Re:Why Do People Stay Poor? [pdf]
by schrodinger on Wednesday July 29, 2020 @11:11PM
(#23994181)
Isn't a government bond basically equivalent to inflation? That would mean you have a risk-free way to get "inflation" returns, with the caveat that you can't access the money for a period of time. Although I guess you can argue that "tying up" the money is a form a risk, and almost certainly a luxury some poor people cannot afford.
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>Isn't a government bond basically equivalent to inflation? That would mean you have a risk-free way to get "inflation" returns, with the caveat that you can't access the money for a period of time
It's not risk free, there is nothing that stops government from creating inflation so they can pay off the debt for in inflated dollars.
Today, central bank alone doesn't have power to make create money out of thin air. Government guaranteeing loans from banks to corporate players and projects is creating inflation. It's good for politicians as they can pay off their expensive mistakes in cheap money.
Re:Why Do People Stay Poor? [pdf]
by schrodinger on Friday July 31, 2020 @12:32PM
(#24010370)
Treasury bills are considered "risk-free", although pedantically of course nothing is actually free of risk.
A bond has a NPV like any other instrument. The purchase cost of a TIPS can be any price, including above coupon. TIPS are especially sensitive to interest rate risk because higher interest rates drop both the underlying asset value, and the inflation index. So it’s basically just a double-leverage T-note.