A major problem with deflation is that it can be difficult for a central bank to control. When inflation is high, the Federal Reserve can raise interest rates, and this tends to slow down inflation. But if prices are falling consistently, the Fed would normally like to stimulate the economy by making it easier to borrow money. The lowest rate the Fed has at its disposal is 0%. Presently the Federal Funds rate (the interest rate banks charge each other for loans) target range is 0.25% – 0%. Once the central bank lending rate is at 0%, it can’t go …Read More
Another way to pull funds from an IRA or a qualified retirement plan (401(k), 403(b), 457, etc.) without having to pay the 10% penalty is to use those funds for Qualified Higher Education Expenses (QHEE). This comes up quite often, as parents are faced with the issues surrounding the dueling requirements of retirement saving and paying for college for the young ‘uns.
We’ve been talking about the components of Internal Revenue Code Section 72, and specifically here we’re talking about §72(t)(2)(E). In this portion of the code, the provision is made for a taxpayer qualified retirement plan or IRA owner …Read More
I gave a short discussion of quantitative easing in the second post of my Inflation/Deflation series. I learned recently that the Financial Times web site has a nice explanation of how quantitative easing works to check deflation; if you’re a visual learner, you might find it helpful. You may have to register at the FT site to view it, but registration is free. The piece explains the risks of quantitative easing and makes an important point: although many economists believe that too much quantitative easing could be very bad and that too little easing won’t check deflation, no one …Read More
Life insurance companies, normally thought of as bastions of stability, have come under greater scrutiny from concern that their holdings of mortgage-backed securities and aggressive annuity guarantees may put their financial stability at risk. Where can you go to determine the strength of your insurer?
According to a report in yesterday’s Wall Street Journal, the Treasury Department will soon announce that TARP funds will be made available to insurance companies that own banks.
Although life insurers are closely regulated, there’s growing evidence that some insurers hold significant amounts of low-rated mortgage-backed debt. Financial Planning magazine cites data indicating that of …Read More
Above is a chart that compares the S&P 500 earnings performance during the current economic recession (the red line) to that of the tech bubble recession (the gold line) and the average recession dating back to 1936 (the blue line). As you might expect, the current decline in earnings has been significantly worse than during the average recession, and is now worse than during the bursting of the tech bubble.
Note that earnings bottom out and start to improve near the 18 month mark during both the average recession and during the recession of 2001-2002. How far into the current …Read More