Bonds!

[TwoCitiesCapital]

18 minutes ago, rogermunibond said:

Looks like financials are up modestly, maybe on this release.

 

Lowering CET1 capital ratio requirements at the same time a Fed balance sheet runoff?

 

Fed is no longer in runoff. Fed's balance sheet started expanding again in December.

 

Is the only upward shift in trend, barring the March 2023 bank failures, since it started contracting in 2022 so is meaningful in signaling a policy shift. 

[wabuffo]

Fed is no longer in runoff. Fed's balance sheet started expanding again in December.

 

Where do you see it expanding?  They are now in stasis.  It might wiggle here and there depending on things the Fed can't control (US Treasury TGA, currency) - but the Fed is trying to keep its balance sheet flat.

 

Some people point to T-Bill buying, but that's because it must offset the run-off on its MBS portfolio.  If it doesn't do that, its balance sheet (and most importantly the total system reserve level) shrinks.

 

The Fed has a "redline" below which it thinks it must not let reserve levels breach.  That level is ~$3T.  Late in 2025, reserves fell below that level for a number of reasons and the Fed will try to pin that level to its target of $3T +/-.

 

Bill

Edited March 3 by wabuffo

[rogermunibond]

Banks, regulators, think tankers are skeptical of Warsh's plans to lower Fed reserves, but many are okay with moving away from the "ample reserve" system provided there's a way for the Fed to control short term rates.  Interesting that Waller is among the chief critics of the prior "scarce reserve" system that Warsh has been a fan of.

 

https://www.ft.com/content/6cd6b2c3-2fbd-47a3-8470-26df277aaba2

 

 

[Blake Hampton]

So here's an interesting question, it's one of simple principle:

Yes or no, do you believe that the U.S. government will face a crisis if we forever refuse to get control of the federal budget?

Sub-question on that:
 

If yes, is your argument then that we are nowhere near the point of crisis today?

[Blake Hampton]

Also, I think the Social Security trust funds are simply another future financial disaster lying in wait. Once these funds are insolvent, the program will face a 24% cut to benefits by law. If Congress wants to avoid this, which I'm certain they will, that'll require massive amounts of additional debt issuance needed to finance that new funding gap.

 

How long does money grow on trees?

[backtothebeach]

4 hours ago, Blake Hampton said:

So here's an interesting question, it's one of simple principle:

Yes or no, do you believe that the U.S. government will face a crisis if we forever refuse to get control of the federal budget?

Sub-question on that:
 

If yes, is your argument then that we are nowhere near the point of crisis today?

 

Define "get control".

 

Does not look like an out of control trajectory to me 2021-2025.
https://tradingeconomics.com/united-states/government-debt-to-gdp

 

Japan is 230%+. Lots of room to kick the can down the road if you can print your own money.

[UK]

11 hours ago, rogermunibond said:

Interesting talk from Scott Bessent on a reset to bank liquidity regulation.  After effects of the GFC.

 

https://content.govdelivery.com/accounts/USTREAS/bulletins/40c6d87?reqfrom=share/

 

"Now, the conversation is about reducing discount window stigma, incentivizing collateral prepositioning, and normalizing routine testing of central bank facilities."

 

 

 

Release the river...:)

[UK]

10 hours ago, Blake Hampton said:

So here's an interesting question, it's one of simple principle:

Yes or no, do you believe that the U.S. government will face a crisis if we forever refuse to get control of the federal budget?

Sub-question on that:
 

If yes, is your argument then that we are nowhere near the point of crisis today?

Known unknown already for 20+ years and probably atleast for another 20+ years:)

 

Can you share how do you suggest to make some money from all this stuff anyway?

 

Edited March 4 by UK

[UK]

10 hours ago, Blake Hampton said:

Also, I think the Social Security trust funds are simply another future financial disaster lying in wait. Once these funds are insolvent, the program will face a 24% cut to benefits by law. If Congress wants to avoid this, which I'm certain they will, that'll require massive amounts of additional debt issuance needed to finance that new funding gap.

 

How long does money grow on trees?

Well what if in 10 years time half of all current work is done by robots in a 50 percent more efficient way:)?

[rogermunibond]

@Blake Hampton regarding SS, read the Old Age Survivors and Disability Insurance Trust Fund reports from the OASDI Trustees.  They discuss in multiple reports steps that can be taken to match SS inflows with outflows.  So of the more recent white papers have discussed a delay in the timing of when workers can claim SS funds but scaled to the number of months until the individual can claim SS.

 

https://www.ssa.gov/oact/TR/2024/index.html

[gfp]

Time spent worrying about Social Security going "insolvent" is right up there with the biggest wastes of time possible.  What social security pays out to retirees and on what terms is ENTIRELY A POLITICAL CHOICE.

 

Social security trust fund's assets are GOVERNMENT IOUs.

 

MONEY IS GOVERNMENT IOUs

 

 

[Red Lion]

2 hours ago, gfp said:

Time spent worrying about Social Security going "insolvent" is right up there with the biggest wastes of time possible.  What social security pays out to retirees and on what terms is ENTIRELY A POLITICAL CHOICE.

 

Social security trust fund's assets are GOVERNMENT IOUs.

 

MONEY IS GOVERNMENT IOUs

 

 

 

Agreed totally with this, but wouldn't the size of the deficit vs. nominal GDP growth still carry importance? 

 

And then the political question isn't how much higher we can go on debt/gdp until we see a problem, because it only becomes a political question once we do see problems. 

 

Then ultimately there seem to be a lot of ways to address these problems when the rubber finally hits the road. Raise revenue (taxes/tariffs, asset sales), lower spending (seems like social security would be one of the last places to cut spending), financial repression, or outright money printing. 

 

People have been worried about social security going insolvent forever, but we just increased payments for example with the bipartisan social security fairness act that Biden signed in right before his term ended. So it seems that you're right that what social security pays out to retirees is an entirely political choice, and apparently a rare bipartisan choice at that. 

[Marco Van Basten]

1 hour ago, Red Lion said:

 

Agreed totally with this, but wouldn't the size of the deficit vs. nominal GDP growth still carry importance? 

 

And then the political question isn't how much higher we can go on debt/gdp until we see a problem, because it only becomes a political question once we do see problems. 

 

Then ultimately there seem to be a lot of ways to address these problems when the rubber finally hits the road. Raise revenue (taxes/tariffs, asset sales), lower spending (seems like social security would be one of the last places to cut spending), financial repression, or outright money printing. 

 

People have been worried about social security going insolvent forever, but we just increased payments for example with the bipartisan social security fairness act that Biden signed in right before his term ended. So it seems that you're right that what social security pays out to retirees is an entirely political choice, and apparently a rare bipartisan choice at that. 

I think Social Security is a real problem, and my guess is that it will be solved as follows: anyone who's income in retirement exceeds certain levels does not get it.  Already for most people who worked hard and saved, 85% of Social Security benefits are subject to income tax.  So that is the next step - 100% tax on 100% of the benefits if your income exceeds - say $500K per annum.  Hence, it will not be a problem post this solution.  

[gfp]

Marco's trying to steal my 80 year old momma's social security check!  She's coming for you buddy.  She don't play

[thepupil]

1 hour ago, Marco Van Basten said:

I think Social Security is a real problem, and my guess is that it will be solved as follows: anyone who's income in retirement exceeds certain levels does not get it.  Already for most people who worked hard and saved, 85% of Social Security benefits are subject to income tax.  So that is the next step - 100% tax on 100% of the benefits if your income exceeds - say $500K per annum.  Hence, it will not be a problem post this solution.  

 

it's not that hard. just make it even more progressive. 

 

https://www.crfb.org/socialsecurityreformer/

 

[TwoCitiesCapital]

On 3/3/2026 at 2:53 PM, wabuffo said:

Fed is no longer in runoff. Fed's balance sheet started expanding again in December.

 

Where do you see it expanding? 

 

 

 

 

[wabuffo]

TwCitiesCapital...

 

That's a small change - and as I said, the Fed wants to get total reserves to $3t.  At the end of Dec, 2025, total reserves were at $2.85T.   The Fed has gotten them back to target which gives context to the small change since end of year.

 

Bill

[TwoCitiesCapital]

2 hours ago, wabuffo said:

TwCitiesCapital...

 

That's a small change - and as I said, the Fed wants to get total reserves to $3t.  At the end of Dec, 2025, total reserves were at $2.85T.   The Fed has gotten them back to target which gives context to the small change since end of year.

 

Bill

 

 

I never said the change was large. But it's a change in trend which is worth noting after 4-years of consistent continual contraction (barring the 2023 bank failures). 

[Red Lion]

18 hours ago, Marco Van Basten said:

I think Social Security is a real problem, and my guess is that it will be solved as follows: anyone who's income in retirement exceeds certain levels does not get it.  Already for most people who worked hard and saved, 85% of Social Security benefits are subject to income tax.  So that is the next step - 100% tax on 100% of the benefits if your income exceeds - say $500K per annum.  Hence, it will not be a problem post this solution.  

I feel like raising the cap on payroll taxes is perhaps more likely. To get the max benefit, you need to make something like $160k a year which is barely middle class in a lot of the coastal states. 
 

And all the currently and soon to be retired voters are bipartisan when it comes to their social security and Medicare benefits. 

[gfp]

It's all a political choice - raise the cap on payroll tax contributions, make some tweaks like Pupil suggested, write two paragraphs that allow SS to run a negative balance ("gasp!"), do nothing and deal with the voters...

 

It is not some unsolvable issue that should keep people up at night and it really doesn't matter at all.

 

Except to my 80 year old mother who will come for Marco Van Basten if he takes her $4k per month or whatever it is this year.  She don't play

[Marco Van Basten]

41 minutes ago, Red Lion said:

I feel like raising the cap on payroll taxes is perhaps more likely. To get the max benefit, you need to make something like $160k a year which is barely middle class in a lot of the coastal states. 
 

And all the currently and soon to be retired voters are bipartisan when it comes to their social security and Medicare benefits. 

It would be a disaster if you raise the payroll cap, employment will go down and probably quite a bit.  You already have marginal tax rates north of 50% in many places - NY, NJ, CA, HI, MA.  You push it up higher and you will have an impact on employment.  My wife doesn't make much, but because I push her into the top federal bracket, albeit not the top NYS brackets, the tax she pays on her salary is approaching 60% (including Medicare and Social Security.)  We are debating whether she should stop working (she has an MBA), because it's just not worth it.  Push it say a few percentage higher and it's just a no brainer for her to quit.

My neighbor's wife quit her job as a teacher after NYS passed additional tax increases a few years ago, since her husband worked for a hedge fund, and this loyal Democrat could not stomach paying 60%+ tax rate...

 

Keep in mind, many federal tax credits for kids phase out at $400K of income...

 

From an economic point of view, the best is to take away benefits from higher income retirees.  

[gfp]

Its so bad the Beatles wrote a song about it bruh 

 

If it ain't worth it, quit or do something else or move to Florida.  There are more tax efficient ways of generating a buck than a W2 job.

[TwoCitiesCapital]

I think the problem is that this country has been run by boomers for boomers for decades. 

 

The reason SS is in the shape it's in? Boomers. 

The reason the federal debt/deficit is where it's at? Boomers. 

 

I understand not all boomers are extravagantly wealthy - but there is definitely a view from other generation that we're getting stuck with all of the shit consequences of their decades of decisions while it's a political third rail to hold them in the least bit accountable by making them carry some of the load - whether via reduced benefits or higher taxes. 

 

If you're grandma (or mine) didn't want her SS benefits reduced or more heavily taxes, her generation should have supported policies that made those distributions sustainable instead of just saying "future generations will clean this up for me". 

 

I hope there is some sort of middle ground in terms of raising eligible wages that SS taxes come out of, some reduction in benefits for higher income earners receiving it, and higher taxes applied to the distributions for ALL recipients. 

Edited March 5 by TwoCitiesCapital

[Marco Van Basten]

4 hours ago, gfp said:

Its so bad the Beatles wrote a song about it bruh 

 

If it ain't worth it, quit or do something else or move to Florida.  There are more tax efficient ways of generating a buck than a W2 job.

Not an option for most of the country.  Oh, and I don't have a W-2 job.  

[Marco Van Basten]

3 hours ago, TwoCitiesCapital said:

I think the problem is that this country has been run by boomers for boomers for decades. 

 

The reason SS is in the shape it's in? Boomers. 

The reason the federal debt/deficit is where it's at? Boomers. 

 

I understand not all boomers are extravagantly wealthy - but there is definitely a view from other generation that we're getting stuck with all of the shit consequences of their decades of decisions while it's a political third rail to hold them in the least bit accountable by making them carry some of the load - whether via reduced benefits or higher taxes. 

 

If you're grandma (or mine) didn't want her SS benefits reduced or more heavily taxes, her generation should have supported policies that made those distributions sustainable instead of just saying "future generations will clean this up for me". 

 

I hope there is some sort of middle ground in terms of raising eligible wages that SS taxes come out of, some reduction in benefits for higher income earners receiving it, and higher taxes applied to the distributions for ALL recipients. 

The solution that impacts the economy least is the one that does not increase the payroll cap.  And if you want to stick it to the boomers, then just don't give Social Security if your annual income is in excess of certain amount.