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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

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.

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.