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Edited on Thu Feb-03-05 08:51 AM by bigtree
Bush in the SOTU: "We will make sure the money can only go into a conservative mix of bonds. We will make sure that your earnings are not eaten up by hidden Wall Street fees. We will make sure there are good options to protect your investments from sudden market swings on the eve of your retirement."
Bonds are not risk free. Bonds have the potential for increases or decreases in value when you sell them. The value of bonds and interest rates rise and fall in opposite directions. When interest rates go up, the value of bonds go down. When older bonds don't pay out as high a rate as investors can get on bonds bought today, the market value drops. Also, the longer the maturity, the higher the risk of swings in value. So, if interest rates are unstable, a two-year treasury note, for example may move very little, while a 30-year treasury bond can move all over the place.
When interest rates go down as they have recently, bonds with yields higher than current market rates go up in value. Investors benefited from this in the last couple of years, as rates have fallen.
So I would ask, with interest rates at low, and with our economy coming out of a recession, won't interest rates go up? How can Bush claim that they will be "protected from sudden market swings?"
And what happens if the government goes bankrupt and defaults? What guarantee do investors have that future revenues won't be eaten up by hidden fees and monies paid out to pensioners?
Also, won't the real beneficiaries be the pension fund associations and investors? Won't our government eventually have to allow foreign investors a share of the pie since we are running such a large debt, over 40% foreign owned?
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