Sigmund

Treasuries' True Risk

Rising prices are, indeed, generally the expression of inflation. More to the point, inflation most commonly occurs when there has been a debasement of the money supply. Now, how does one debase a fiat currency? If the response is by printing more money; then, we will be quibling about degree. Is it merely inflationary, or, is Weimar Republic? As to safe rates, the flight to safety has driven interest rates well below where prudence would otherwise dictate. What we are confronted with is a 'safe rate' that has a high probability of not being secure. Indeed, several treasury instruments are priced at premiums and should interest rates increase, even your capital will be at risk. Now, given the debt that the government is commiting to would you buy term paper from anyone that had a low interest rate. So, here we are the great constitutionally empowered federal republic looking no better than a 'banana republic'. The great problem confronting us is: who will buy the paper the government will have to sell and at what price(rate)? Wholesale bankruptcies and restructures would have been more painful, but better in that the degree of loss would have been smaller and the currency would be more credible.