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Issue #1331: "risk-free" doesn't exist

Issue #1331: "risk-free" doesn't exist

Mar 21, 2023
Marty's Ƀent

Issue #1331: "risk-free" doesn't exist

The extent of the clown world we live in today knows no bounds. The most insidious part of clown world is how it tries to normalize untruths as truths, and when it comes to the financial sector of clown world the concept of "risk-free" returns is one of the most accepted untruths. Nothing in life comes without risk. And to believe that interest paid on US government debt is "risk-free" simply because it is an asset issued by the Treasury of the United States of America and backed by the American economy is a fatal display of complacency and hubris. One could argue, and I will be the one to do it here, that this combination of complacency and hubris is exactly what has put the United States and the hyper-connected global financial system on the extremely fragile ground it stands on today.

The idea that treasuries are "risk-free" stems from the brain dead Keynesian theory that debt is just "money we owe ourselves". All debts can be serviced by issuing more debt in the future. That is how you end up in a spot where the Fed is forced to open up a new debt facility to take in underwater bonds at par value with the promise of settling up in a year's time all in an effort to make sure the banking system didn't collapse within a week. The Fed had to step in because it became abundantly clear rather quickly that treasuries were anything but risk-free. They have become so risky in the era of rate hikes that they needed to be back stopped.

via Google Finance
via CNBC

The value of 10-year treasury bonds has crashed by ~8.5% over the last year while rates associated with them currently sit at 3.6% and werer as high as 4.2% last year. No matter way you slice it, people who hold treasuries have been getting absolutely hosed. The value of the bonds has fallen at a more accelerated rate than the yields associated with them have risen, the yields have not risen anywhere near as much as would be needed to outperform the CPI prints, let alone actual inflation, and now the Fed has been forced to step in and print more money to backstop the market which could exacerbate inflation even further.

Everything in life comes with risk, even holding bitcoin in self-custody. To think that for some reason treasury bonds provide "risk-free" returns is absolutely delusional. Not only that, it is extremely dangerous. If you repeat a lie enough times people will begin to believe it's the truth, but nothing will ever make it the actual truth. You can ignore the laws of economics, but you can't ignore the consequences of ignoring the laws of economics. Everyone who has piled trillions of dollars worth of value into treasury bonds because they were led to believe that they provide "risk-free" returns is about to be met with some life altering consequences.


Other governments.

Corporate balance sheets.

The Fed.

Your boomer parents.

They're all holding on to the pipe dream of the "risk-free" returns provided by treasury bonds. Unfortunately from them, the government and the Federal Reserve have proven without a shadow of a doubt that they cannot be trusted to reduce the risk of holding treasuries. Their actions only increase the risk.

Printing money.

Cutting off other sovereigns from the international banking system.

Promising the world via entitlement programs.


All of these actions make the prospects of buying treasury bonds less appealing slowly but surely over time. People begin to question whether or not all of these activities made in unison errode the ability of the US to pay back the debt they've accrued because people begin to try to do the math on how productive the US economy would need to be to produce a return on the capital raised that makes sense and come to find that the numbers don't really make sense. The only way they begin to make sense is if you factor in the production of new monetary units to pay back what you owe.

And the act of money printing to cover the interest may seem like a good out at first, but it kills you on the other end via debasement. If you continue the cycle of printing to pay back the debt already accrued long enough you'll wake up to find the money your receiving payment in is absolutely worthless. Seems like the complete opposite of "risk-free" if you ask me.

The sooner this Keynesian spell is cast away from people's minds, the sooner we can actually begin to fix the problem. As I said above, bitcoin isn't "risk-free", but it is certainly less risky than holding a government bond that can be produced out of thin air and is beholden to reputation of the US Government. We're not going to fix the world by operating treasury bond markets in a way that is perceived to be responsible. The social attack vector of being able to print them at will has existed and has been exploited to no end since the end of World War II. There is not putting that genie back in the bottle.

The best way to reduce risk throughout the system is to give people the ability to opt-in to a monetary system that cannot be manipulated by any third party like the Treasury or the Federal Reserve. It won't come "risk-free" but it will be significantly less risky than the system we're operating under now. Don't let the fiatbros try to convince you otherwise.

Final thought...

Sahil is cool.

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