Sovereign debt is not a risk-free asset

Article Highlights

  • In all cases, sovereign debt is not a risk-free asset.

    Tweet This

  • As Anatole Kaletsky wrote a generation ago: "For at least 500 years, governments and nations have defaulted."

    Tweet This

  • The notion that government debt is "risk-free" is a myth promoted by governments.

    Tweet This

Sir, Mario Blejer says: “In most cases, sovereign debt is not a risk-free asset.” This is an understatement. The correct statement is: “In all cases, sovereign debt is not a risk-free asset.” As Anatole Kaletsky wrote a generation ago: “For at least 500 years, governments and nations have regularly defaulted.”

The only question is what form the default may take: explicit default; or implicit default by inflation and currency depreciation, or by financial repression. Default, whether explicit or implicit, is always a risk with every government.

The notion that government debt is “risk-free” is a myth promoted by governments so they can get more money to spend, assisted by the financial regulatory arms of the governments. It has to be added that many economists are also complicit in this effort.

Alex J. Pollock, Resident Fellow, American Enterprise Institute, Washington, DC, US

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Alex J.
Pollock

What's new on AEI

Making Ryan's tax plan smarter
image The teacher evaluation confronts the future
image How to reform the US immigration system
image Inversion hysteria
AEI on Facebook
Events Calendar
  • 01
    MON
  • 02
    TUE
  • 03
    WED
  • 04
    THU
  • 05
    FRI
Wednesday, September 03, 2014 | 9:00 a.m. – 10:30 a.m.
From anarchy to Augustus: Lessons on dealing with disorder, from Rome’s first emperor

We invite you to join us for two panel discussions on how Augustus created order from chaos 2,000 years ago, and what makes for durable domestic and international political systems in the 21st century.

Wednesday, September 03, 2014 | 12:00 p.m. – 1:30 p.m.
Multiple choice: Expanding opportunity through innovation in K–12 education

Please join us for a book launch event and panel discussion about how a marketplace of education options can help today's students succeed in tomorrow's economy. Attendees will receive a complimentary copy of the featured book.

Thursday, September 04, 2014 | 12:00 p.m. – 1:30 p.m.
How conservatives can save the safety net

Please join us for a luncheon event in which our panel will discuss what conservatives can learn from how liberals talk and think about the safety net and where free-market economics, federalism, and social responsibility intersect to lift people out of poverty.

No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.