When the ulimate refuge turns risky

Bloomberg/Satyajit Das

Graphic image of Humpty Dumpty perched happily on a wall, antique“Government debt has reached levels not seen outside of major wars. In advanced economies, it has risen to more than 100% of gross domestic product, from around 70% before 2007. The increase is the result of governments taking debt on to their balance sheets to finance bailouts of vulnerable financial institutions, and of deficit spending to prop up growth.”

USAGOLD note:  Satyajit Das explains a new and disconcerting dynamic in the bond market as it has evolved over the past several years – a debt trap from which there appears to be no easy escape. “Once purchased for risk-free returns,” writes Das, “government bonds now offer return-free risk, as James Grant, editor of Grant’s Interest Rate Observer, has quipped.” Perhaps the risk in sovereign debt explains gold’s stubborn hold on this past year’s gains going into 2020 – even as sovereign bonds, including U.S. Treasuries are declining in value.

Repost from 12-28-2019

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