The current US political system is designed to lessen the power of government to impose (corporate) taxes. How can treasuries be the “the risk free asset”?
As you noted, there is no political will in the US to balance our books, and truly no incentive because austerity costs you votes. So the only way this debt trajectory changes is with a crisis in which markets challenge solvency (think interest rate spike). But I don't think that leads to default. Rather, this will progress in the same way it has with every other bankrupt nation - money will be printed. The only thing preventing this from happening now is the relative discipline of the Fed. So the key in my mind will be watching for political pressure that undermines Fed independence and facilitates the inflationary end game.
Russell for once I do not agree with you. It depends on what you call default. Real default would stop people buying treasuries for years after. that would stop politicians spending and I think that is a NoNo. I think the only way foreward is to keep doing what they have been doing for the last 10 years. Interest rates have been below Inflation. That will continue for 20 years to inflate away the debt or financial repression. However I am often wrong, lets see.
Russell, if that is the case - is there an argument to be made that long-duration debt of Apple or Alphabet is the benchmark USD risk-free rate?
What other asset can fill this role, Gold?
Cheer up, my taxes are lower because of Apple which pays the sub which pays your U.K. tax bill - capital flowing back to you.
As you noted, there is no political will in the US to balance our books, and truly no incentive because austerity costs you votes. So the only way this debt trajectory changes is with a crisis in which markets challenge solvency (think interest rate spike). But I don't think that leads to default. Rather, this will progress in the same way it has with every other bankrupt nation - money will be printed. The only thing preventing this from happening now is the relative discipline of the Fed. So the key in my mind will be watching for political pressure that undermines Fed independence and facilitates the inflationary end game.
Russell for once I do not agree with you. It depends on what you call default. Real default would stop people buying treasuries for years after. that would stop politicians spending and I think that is a NoNo. I think the only way foreward is to keep doing what they have been doing for the last 10 years. Interest rates have been below Inflation. That will continue for 20 years to inflate away the debt or financial repression. However I am often wrong, lets see.
Other than negative real yields as far as the eye can see, do you worry about any other form of default?
And I hope you don't mind the direct question - do you not hold even T-Bills personally?