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Zero risk loan and guaranteed interest rate doesn't mean no risk the government won't default on repayments. If that happens, it is likely to get back the full
by hirako2000 5y ago
Zero risk loan and guaranteed interest rate doesn't mean no risk the government won't default on repayments. If that happens, it is likely to get back the full capital + interest, but at that point in a currency worth initial capital - interest.
Lending to a government is only safe when trust of that government is high. At the moment we are at a all time low since the 30s with regards to the US government treasury.
- laurencerowe 5y agoThis is a loan to the currency issuer so it’s effectively the same risk as holding cash.
- noxer 5y agoOnly if you ignore the risk of missed opportunities because its not like holding cash its like owning cash but someone else holds it and you can not do anything with it. Beside that its a loan to the gov not the currency issuer which is the Federal Reserve Bank (In the US).
- zinekeller 5y agoWhile you have a point... it's complicated. Selective defaults are already common for companies, so there could be a chance (to emphasise, a miniscule but still-existing chance) that it'll default on this bond while still guaranteeing the value of its currency.
- dubcanada 5y agoI mean it’s safe to say if the government is going to default on a 10k loan there are bigger issues.
- hirako2000 5y agoYes. But these bigger issues, while taking down more than the currency with it do leave certain investment opportunities safe. E.g gold which would likely see opposite trend in value. Perhaps also crypto, cultivable land etc. The refusal to accept governments can (and often have in history) will only make it worse for people when it happens.