So You Think Bonds Are Safe

Over the week end I was looking at what one of my favorite authors, Niall Ferguson, was saying recently and came across this chart on Sovereign Debt. This is just another term for government bonds. In this chart, the ex ante is what people expected to receive in their investment in a sovereign bond. The ex post is what they received. This chart covers a number of time periods. The usual is an unhappy story. I do not know why people think government bonds are safe.

Currently, most countries are suffering from massive debt loads. Ferguson feels that, although there are 6 possible ways out from under this debt load, there are currently only 3 available at present. See ways out from government debt. He thinks most will inflate their way out or default. Currently, he thinks that the sooner Greece defaults, the better things will be.

For the full video speech, see The Peterson Institute for International Economics site. Neill Ferguson is always a very interesting speaker. You might want to skip about the first 10 minutes, as it is an introduction to Neill Ferguson’s speech. There is also a separate video of the Q and A period.

One thing he mentions is a book called “This Time Is Different: Eight Centuries of Financial Folly” by Carmen M. Reinhart and Kenneth S. Rogoff. The point being is that it is never different this time. A number of European countries have gone bankrupt before and they will probably do so again (think Spain and Greece). For an interesting interview with Carmen Reinhart by the Financial Times, see Princeton University Press site.

Of course, there is also Richard Koo, the chief economist from Nomura Research Institute, who testified before Congress’ Committee on Financial Services. He thinks it is different this time. See his speech on new economic thinking.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.