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Didn't read the article, but aren't US dollars zero coupon perpetual bonds? I think they might technically be called securities but either way they're a liabili

by boppo1 4y ago

Didn't read the article, but aren't US dollars zero coupon perpetual bonds? I think they might technically be called securities but either way they're a liability on the fed balance sheet. I'm not getting at anything here, just asking/pointing out an inconsequential detail.

runeks 4y ago
You have a point. I'd say all irredeemable currencies fit that description.
ghaff 4y ago
Sort of, with the proviso that you can call it and exchange for goods and services at any time. But uninvested cash cash would obviously be lousy as an investment vehicle in general.
- datadata 4y ago
  So you can also exchange bonds for goods and services. If you are using an interest bearing bank account, this is basically exactly what you are doing-- your dollars in the account are not actual dollars, but have been pooled into a fund that buys short term treasuries or other debt. The bank is paying you the interest on those treasuries, while taking a fee, and betting that a run on the bank doesn't render them insolvent. I think the point to be made is that government bonds don't have any collateral baking them. For example, if a corporation has secured debt, the holders of those bonds might get first liquidation preference-- if the company can't pay its debt, the company's assets are distributed to bond holders, so you get something back. Governments have assets, but since they also have central banks which can issue dollars, in the even of a default, it seems far fetched to think government bond holders would claim government assets-- instead the central bank would just dilute its currency. This was not the case by the way in the gold standard, where government bond holders could redeem the dollar bonds and then also redeem them for gold, which would still have value outside of the failed state.
RandomLensman 4y ago
Yes, that is a possible view. In terms of valuation it might not always be equivalent, though, because one dollar in cash is worth one dollar, for example, while a zero coupon perpetual bond could have paths to (some) redemption via default or restructuring, for example.

by boppo1 4y ago

runeks 4y ago

You have a point. I'd say all irredeemable currencies fit that description.

ghaff 4y ago

Sort of, with the proviso that you can call it and exchange for goods and services at any time. But uninvested cash cash would obviously be lousy as an investment vehicle in general.

datadata 4y ago
So you can also exchange bonds for goods and services. If you are using an interest bearing bank account, this is basically exactly what you are doing-- your dollars in the account are not actual dollars, but have been pooled into a fund that buys short term treasuries or other debt. The bank is paying you the interest on those treasuries, while taking a fee, and betting that a run on the bank doesn't render them insolvent. I think the point to be made is that government bonds don't have any collateral baking them. For example, if a corporation has secured debt, the holders of those bonds might get first liquidation preference-- if the company can't pay its debt, the company's assets are distributed to bond holders, so you get something back. Governments have assets, but since they also have central banks which can issue dollars, in the even of a default, it seems far fetched to think government bond holders would claim government assets-- instead the central bank would just dilute its currency. This was not the case by the way in the gold standard, where government bond holders could redeem the dollar bonds and then also redeem them for gold, which would still have value outside of the failed state.

RandomLensman 4y ago

Yes, that is a possible view. In terms of valuation it might not always be equivalent, though, because one dollar in cash is worth one dollar, for example, while a zero coupon perpetual bond could have paths to (some) redemption via default or restructuring, for example.