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
  • 25
    MON
  • 26
    TUE
  • 27
    WED
  • 28
    THU
  • 29
    FRI
Wednesday, August 27, 2014 | 3:00 p.m. – 4:15 p.m.
Teacher quality 2.0: Toward a new era in education reform

Please join AEI for a conversation among several contributors to the new volume “Teacher Quality 2.0: Toward a New Era in Education Reform” (Harvard Education Press, 2014), edited by Frederick M. Hess and Michael Q. McShane. Panelists will discuss the intersection of teacher-quality policy and innovation, exploring roadblocks and possibilities.

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