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Around the developed world, interest rates are at a historic low over the last 20 years or so. The EU borrows at 0%. Argentina issued a 100-year bond at 8%, for

Around the developed world, interest rates are at a historic low over the last 20 years or so. The EU borrows at 0%. Argentina issued a 100-year bond at 8%, for God's sake. One way to tell this story is that investors have unprecedented trust in global stability. They rate the risk of wars, bankruptcies, revolutions, etc extremely low. There are other interpretations: you can say that central banks keep interest rates artificially low through control of the money supply, or compel investors to buy government bonds at artificially high prices, and both are reasonable arguments. But treating a price as a function of both supply and demand, I think there's a lot of truth in the "peaceful, stable" interpretation.

lumost 6y ago
Given rising debt loads, this view seems myopic. Presumably if the balance of foreign debt outweighs the risks of walking away from it - countries will eventually walk away from it. It may simply be that revolution or other political instability will be required prior to countries walking away from the debt. I’d doubt any major power could or would fight a debt war in the 21st century.
nradov 6y ago
It's not that investors have trust, it's just that there's no alternative.
- dmurray 6y ago
  People say this, but I didn't consider it worthy of being mentioned as a serious reason. You can invest in stocks or commodities or real estate or these days cryptocurrencies. They all have great historic returns but some people and some institutions instead lend their billions to the world's governments at such low prices. You can't say with a straight face that there are no other plausible investments. You could tell the opposite story: bonds continue to be popular and pricy because the world fears instability: that any other asset class may be in a bubble and about to lose all its value. But even then, investors are saying that though companies and industries may rise and fall, the countries will survive and pay their debts.
  - notfromhere 6y ago
    They’re talking about the institutional market. If you are a big holder of money, you basically have no place to park it other than bonds.
  - mannerheim 6y ago
    Are they saying the countries will pay their debts, or are they saying that they know that they can turn around and sell their bonds to the Fed whenever they want?
    - nradov 6y ago
      No everyone knows the high yield Argentinian debt is trash. The investment managers and traders buying it today think they're smart enough to offload it to some sucker before the next default. Or they expect to move on to another job before that and just don't care about what happens long term.
      - mannerheim 6y ago
        Well, in either case, the valuations are based on the expectation that they can sell the bonds to somebody else, rather than the expectation that they will collect on the debt.
smolder 6y ago
I think there's "trust in global stability" and then there's "trust that none of this will matter anyways if the global economy destabilizes". It's too big to fail. I worry that people's trust in the system also creates apathy about the things that can break it. The tragedy of the commons is alive and, well... tragic.
- TimTheTinker 6y ago
  > none of this will matter anyway That's a bit of a self-fulfilling prophecy. What I mean is that the mindset that "none of this will matter anyway if <foo>" injects some measure of irrational optimism into the economy, causing the relative economic severity of the occasional inevitable blip to increase somewhat. We'd all do well to rationally consider the (small) risk of widespread destabilization. Doing so may keep bubbles smaller, but that's a good thing insofar as they are bubbles relative to value.
  - deleted 6y ago
    [deleted]
- scsilver 6y ago
  Being too big to fail is a testament to a working beautocracy. Before, things would just fail no matter how precious.
colechristensen 6y ago
Trust hasn’t much to do with it, there are people with much capital and nowhere to put it accepting anything.
vmception 6y ago
The central bank cannot actually stem the tide in a loss of market confidence, central bank actions all depend on people retaining confidence in the currency to begin with. If a central bank wants to buy government bonds from all the sellers and government treasury, it is always purchasing by diluting the currency. Once the market gets tired of bagholding the currency then the central bank has outlived its utility and the government cannot sell any more bonds because all the sellers evaporated.
otabdeveloper4 6y ago
> investors have unprecedented trust in global stability That's one way to spin it. Another is "investors have unprecedented low trust in traditional investment tools". (If you have extra money laying around and no way to put it to productive use then you just might dump it all into bonds, because it's the default option and you don't have much in the way of alternative anyways.) The rise of "bockchain" corroborates.

lumost 6y ago

Given rising debt loads, this view seems myopic. Presumably if the balance of foreign debt outweighs the risks of walking away from it - countries will eventually walk away from it. It may simply be that revolution or other political instability will be required prior to countries walking away from the debt. I’d doubt any major power could or would fight a debt war in the 21st century.

nradov 6y ago

It's not that investors have trust, it's just that there's no alternative.

dmurray 6y ago
People say this, but I didn't consider it worthy of being mentioned as a serious reason. You can invest in stocks or commodities or real estate or these days cryptocurrencies. They all have great historic returns but some people and some institutions instead lend their billions to the world's governments at such low prices. You can't say with a straight face that there are no other plausible investments. You could tell the opposite story: bonds continue to be popular and pricy because the world fears instability: that any other asset class may be in a bubble and about to lose all its value. But even then, investors are saying that though companies and industries may rise and fall, the countries will survive and pay their debts.
- notfromhere 6y ago
  They’re talking about the institutional market. If you are a big holder of money, you basically have no place to park it other than bonds.
- mannerheim 6y ago
  Are they saying the countries will pay their debts, or are they saying that they know that they can turn around and sell their bonds to the Fed whenever they want?
  - nradov 6y ago
    No everyone knows the high yield Argentinian debt is trash. The investment managers and traders buying it today think they're smart enough to offload it to some sucker before the next default. Or they expect to move on to another job before that and just don't care about what happens long term.
    - mannerheim 6y ago
      Well, in either case, the valuations are based on the expectation that they can sell the bonds to somebody else, rather than the expectation that they will collect on the debt.

smolder 6y ago

I think there's "trust in global stability" and then there's "trust that none of this will matter anyways if the global economy destabilizes". It's too big to fail. I worry that people's trust in the system also creates apathy about the things that can break it. The tragedy of the commons is alive and, well... tragic.

TimTheTinker 6y ago
> none of this will matter anyway That's a bit of a self-fulfilling prophecy. What I mean is that the mindset that "none of this will matter anyway if <foo>" injects some measure of irrational optimism into the economy, causing the relative economic severity of the occasional inevitable blip to increase somewhat. We'd all do well to rationally consider the (small) risk of widespread destabilization. Doing so may keep bubbles smaller, but that's a good thing insofar as they are bubbles relative to value.
- deleted 6y ago
  [deleted]
scsilver 6y ago
Being too big to fail is a testament to a working beautocracy. Before, things would just fail no matter how precious.

colechristensen 6y ago

Trust hasn’t much to do with it, there are people with much capital and nowhere to put it accepting anything.

vmception 6y ago

The central bank cannot actually stem the tide in a loss of market confidence, central bank actions all depend on people retaining confidence in the currency to begin with. If a central bank wants to buy government bonds from all the sellers and government treasury, it is always purchasing by diluting the currency. Once the market gets tired of bagholding the currency then the central bank has outlived its utility and the government cannot sell any more bonds because all the sellers evaporated.

otabdeveloper4 6y ago

> investors have unprecedented trust in global stability That's one way to spin it. Another is "investors have unprecedented low trust in traditional investment tools". (If you have extra money laying around and no way to put it to productive use then you just might dump it all into bonds, because it's the default option and you don't have much in the way of alternative anyways.) The rise of "bockchain" corroborates.