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from The Great Debate:

Ending the debt limit crisis: Dear Ben Bernanke

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Warren Buffett calls the debt ceiling a “nuclear weapon, too horrible to use.” Obama administration official Jason Furman says the consequence of a default on U.S. government debt is “too terrible to think about.” When asked about a default, Wells Fargo strategist James Kochan simply commented, “Holy cripes.”

With this crisis, America is risking financial Armageddon. The default of Lehman Brothers on its $613 billion of debt ignited a chain reaction in the financial system, nearly destroying the U.S. economy. A default by the U.S. government on $17 trillion of debt -- debt that has been considered the safest in the world -- could be far worse.

But at heart, this is not a debt problem. It is an accounting problem. The Treasury Department issues U.S. debt, and lots of it. So you would think that America is deeply indebted to its bondholders. Yet increasingly, it is the U.S. monetary authority, the Federal Reserve, and not private investors, who buys this debt.

So a simple solution to the impasse is as follows: Federal Reserve Chairman Ben Bernanke should simply cancel the Treasury debt that it owns. The government can just forgive the government’s debt.

from MuniLand:

The fiscal cliff and “budgetary crystal meth”

 

 

 

 

 

 

 

 

 

 

 

 

Want to scare yourself a little? Bill Gross, who runs one of the world’s largest bond mutual funds, says that U.S. Treasuries are losing their status as the top global asset. Bloomberg has the story (emphasis mine):

Gross wrote in his monthly investment commentary last week that the U.S. will no longer be the first destination of global capital in search of safe returns unless fiscal spending and debt growth slows, saying the nation “frequently pleasures itself with budgetary crystal meth.”

from James Saft:

The death of the Treasury benchmark

James Saft is a Reuters columnist. The opinions expressed are his own.

A U.S. default or debt downgrade may set off market fireworks but the longer-term effects of the death of Treasury bonds as a universal benchmark of risk may ultimately be more significant.

The U.S. appears to be slouching towards a self-inflicted debt crisis, with Democrats and Republicans unable to agree a plan to lift the $14.3 trillion debt ceiling by the Aug. 2 deadline.

from Reuters Money:

Debt ceiling & dumber: No safe haven for your money?

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Washington is now acting out a scene from Tennessee Williams' classic play Glass Menagerie. The ever-fragile players are about to shatter .

Yet this is not the time to turn a farce into a tragedy. A default on U.S. debt will make the 2008 debacle look like a Simpson's episode. Interest rates will soar through the roof. Everything from mortgage rates to adjustable credit card financing will skyrocket. Payrolls may be imperiled along with Social Security and Medicare payments. Think economic crash and burn -- in a big way.

from Reuters Money:

Scary and scarier: rising prices and rising rates

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Data expected out of Washington this week may raise anxiety levels of investors and consumers who are already worried about inflation and rising interest rates.A gasoline pump is seen hanging at a petrol station in central Seoul April 6, 2011. REUTERS/Lee Jae-Won

On April 12, the Bureau of Labor Statistics reported that U.S. import prices jumped in March. We'll also get data on producer prices on April 14 and consumer prices on April 15. But here's what we already know: It costs more to fill your car, and your belly. And what doesn't run on food or fuel?

from Reuters Money:

Glassman’s redemption: Find an investment safety net

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James Glassman is seen in this American Enterprise Institute undated handout photo released December 11, 2007.  REUTERS/AEI/Handout It's hard to climb out of an abyss in which you've predicted that the Dow Jones Industrial Average would hit 36,000 -- only to see it crash twice and get pinned to the mat for years. James Glassman was one of the many bubbly U.S. stock cheerleaders who recommended stocks for the long term at the wrong time.

As most any stock investor will tell you, the last decade for U.S. stocks has been pretty dismal with the dot-com bust, 9/11 and the 2008 meltdown buffeting investors at every turn.

from Reuters Money:

Phony Social Security reform arguments: When will media get it?

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BRITAIN/Why do reporters parrot misinformation about Social Security? It's probably done in the name of balance and a centrist approach. Trouble is, the center on this issue has been pulled so far right that the Beltway consensus portrays Social Security as a program in crisis and a main driver of the federal budget deficit.

But the consensus is wrong, and so is much of the reporting.

The latest example among many: National Public Radio's story on Feb. 9 claiming that Social Security has hit a tipping point. Why "tipping?" Because the program has gone cash-flow negative. NPR quotes alarmed politicians who express dismay that Social Security is taking in less than it spends -- but that's no surprise at all.

from Reuters Money:

Bond. Treasury bond.

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A handout photo of David Gaffen REUTERS/HandoutThe following is an edited excerpt from Never Buy Another Stock Again: The Investing Portfolio that Will Preserve Your Wealth and Your Sanity, written by David Gaffen, who is the Reuters markets editor. It was printed with permission of FT Press, an imprint of Pearson.

After stocks, the next most popular investment and often a primary component in a portfolio are bonds, for good reason. They’re guaranteed to return your principal if that’s your intention, with a (relatively small) return from the interest you get for owning the fixed income asset. Bond portfolios can also be constructed through direct purchases from the U.S. Treasury, which you can use to create what’s known as a “laddered” portfolio consisting of bonds of different maturities to help protect you against rising rates.

from Reuters Money:

Muni bonds: A tale of two cities

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Rick Ashburn is a chartered financial analyst and the founding Principal Chief Investment Officer of Creekside Partners, based in Lafayette, California. The opinions expressed here are his own.

The California capital building in Sacramento November 17, 2003. REUTERS/Mike BlakeIt was the best of times. It was the worst of times. If you’re a muni bond investor, you’re probably wondering what time it really is. If you listen to recent commentary by Meredith Whitney and Peter Schiff, it’s the worst of times and time to get out of town with your head still attached.

from Reuters Money:

The 10 fastest-growing ETFs of 2010

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Since the first batch of iShares funds debuted in May, 2000, the exchange-traded fund (ETF) industry has grown almost 20 times in size. And it all happened during the so-called lost decade, when the stock market made virtually no gains.

Despite sizable outflows from mutual funds in 2010 and fallout from the flash crash last spring, ETFs are gaining in popularity, raking in $85 billion through the end of October. These 10 ETFs have shown the fastest growth in 2010, according to Lipper, a unit of Thomson Reuters. And what's surprising is that they are so diverse, with investment strategies focusing on U.S. Treasuries, China, U.S. equities, corporate bonds and even Colombia.

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