T-Bills Definition: Treasury bills (aka. T-Bills) are short-term debt obligations that are backed by the US government and which have less than a year’s maturity. They are sold in $1000 denominations and purchases can go up to 5 million. Commonly, T-bills come with 4-week (1 month), 13-week (3 month) or 26-week (six month) maturities. The issuing of T-bills is done by a competitive bidding process where the bids are placed on “discounts from par” which means that unlike in the case of conventional bonds with fixed interest rates, here, it is the bond appreciation that gives the holder his returns. For example, if you buy a T-bill with a 13-week maturity at $9,950. What happens here … [Read more...]
What You Need to Know About the Federal Reserve System
The Federal Reserve System If you saw the HBO movie “Too Big to Fail,” you may have the notion that the Federal Reserve System, commonly known as The Fed, deals with high level banking issues that have worldwide implications. And you would be right. But The Fed also regulates banking functions that affect individual Americans, ranging from regulating debit card overdraft fees and limiting gift card fees to issuing U.S. Treasury savings bonds. History of the Federal Reserve The Founding Fathers were cautious about establishing a central bank, thinking that it would encourage irresponsible borrowing by the government. As a result, America functioned without a central bank throughout the … [Read more...]
What Is Fiat Currency?
Fiat currency is a term that is used to describe a currency which is created by "fiat" or "arbitrary order or decree" of the government. It is not created by the free market or backed by anything like gold, silver or real estate. It is essentially an "IOU- nothing". A lot of people do not realize that every currency in the world today is considered to be a fiat currency. (Although the Chinese may be working on creating a gold backed currency and several OPEC countries have considered it as well). The US dollar, the euro, the Great Britain pound, the Japanese Yen, and the Australian dollar are all fiat currencies, to name a few. Since everyone uses this type of currency, why is it such a big … [Read more...]
How to Save Your Money And Your Life
Editor's Note: There is only one real way to create wealth and that is to build something. If you take $50,000 worth of lumber, metal and glass and combine it with $50,000 worth of skilled labor you can come up with a $150,000 house. You have in effect created $50,000 out of thin air. Or by machining a $2.00 lump of metal you can create a $20.00 gear or a $200 watch. It all depends on the skillful application of technology to raw materials. Everything else is just rearranging deck chairs on the Titanic. In the short term, rearranging deck chairs can be very profitable for an individual but it doesn't "create wealth" it simply transfers it from one person to another. The rapid pace of … [Read more...]
How Does Gold Fare During Hyperinflation?
By Jeff Clark, Casey Research Inflation is a natural consequence of loose government monetary policy. If those policies get too loose, hyperinflation can occur. As gold investors, we'd like to know if the precious metals would keep pace in this extreme scenario. Hyperinflation is an extremely rapid period of inflation, but when does inflation (which can be manageable) cross the line and become out-of-control hyperinflation? Philip Cagan, one of the very first researchers of this phenomenon, defines hyperinflation as "an inflation rate of 50% or more in a single month," something largely inconceivable to the average investor. Hyperinflation has One Root Cause While there can be … [Read more...]
What are Treasury Inflation Protected Securities (TIPS)?
As the Government continues to flood the economy with new money via QE1, QE2, Operation Twist and now Twist2, many investors are fearing a massive inflation may be just around the corner. And so they are looking for a sfe haven to protect their investments from the deluge they see coming. Therefore they are turning to Treasury Inflation Protected Securities, or "TIPS". TIPS are considered an extremely low-risk investment as they have Government backing, are protected from the ravages of inflation and are less volatile than bonds and safer than stocks. How Treasury Inflation Protected Securities (TIPS) Protect Against inflation Over time even small levels of inflation can make a big … [Read more...]
What are I bonds?
I- Bonds: A brief overview: In the current shaky economy, everyone is looking for safe and secure investments. Investors might have a chance at high rewards with stocks and corporate bonds, but there’s also a huge risk to putting money in either. The snowballing crises in Europe aren’t making foreign investments look any more tempting. Where can investors trust their finances if they want a solid risk free return on their investment? Well, for those of you who want to play it cool and safe with your investments, you might consider: I bonds. What are I-Bonds? First of all, I-Bonds are officially called Series I Savings Bonds. According to the U.S. Department of Treasury, I bonds … [Read more...]
What is the Fiscal Cliff and How is it Affecting the Economy
The fiscal cliff that is the current hot topic in the news is a combination of automatic spending cuts and tax hikes that are scheduled to go into effect at the end of 2012 and the beginning of 2013. The spending cuts were triggered when congress failed to reach a deficit reduction agreement during last years debt ceiling debate. The tax increases are also automatic because Congress failed to make the "Bush Tax Cuts" permanent opting instead for a more politically expedient temporary tax reduction. In other words, they "kicked the can down the road" and it landed at the end of 2012. Perhaps they were hoping the Mayans were right and the world would end before they had to deal with the … [Read more...]
Impact of Inflation on Bonds Part 1
Impact of Inflation on Bonds Bonds are often considered a risk-free (or nearly risk-free) investment suitable for "widows and orphans". While they are generally safe, they have several weaknesses in the modern marketplace, inflation, rising interest rates and default risk. Before buying a bond, make sure you understand how bonds work and how inflation can have an effect on bonds. The Nature of Inflation Inflation is often described as the general rise of prices in the economy. However, the increase in prices is merely the effect, called "price inflation." Monetary inflation, which is the expansion of credit in the financial markets, is what often (but not always) drives price inflation. … [Read more...]
Why Buy Gold?
Gold has been one of the best investments over the last decade going from a low of $252 to a high of $1889. If you're looking for a way to protect against the effects of inflation, currency collapse or economic instability, here are a few things to consider about why gold should be in your portfolio. Return to the Gold Standard If you've been paying attention to what is going on in the world these days, you know that the financial markets have been in turmoil. Much of this relates to the basic underpinnings of the economic system. In the United States, the Federal Reserve is in charge of the money supply and interest rates. Nothing is backing the paper money that is printed, other than the … [Read more...]
