Question: if bond prices rise during inflation, and Bush won't raise taxes

[EVDebs]

to pay for the war (or anything else for that matter) inflation--the hidden tax--will kick in just as with Vietnam and LBJ's 1967 war surtax. The 1967 surtax wasn't enough to finance that war and the end result was an inflation during the 1970s.

Since Social Security is invested in US bonds right now, if I'm not mistaken, then won't the price of those bonds soar ? And during inflationary periods, stocks don't do to well either.

It this scenario Bush is painting economically akin to Argentina ?

[snippy]

1. Bond prices fall during periods of increasing inflation.

Interest rates and bond yields rise during such periods. I agree that Bush's fiscl policy is likely to lead to an inflation problem sometime in the future.

[ralps]

2. I believe that current bonds will fall in price. For example if a person

has a bond with an interest rate of 4% and the gov. issues a new bond with a 5% interest rate people won't want the old bond, therefore it's price will fall. The US Government will have to raise bond interest rates to keep other governments interested in investing in the US.
:hi:

[AndyTiedye]

3. High Interest Rates Make Bond PRICES go Down

Interest goes up, so yields have to go up, but the amount of interest
paid by a bond is fixed, so the price of the bond goes down.

Bonds are not a good hedge against inflation. When interet rates
go up, boldholders either have to accept (and pay taxes on) interest
that is below the rate of inflation (effectively losing some of
the principal, or selling the bonds at a loss).

The stock market isn't necessarily a good hedge against inflation
either, as those who remember stagflation can attest.

The only way this regime fights inflation is by encouraging companies
(with tax incentives) to outsource even more jobs and throw even more
Americans out of work. Thus we have the particularly insidious
combination of price inflation and wage DEflation.

[EVDebs]

4. So cheaper bond prices but higher interest rates result. My main

concern is how this environment plays into the Social Security debates going on right now. SS is invested into Treasury bonds...how does this all work out ?

Bush's privatization plans, if anything like the Reagan years, will just be camouflage for raids to a social security surplus while doling out even more payoffs to the wealthiest. You have to pay for wars and tax cuts have to be made up for in tax increases for someone else...unless they are too unsuspecting to figure it out.