

What will be the role of labor in rebuilding the economy? The bailout seems designed to get the financial sector back on track but as we saw in the years of growth previous to the recent crisis all that capital swishing around in the financial sector does not necessarily trickle down to inventment in industry resulting in skilled manufacturing jobs. In fact business’s attitude towards labor in general has been bad over the last decades, something to be eliminated through automation and outsourced to overseas cheap labor markets. Organized labor has been marginalized. Still building stuff takes a lot of expensive labor, time and the margins are low, not the kind of high margin, quick turn around investors like. How will the economy be rebuilt without new hope for labor?

Using another analogy: You can’t have strong crops if you don’t care about the quality of the soil but only focus on the blooms.

Ignoring the state of the middle / working-for-a-paycheck class has damaged our financial and our social fabrics.

This shows the great accomplishment of the Republican party since the 80s to get working class, usually religious, people to vote on social issues in order to change the tax and regulatory structures to benefit the wealthy.

Please ask the guests how the credit default swaps can be fixed? Why should these bets be paid when many of the gamblers had no interest as investors in the actual underlying products?

I heard somewhere that credit default swaps are being sold betting against the US gov. So if our government fails who’s going to pay off those bets?

How do we pull ourselves out of this economic crisis?

None of the “fundamentals” that brought us out of past economic downturns exist anymore.

For instance:

1.) we no longer have a solid (core) manufacturing base to take advantage of a decrease in the value of the dollar

2.) the U.S. is unlikely to recover its position as “the Unique Supreme” banking, trading and investing center it has been in the past

3.) the U.S. is not designed in a structurally efficient enough way to do well in a $3.50 and up dollar/gallon gas environment and we cannot easily change this fact(see #4 below)

4.) critical infrastructure is failing and we do not have the money to make the repairs or transitions that will help to make us competitive going forward

5.) resource,transportation, and energy costs are now prohibitively expensive in a time when we need cheap resources to recover

6.) our education system is failing, and more importantly is failing to provide a significant enough new generation of qualified talent for our workforce/leadership

7.)Our national debt of 10 trillion and growing means a huge portion of future tax revenues will go to interest and paying down the debt

8.) all of the above make it unlikely that credit will ever flow in this country as freely as it has in the past

9.) all of the above make it even less likely that there will ever be a significant enough job recovery to help pull us out of the dire straits we now find ourselves in.

We all have the past thirty years of leadership in our country to thank for not having enough foresight to prepare us for the times we are in. To be sure, some have warned of the changes that were needed for decades, but they went unheeded. Thank especially the Republican Revolution and the wealthy for placing “short-term investor profits” above all other priorities in our country.

In short, don’t expect a significant economic recovery in this country no matter what lip service optimistic economists pay our desperate hopes.

Mr. Greenspan injected money into the economy at 2% interest. Subsequently, savings bank account interest rates dropped to 2%. This gave the stock market a monopoly for individual savings. Would we benefit from higher interest rates?

What happened to common sense? The subprime mortgage crisis was a ponzi scheme based upon an assumption of unlimited cash from ever-increasing housing prices made safe by spreading the cost among an ever-increasing multitude. My worry is that the next president will initiate another Ponzi scheme of unrestrained spending on top of a mountain of debt made safe by spreading the cost (i.e., taxes) among an ever-increasing multitude. When will people learn that the easy does not mean right?

Please… this was a planned redistribution of wealth from the many to the few and the redistribution has happened across the planet. We are living the neoconservative blueprint delivered by the central banks – in particular the IMF, the World Bank, the Federal Reserve. The end goal is a “one world government” or “globalization”.

Both of these guests were fantastic. They were candid, clear, and non-partisan. I enjoyed this show immensely. And, I liked the blue collar call in questions too, thank you to the folks who asked those questions, they were useful to many of us.

To On Point,

Thank you so much for the second hour today. Please keep the data and historical perspective coming.

With regards to personal responsibility. No one should be surprised that people over extend. It’s human nature. It should be counted on. It burns me when I hear haughty self congratulatory, “I have personal responsibility,” or are dismissive of those LESSER PEOPLE who don’t have it, or something to that effect. Good for you. You should count your blessings that you LEARNED good values. But, disdain should not be heaped onto those for whom these values are not well established or may appear disadvantageous to them.

It is debt that creates money, and an economy based on debt and interest is unsustainable. We have accepted the theory of Peak Oil, now lets talk about Peak Money.

The 900 pound gorilla in the room is inflation.

All this debt has to paid for SOMEHOW. It’s a bit inaccurate to say that “the taxpayers” are paying for it since we were already in deficit when the bailout plan passed, so really none of it is being paid for by the taxpayers. We’re certainly not going to see spending cuts or tax increases of a sufficient magnitude to change the essentials of that. And this recession will last for quite a while, so we aren’t going to be able to grow our way out of the deficit like we did during the Clinton years.

Many economists believe that what will happen is that the debt will be monetized, which, of course, will be highly inflationary. Over the weekend I spoke with an economist at a cocktail party who thinks we’re going to see 8-10% inflation a year starting next year – this year won’t be too bad, she said.

Inflation is worse than a tax because at least when you pay tax you get SOMETHING in return – police, fire protection, Social Security, a military, etc. But inflation steals your money and gives you nothing in return.

I’ve been participating in every TIPS auction for 5 years, building a ladder. I wish I’d put more money in last week’s!

It is debt that creates money, and an economy based on debt and interest is unsustainable. We have accepted the theory of Peak Oil, now lets talk about Peak Money

The M2 has been going up steadily. And if the economist I spoke to a few days ago is right – – and you read the economics press you can see that hers is NOT a fringe point of view – then we ain’t seen nothin’ yet. money-supply wise.

Keep in mind that, unlike oil, the government can print all the money it wants to. And it will NEED to print money to pay all this debt. So I predict lots of money and lots of inflation.

The comments stating we are all at fault, and what happens when the “Boomers” drain social security gall me a bit.

First, I have not yet seen a breakdown by generation as to who is in credit trouble and who is not on an individual basis. As is always the case “those who obey the rules are always forced to pay for those who do not.”

I once asked the head of the Consumer Protection Agency on a talk show “why is there no provision to opt out of the whole e-signature, credit card,e-commerce, trap.” She had no answer.

It is virtually impossible to conduct business without credit cards. If you don’t have a line of credit businesses will refuse to provide you service. We have been forced into this.

Everyone knows the weaknesses of human character and unfortunately far to many are ready to profit from them at the expense of the rest.

It burns me when I hear haughty self congratulatory, “I have personal responsibility,” or are dismissive of those LESSER PEOPLE who don’t have it, or something to that effect. Good for you. You should count your blessings that you LEARNED good values.

I don’t think it’s a matter of good or bad. People do what they do – we can observe objectively and not make value judgements.
The scientific term for the behavior we’re discussing is “intertemporal choice”, and, as you say, it’s just a matter of human nature.

I thought it was funny last week when I said that politics is theater (i.e., dominated by iconography, emotion, identity, etc instead of rational analysis) and AV accused me of being “cynical”. It’s only “cynical” if you think that’s bad – but I’m not making a PREscriptive observation, just a DEscriptive one.

Same here – Is it “better” to save and not get into debt? “Better” how? What does “better” even mean in this context? I have lots of savings and investments and have practiced a frugal life. Someone else may be in debt up to their ears but have a big house, a fancy car, etc. In a highly inflationary environment he can pay off his debt with piles of worthless cash whereas my savings will be wiped out. So he’ll have lots of stuff and I’ll have nothing but worthless cash. I’d say in that situation, getting in debt up to your ears works out “better” in a practical sense.

As is always the case “those who obey the rules are always forced to pay for those who do not”

None of us is privy to any special inside information. You pays your money and takes your chances. You can save and invest or spend like a drunken sailor, but you cannot predict the future, so you don’t know which will work out better.

Imagine having a McMansion with a $1 million mortgage you could barely pay, but then having Zimbabwe style hyperinflation where $1 million is minimum wage. You’d feel pretty foolish if all you had was $150K hovel you had scrimped and saved to pay cash to buy.

I once asked the head of the Consumer Protection Agency on a talk show ” why is there no provision to opt out of the whole e signature, credit card,e commerce, trap.

What’s to stop you from paying cash for your purchases? I only use a credit card when I travel or for online purchases. What kind of special “provision” did you have in mind?

I’m 26, have a university liberal arts degree – I’ve been doing full-time ‘temp’ work for almost a year now, as has my co-worker. My girlfriend works at a small non-profit. I have around $10k in savings, and whatever is left of $8k in a Roth IRA. Neither of us have student debt, no credit card debt, car loans, car payments, nada. We rent, pay utilities, insurance, food, and gas. While we pay a bit more to eat well/what we want, we do not have a new couch or a flat screen TV or anything. ALL of our furniture is used except for a lamp I bought. That includes most of our kitchen stuff too.

Our biggest totally optional consumption is the cost of gas to make 200~ mile round trips to the mountains and back and around where we do lots of hiking and backpacking.

I do worry that my temp work will dry up and I will become underemployed or have to work at a grocery store or Starbucks (did that already in college) and take a pay cut to help to stay afloat. While this isn’t horrible compared to the situations of many, I am wondering if there is anything we should be optimistic about, economically-speaking for someone in our situation? We continue to save about 25% of our income-is there anything to protect ourselves or insulate from harder times ahead other than to save more?

I would love to see a Manhattan style project towards green energy and infrastructure.

“Keep in mind that, unlike oil, the government can print all the money it wants to. And it will NEED to print money to pay all this debt. So I predict lots of money and lots of inflation.”

Government printed money is mostly irrelevant. Money is Debt, thats why more lending/low interest rates lead to higher inflation. Every dollar created by a loan is then a dollar owed plus interest, and in order to pay interest, more dollars must be created with more debt- creating more interest. Peak Money would then be the point at which there’s no one left to borrow or no one is willing to lend, like what we saw last week.

Money is Debt, thats why more lending/low interest rates lead to higher inflation. Every dollar created by a loan is then a dollar owed plus interest, and in order to pay interest, more dollars must be created with more debt- creating more interest.

Except the concept of peak oil is that there’s an actual limit to the amount of oil we can get out of the ground and if demand exceeeds that supply then you end up with a shortage and high prices.

But there is no limit to the amount of money out there because more money can always be printed.

Also I disagree that “money = debt” because even as lending activity has been slacking off recently the M2 was still climbing. It’s just that banks were sitting on piles of dough they weren’t lending out.

Peak Money would then be the point at which there’s no one left to borrow or no one is willing to lend, like what we saw last week.

But that’s an artificial and temporary situation. And it’s already thawing out as you can see from the LIBOR the last few days. Basically the government has the power to pump unlimited amounts of money into the system, and Monday they signalled their intention to do so, if necessary.

I expect the credit freeze to thaw substantially in the next few months, but I expect the recession to continue for a year or more. And, as I said above, I also expect inflation to rise after awhile.

We continue to save about 25% of our income-is there anything to protect ourselves or insulate from harder times ahead other than to save more?

Yes – invest in yourself!

Look, no one can predict how the economy will go. As we noted above, savings and investmnet strategies that work well in one scenario will fail utterly in a different one. High debt, low debt, stocks, gold, commodities, cash – each of these are great in some situations and terrible in others and you can NOT predict which you’ll have. And “diversification” will probably produce a situation where half your portfolio will soar while the other half will be in the toilet – cancelling each other out.

But if you invest in yourself you’ll do well no matter what. This means develop your skills, work hard, network, never stop learning new stuff. Both my wife and I work in careers that didn’t exist when we graduated from college.

I would love to see a Manhattan style project towards green energy and infrastructure.

I dunno. I’m an investor in several alternative energy companies. And I can tell you that there are TONS of investment capital being poured into all kinds of alternative energy efforts from solar to biomass to batteries to lighting to automotive to etc.

A Manhatten style project implies the government is smart enough to pick a winner. I think this is one area where capitalism will do fine on its own. All I ask is that the government stop subsidizing fossile fuels because it gives oil and coal an unfair price advantage.

Mr Nelson
This is a crisis brought about by people who spend or invest beyond their means to absorb loss or meet financial obligation. The rule is live within your means.

Paying cash as an option is precisely my point. I know a gentleman who could not get satellite TV service because he refused to get a credit card. Offered to pay a year ahead and was still refused. Society has been forced into the credit purchase lifestyle. Its big business(or was)Allowing people to spend what they do not and probably never will have is criminal negligence
in my opinion.

People who are not web savy, don’t have credit cards, are to young (ssn issued at birth) should be able to have their e datahave their e data flagged to not permit transactions unless or until activated in person
by the holder. (The topic of the show was identity theft)

I know a gentleman who could not get satellite TV service because he refused to get a credit card. Offered to pay a year ahead and was still refused. Society has been forced into the credit purchase lifestyle.

But that’s such a fringe thing to do I don’t know why society should set up whole mechanism to accomodate it. Most people are not that eccentric.

There is nothing wrong with credit cards, per se. They can be very convenient. For over 20 years I’ve never carried any credit-card debt – I pay it off in full every month. It’s easy.

Also, for people with some kind of emotional disorder where they can’t control themselves and overspend, most credit card companies will let you set a low credit-limit. This is a feature for parents with teenagers but anyone can use it.

I listened to this show in the evening, and it’s great. Both guests were very good.

I am still unclear on some things, considering the 2 to 62 trillion dollar leveraged amplification from derivatives, what does it mean for that kind of wealth to disappear? On the one hand, this derived wealth was derived into existence. Is it real? Does it amount to much for this wealth to disappear? How much of this wealth is at risk? Is half the wealth bet high, and the other half bet low, thereby canceling one another? Aren’t we in a situation where one side or the other of this equation is on the hook for 32 trillion dollars? Isn’t it impossible for 32 trillion to be paid by either betting side? What would occur if the government just canceled these bets?

“You can make more money with a flop than you can with a hit.”

I wish I took out a subprime ARM no money down loan two years ago. I would have been a beneficiary of the widely shared sympathy and a recipient of government help. But I did not. Now, my savings evaporate by the day and I still don’t own a house. Those subprime borrowers are not victims. They are really the smart producers in this show called America. Debt is the way to go. Savers are punished. I was wondering how that line from Producers worked.

Those subprime borrowers are not victims. They are really the smart producers in this show called America. Debt is the way to go. Savers are punished.

IF this whole thing works out for the subprime borrowers (a big “if”) that doesn’t make them “smart” – just lucky.

If your savings are evaporating you can always buy TIPS or gold, or just something of value that will hold its value. Last year I started learning the violin, using a borrowed violin but now I want to buy my own. Good musical instruments hold their value pretty well, so instead of buying just an “OK” violin, I’ll probably spring for a better one, instead of just watching my cash melt with inflation.

*****I wish I took out a subprime ARM no money down loan two years ago. I would have been a beneficiary of the widely shared sympathy and a recipient of government help. But I did not. Now, my savings evaporate by the day and I still don’t own a house. Those subprime borrowers are not victims. They are really the smart producers in this show called America. Debt is the way to go. Savers are punished. I was wondering how that line from Producers worked.******

Where is moral justice?

I have talked to people around me, some people probably feel overwhelmed by this crisis, to a point, we can’t comprehend anymore. So most people would sum up with saying “What can you do? Life is not fair”. It bothers me when I hear that. It’s almost like we can’t do anything about this injustice. I am still trying to figure out how to make majority of the people in this country, their voice heard and really some justice need to be made. I won’t settle for this.

Shame on the government and the irresponsible people.

This country can no longer impose its freedom and democracy to other parts of the world, cause they are toxic, they are the freedom of greed, and democracy of all elected “sleep on their jobs” officials!

“IF this whole thing works out for the subprime borrowers (a big “if”) that doesn’t make them “smart” – just lucky.”

I think if it does not work out for subprime borrowers they will not loose much anyway because by definition they did not put much in. It is in this sense that I am saying they are not victims. Unless my understanding of “subprime” is incorrect. It does take some street smarts to recognize that the risk was really minimal and jump ahead.

I think if it does not work out for subprime borrowers they will not loose much anyway because by definition they did not put much in. It is in this sense that I am saying they are not victims. Unless my understanding of “subprime” is incorrect. It does take some street smarts to recognize that the risk was really minimal and jump ahead.

A subprime borrower is someone who would not ordinarily qualify for the loan he’s getting.

I know someone who put 5% down on $500K McMansion because that’s all he had. I haven’t talked to him in awhile so I don’t know how it worked out, but assuming he lost it that means he’s out his last $25K and has no assets, and maybe no place to live.

So compared to a mid-50’s software engineer who sees his $1 million 401(k) mutual fund portfolio drop to $600K, how do we score it? The first guy lost only $25K; the second guy lost $400K. I think arguments could be made on both sides of that debate.

I am still trying to figure out how to make majority of the people in this country, their voice heard and really some justice need to be made. I won’t settle for this.

You SAY you won’t “settle for this”, but it’s not clear that you have any choice.

Both political parties were equally responsible for the regulatory environment that led up to this, so electing a new gang isn’t going to change much – “meet the new boss, same as the old boss”, etc.

And the money, or value, or wealth, or whatever you want to call it, is gone – you can’t wish it back. That housing bubble we had was a true bubble – those numbers were fantasy. At one point my house was assessed at $550K – luckily I knew that was B.S. so I only have an 80K mortgage, but the point is that all the “wealth” was ephemeral, made up, fantasy, make-believe. THAT’s what we have to settle for.

You could have a revolution – a sort of political temper-tantrum – and arrest all the bankers and take their yachts and mansions and redistribute them to the poor, and send them all to reeducation camps, but all their wealth combined would hadly make a dent in the soup lines we’ll probably see in a year or two.

So what’s your plan?

******You could have a revolution – a sort of political temper-tantrum – and arrest all the bankers and take their yachts and mansions and redistribute them to the poor, and send them all to reeducation camps, but all their wealth combined would hadly make a dent in the soup lines we’ll probably see in a year or two.*******

Right there, you said it, that sounds good enough plan for me.

I am not asking for turning back the clock to the bubble, besides everything were just too good to make any sense.

I like to give this financial crisis a nickname — moral deficiency crisis!

This is not a rational way to deal with this problem.

You can’t blame all the bankers and all of wall street.

If one’s jealous of the fortunes made and lost by the way, maybe oneshould search inside yourself for the reasons why you hate people with more money than you.

Having a communist revolution won’t solve the problem of corruption: just look at China, or Russia, or the former Romania.

I’ve been reading up a lot on the Great Depression lately (who hasn’t?). And to me there are two really interesting things about it.

1. After the markets crashed in 1929 it took a LONG time before most people realized how bad things really were. Even in 1930 and 1931 credit was still available, interest rates weren’t too bad, the stock market was starting to recover, and most people seemed to think this was just anouther rough patch we could still muddle our way through with a little belt-tightening. In 1931 wages started to fall and the unemployed lines started to get really long and by 1932 – 3 years after the markets crashed – it became crystal clear to everyone that this was the Big One and industrial production collapsed – falling 45% from its earlier peak. This is all something to keep in mind as we watch today’s turmoil in the credit and stock markets – things might start to look a little better when they’re really not.

2. Even today, over SEVEN DECADES after the Great Depression, serious, respected, well-studied, economists still disagree sharply about the Depression’s causes, and what might have been done to prevent it. Even though FDR was a hero to millions there are major economists who believe that his policies prolonged and deepened the Depression. So we need to keep in mind that economics is not a science, the way physics or physiology is. We have serious, respected economists today telling us what should or shouldn’t be done in the current crisis but there is no reason to have a great deal of confidence in them.

A couple of posters have remarked that debt is money (true, in our present system), and the inevitibility that government printing money spawns inflation (not true; see below).

For insight into the unsustainability of our “debt is money” financial system, and how the government can print money to retire the national debt without inducing inflation, an idea praised by both Milton Friedman and Elizabeth Kucinich, see “Will the Financial Crisis Change the Game?” at

http://whatsnotso.blogs.com

We can add 6 trillion Dollars to the Economy by allowing Taxpayers to borrow up to 20,000 dollars using there Social Security as Collateral. Repayment would be @ 6 % Interest paying about 360,000,000,000 back into Social Security. Payment amount would be relative to there age from 68 yrs of age. Money could be used to pay off high Interest Loans, Start Business, Purchase cars, Save Homes, Down Payments for Homes, buy Stocks etc. Handing out small amounts of money and calling it a Stimulus and totaling 600.00 to a 1000.00 will do nothing but take care of fuel, food or small purchases, then its gone.