Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Display:
Like to like : non-sovereign entities can become insolvent, they have to pay their credit risk with the interest rate.

For sovereign entities, the policy takeaway from the ongoing failure of the euro is this : if you want interest rates to correlate with debt levels, then kneecap your central bank. The Fed has made it abundantly clear that it will find creative ways to print money, as much and as long as necessary. If it were to signal that it was no longer willing to accommodate debt-based stimulus, then buying US treasuries would suddenly become dangerous. And the interest rates would soar. Wouldn't that be nice?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Mar 14th, 2013 at 12:14:20 PM EST
[ Parent ]
There is the additional complication that there is no other safe dollar asset you could hold instead.
by generic on Thu Mar 14th, 2013 at 01:16:00 PM EST
[ Parent ]
Municipal bonds are not a "safe dollar asset", that would be the US treadury debt.

That's why US municipal bond insurance exists (remember AIG?).

Or do you mean there's no "safe Euro asset"?

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Thu Mar 14th, 2013 at 01:24:07 PM EST
[ Parent ]
Should have quoted:

If it were to signal that it was no longer willing to accommodate debt-based stimulus, then buying US treasuries would suddenly become dangerous.

There still wouldn't be an asset that is inherently safer than treasuries. In Europe you could rank national debt after how credible the non backing by the ECB was.

by generic on Thu Mar 14th, 2013 at 01:34:19 PM EST
[ Parent ]
Yes, if the Fed were to signal that it was willing to put ideological purity ahead of financial stability, or the maintenance of the full faith and credit of the US government; in other words, if the Fed were to signal its willingness to let the US government default, then buying US treasuries would become dangerous.

But faced with the choice of defaulting on the debt or shutting down the government, both the US Congress and the Treasury appear to lean on the side of shutting down the government. So even in case the Fed decided to become the Bundesbank US treasuries would remain safe.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS

by Migeru (migeru at eurotrib dot com) on Thu Mar 14th, 2013 at 01:44:48 PM EST
[ Parent ]

Display:

Occasional Series