| 来源类型 | Article |
| 规范类型 | 评论 |
| A Secret Weapon against Inflation | |
| James K. Glassman; John J. Pitney Jr. | |
| 发表日期 | 1998-09-20 |
| 出版年 | 1998 |
| 语种 | 英语 |
| 摘要 | Inflation is nowhere is sight, which is exactly why a smart investor should worry about it. Two years ago, in an act of true benevolence, the U.S. Treasury invented the only investment that truly protects the little guy against inflation. It’s remarkable that this investment remains largely undiscovered. Of course, it’s easy these days to forget that inflation can grind your savings to powder. Statistics announced yesterday show that, over the past year, the consumer price index (CPI) has risen only 1.6 percent. But check the history books: Since 1965, prices have risen at an average of 5.2 percent annually. At that rate, $1 in 2026 will have the buying power of 25 cents today. But hardly anyone bothers with inflation today, except a few curmudgeons at the Federal Reserve Board. The buzzword has been deflation–a decline in the general level of prices. In other words, if a washing machine cost $400 last year, it will cost $370 this year. Deflation has not reached our shores, but even a whiff of it has sent Japan into a swoon. As prices, including wages, start dropping, consumers tend not to consume. Instead, fearful, they save, watch the value of their money rise and wait till prices bottom out–if they ever do. Our last experience with deflation, the Great Depression, lasted a decade. I’ve been worried about deflation for the past year, and I still believe it is a serious threat. Commodity prices, including metals and grains, are hitting 20-year lows. The producer price index dropped sharply in August and is down 0.9 percent for the past 12 months. But this state of affairs has been largely discounted by the markets. In other words, everyone knows that inflation is low or nonexistent, and that condition has been priced into investments. More important, consider the longer term. Even if inflation has been tamed today, do you really believe it will still be docile in another five years? How about 10 years? Thirty years? If you have the slightest concern about inflation over the next decade or the next generation, you should think about investing in what are called “inflation-indexed securities.” These are notes and bonds that protect you against inflation by paying a fixed “real” rate of interest that is topped off each year with an inflation adjustment based on the CPI. The bonds trade in the market just like normal bonds. Their prices–and thus, the underlying real yields they pay–fluctuate, though not very much. For example, the 10-year inflation-indexed bond’s real rate has varied over the past year between 3.54 percent and 3.86 percent. If you buy a long-term inflation-protected bond and keep reinvesting the proceeds in similar bonds, then you are virtually guaranteed to double the buying power of your original investment in 20 years. That probably won’t beat a stock. If inflation averages 3.8 percent and a stock returns 11 percent, then your buying power will quadruple in 20 years; stocks remain the best long-term investment for most of us. But Treasury bonds are a good insurance policy, and inflation-linked Treasuries may be the best insurance of all. So far, the Treasury has issued four series of securities: a 30-year bond that matures April 15, 2028; two 10-year bonds, one maturing Jan. 15, 2007, and the other maturing a year later; and one five-year note, maturing July 15, 2002. The Treasury plans to keep issuing a new series every October, January, April and July. The next sale is tentatively set for Oct. 7. The 10-year bond that matures in 2008, for example, was paying a real rate of 3.66 percent last week. If inflation is 1.6 percent this year, then it will pay an effective yield of 5.26 percent, which is considerably more than the 4.77 percent that the plain-vanilla 10-year bond was yielding. In fact, the conventional 10-year bond is priced to assume that inflation will average about 1.1 percent for the next decade. If you believe that will happen, I have some excellent Russian stocks to sell you. Late last week, the 30-year inflation-indexed bond carried a real yield of 3.7 percent, compared with a yield of 5.16 percent for the regular 30-year bond. This means that buyers of the latter are figuring that inflation will be about 1.5 percent over the next generation–again, somewhat optimistic if one judges from history. You can buy the U.S. bonds easily through Treasury Direct (202-874-4000, or go to the Web site at www.publicdebt.treas.gov); the Treasury will hold the bonds for you in an electronic registry. Or you can buy them through a bank or broker. They come in denominations as low as $1,000, and they can be sold at any time on the open market. As for taxes, there is a plus and a minus to the inflation-protected bonds. The plus is that interest on U.S. government securities is not taxable by state and local authorities. The minus is that you get taxed on the annual “imputed” inflation premium, which you don’t actually receive until you sell the bond. Instead of simply being paid extra interest to account for inflation, the principal of each bond is indexed. The index rises each year according to the CPI. At maturity, you receive, as principal, the full expanded index value. But the increases in the index–even though they aren’t paid to you in semiannual checks, like interest–are nevertheless taxable. For that reason, it’s a good idea to hold your inflation-linked bonds in a tax-deferred account such as an IRA. The Treasury has also started offering what it calls “I-bonds,” in smaller denominations–$50, $75, $100, etc.–similar to Series EE savings bonds (1-800-487-2663). They make good gifts, but they can’t be bought and sold in the markets. And, oh, by the way, if deflation catches hold and the CPI actually declines over the life of your marketable inflation-protected bond or your I-bond, you won’t get penalized. The government agrees to pay the original face value of the bonds at maturity. Fewer Peaks and Valleys The yield on the 10-year inflation-indexed bond has varied much less than that of the 10-year Treasury note this year* 10-year inflation-indexed bond Low 3.54% High 3.86% 10-year Treasury note Low 4.70% High 5.81% *through Sept, 18 James K. Glassman is a resident fellow at AEI. |
| 主题 | Economics ; Tax Reform |
| 标签 | bonds ; consumers ; deflation ; Department of the Treasury ; federal government ; Federal Reserve ; Financial services ; markets ; Monetary ; money ; prices |
| URL | https://www.aei.org/articles/a-secret-weapon-against-inflation/ |
| 来源智库 | American Enterprise Institute (United States) |
| 资源类型 | 智库出版物 |
| 条目标识符 | http://119.78.100.153/handle/2XGU8XDN/236217 |
| 推荐引用方式 GB/T 7714 | James K. Glassman,John J. Pitney Jr.. A Secret Weapon against Inflation. 1998. |
| 条目包含的文件 | 条目无相关文件。 | |||||
除非特别说明，本系统中所有内容都受版权保护，并保留所有权利。
