5 ms·

> Treasury bonds as they have no credit or call risk Arguably not 100% true anymore. Some people are buying insurance on treasuries these days.

crawlingroad 17y ago
The US Govt. can always print money to pay off creditors. Yes, this would be highly inflationary. But, it means the bonds can always be paid. More likely, they will simply raise taxes to cover the debt load. But compared to other bonds, the US Treasuries are probably the safest. Even the Euro bonds are less safe. IMO. They are having big problems that will only get worse. However if this all goes to hell, then you have an allocation to gold to cover the inflation fallout from the mess. But in 2008 everyone thought inflation was coming when gas was $4 a gallon and climbing. But by the end of the year we had a deflation situation and Treasury bonds went up 30%. Nobody saw that one coming which is why portfolios should hold a wide variety of assets at all times and not try to use market timing.
- rphlx 17y ago
  > More likely, they will simply raise taxes to cover the debt load. Historically unlikely. Democracies favor inflation, at the expense of mostly foreign creditors, over higher taxes, at the expense of the average voter.
  - _delirium 17y ago
    The U.S. is in an unusual position, though, in that more than half its government bonds are held domestically, so screwing the bondholders is politically much harder. I agree that inflating out of a debt is probably still relatively likely, though, since as long as it isn't done in a precipitous fashion (i.e. Italy-style overnight devaluation), the small domestic bondholders aren't likely to revolt. An actual default seems unlikely though, given how many Americans own treasury bonds.
- bokonist 17y ago
  The US Govt. can always print money to pay off creditors. Yes, this would be highly inflationary. Actually, it would be anti-deflationary. The fact that U.S. Govt can print money to pay off creditors is already priced into the price of the bonds ( if it wasn't, U.S. bonds would already be worthless, as there is simply not enough dollars in the world to come close to paying off the debt). T-Bills are inflationary at the time of issuance.
gte910h 17y ago
The US is one of the only nations in the world to never, ever default, in any way.
- crawlingroad 17y ago
  Actually the US defaulted twice in the past 100 years IMO: In 1933 they broke the gold standard and confiscated citizen's gold. After the gold was converted to paper money they took the official price from around $20 an ounce to $35 an ounce thereby reducing the purchasing power of the paper (you needed $35 to buy what once cost you $20 just a few months earlier). Since Treasury notes then were essentially gold certificates promising to pay the bearer in the dollar value of gold, the US defaulted because they wouldn't honor the conversion. US Citizens were not allowed to own gold outside of jewelry again until 1974. In 1971 Nixon closed the gold window for international holders of dollars. Foreign countries with dollars would no longer be allowed to convert their dollars for gold at the agreed to rate of $35 per ounce. So this too is a default as the terms of the agreement were not followed and we left foreign holders with dollars that were declining in value rapidly due to our inflation. I'm not expecting the US to default any time soon, but there are ways for it to happen that technically aren't a "default" but achieve the same outcome. High inflation is the most likely way they'd do this if it came down to it.
- izend 17y ago
  Several interesting facts emerge from the table. First, any countries and regions even some that received substantial debt inﬂows never defaulted. This includes the United States at the federal level, Canada, Australia, South Africa (except for an episode related to sanctions in 1985), most Asian countries, and most Arab countries. http://mitpress.mit.edu/books/chapters/0262195534chapm1.pdf http://mitpress.mit.edu/books/chapters/0262195534chapm1.pdf

crawlingroad 17y ago

The US Govt. can always print money to pay off creditors. Yes, this would be highly inflationary. But, it means the bonds can always be paid. More likely, they will simply raise taxes to cover the debt load. But compared to other bonds, the US Treasuries are probably the safest. Even the Euro bonds are less safe. IMO. They are having big problems that will only get worse. However if this all goes to hell, then you have an allocation to gold to cover the inflation fallout from the mess. But in 2008 everyone thought inflation was coming when gas was $4 a gallon and climbing. But by the end of the year we had a deflation situation and Treasury bonds went up 30%. Nobody saw that one coming which is why portfolios should hold a wide variety of assets at all times and not try to use market timing.

rphlx 17y ago
> More likely, they will simply raise taxes to cover the debt load. Historically unlikely. Democracies favor inflation, at the expense of mostly foreign creditors, over higher taxes, at the expense of the average voter.
- _delirium 17y ago
  The U.S. is in an unusual position, though, in that more than half its government bonds are held domestically, so screwing the bondholders is politically much harder. I agree that inflating out of a debt is probably still relatively likely, though, since as long as it isn't done in a precipitous fashion (i.e. Italy-style overnight devaluation), the small domestic bondholders aren't likely to revolt. An actual default seems unlikely though, given how many Americans own treasury bonds.
bokonist 17y ago
The US Govt. can always print money to pay off creditors. Yes, this would be highly inflationary. Actually, it would be anti-deflationary. The fact that U.S. Govt can print money to pay off creditors is already priced into the price of the bonds ( if it wasn't, U.S. bonds would already be worthless, as there is simply not enough dollars in the world to come close to paying off the debt). T-Bills are inflationary at the time of issuance.

gte910h 17y ago

The US is one of the only nations in the world to never, ever default, in any way.

crawlingroad 17y ago
Actually the US defaulted twice in the past 100 years IMO: In 1933 they broke the gold standard and confiscated citizen's gold. After the gold was converted to paper money they took the official price from around $20 an ounce to $35 an ounce thereby reducing the purchasing power of the paper (you needed $35 to buy what once cost you $20 just a few months earlier). Since Treasury notes then were essentially gold certificates promising to pay the bearer in the dollar value of gold, the US defaulted because they wouldn't honor the conversion. US Citizens were not allowed to own gold outside of jewelry again until 1974. In 1971 Nixon closed the gold window for international holders of dollars. Foreign countries with dollars would no longer be allowed to convert their dollars for gold at the agreed to rate of $35 per ounce. So this too is a default as the terms of the agreement were not followed and we left foreign holders with dollars that were declining in value rapidly due to our inflation. I'm not expecting the US to default any time soon, but there are ways for it to happen that technically aren't a "default" but achieve the same outcome. High inflation is the most likely way they'd do this if it came down to it.
izend 17y ago
Several interesting facts emerge from the table. First, any countries and regions even some that received substantial debt inﬂows never defaulted. This includes the United States at the federal level, Canada, Australia, South Africa (except for an episode related to sanctions in 1985), most Asian countries, and most Arab countries. http://mitpress.mit.edu/books/chapters/0262195534chapm1.pdf http://mitpress.mit.edu/books/chapters/0262195534chapm1.pdf