No. of Recommendations: 3
A question, raised by another "The Economist" article with the title "Imagining a world without a safe asset":
https://archive.ph/y7Z1NQuote:
Foreign investors have relied on Treasuries as a safe asset in their portfolios, where their alternatives were far more volatile government bonds at home. They have nothing to replace Treasuries with.
...... A world where Treasuries are no longer reliable safe assets will be a world in which there are no plausible replacements at all.Arenīt US stocks which are not richly valued (Berkshire) those replacements, safe assets if seen with a long time horizon? As contrary to holding cash you own part of the company, a value not halfed overnight even if the $ is devalued?
Apologies for a probably stupid question. I am no economist and don't pretend to have any idea about monetary theory.
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P.S.: I am assuming above that there are no capital flow restrictions - which of course could come with a great financial crisis, preventing foreigners from accessing their assets in whatever form they are.
No. of Recommendations: 16
Arenīt US stocks which are not richly valued (Berkshire) those replacements, safe assets if seen with a long time horizon?
The time horizon is the thing. US Treasuries are extraordinarily liquid, and extremely easy to borrow against, so they're the grease in the system. You can lend 'em out overnight and make a guaranteed return, not something you can do with equities. They're also just "there"--a place to park a big stack of money for, say, central banks. Note that for these purposes the interest rate doesn't really matter. The only thing that matters is availability (no shortage now or in future), liquidity (sure, comes from lots of them being out there, and being used in many ways), and currency stability. Perceived problems with non-US actors trusting them implicitly come from currency risk and, not often mentioned, repression risk. For the latter, I mean things like the US government decreeing that they can't be sold, or there would be withholding tax applied, etc, similar to what happened recently with section 1446(f).*
Their use as actual "bonds", as in a fixed income portfolio allocation, is not very important. There are lots of bonds out there.
Jim
* Non US persons now have a US tax on sale of shares in listed partnerships of 10% of the proceeds. Not 10% of the profit, 10% of the total sale proceeds. So, I can't really buy Sunoco or Brookfield Infrastructure any more if I wanted to. Imagine that rule being extended to US treasury bonds for certain classes of buyer.
