You've answered a different question than the one I asked. I think the US will continue to pay its debts, under this president and the one who replaces him in three years.
The point is that it doesn't matter, the US is toxic for the next foreseeable twenty years, and for Europe as a whole, a threat and an enemy. We'd be stupid to keep funding your economy, no matter how much money it makes back. Enemies are to be taken down.
>under this president and the one who replaces him in three years.
The levels of optimism in this sentence are off the charts. The US's political systems are so weak, fragile and compromised that you don't even know if you're going to hold proper midterms or if you're going to get a civil war, the current president is threatening the FED, but sure, debts are going to be paid when it's ran by the dude that managed to bankrupt casinos.
The US will pay its debts in USD and the German government will pay its debts in Euros. If you think the euros to dollar exchange rate will be better in the future, it can easily dwarf the difference in interest rate between the bonds.
How does that practically work out in selecting bond investments though? Betting on receiving euro coupon payments would look like buying BNDX over BND. But in the last year, while the Euro appreciated ~12% over the Dollar, $BND is up ~3% while BNDX is down ~1%.
International Bond ETFs are normally dollar-hedged.
There are some unhedged ones that are in the local currencies and better at tracking foreign exchange rates. e.g. BWX is an unhedged international treasury fund.
He can mull all he wants and half the time, that mulling turns into reality.
In practice, he has the authority to do anything he wants. Who is going to stop him? You? His pets in Congress? JPow's private hit squad? Clarence Thomas?
The first rule of neo-America is that you're playing the Chairman's Game[1], and there are no more rules. Its counterparties should bargain with it accordingly.
[2] The Chairman's Game is a game invented in a university. Some say it was invented at Stanford, while others say it was invented at MIT. It was inspired by a formerly prominent, but now somewhat disgraced Chinese politician that was famous for coming up with a lot of interesting new rules for his subjects to follow, and enforcing those rules very harshly, without necessarily informing those subjects what those rules were. It's a little bit like Uno, a little bit like Crazy Eights, and the only thing that I can tell you about it is that there are times, when playing this game, when it is not a good idea to speak.
What a ridiculous statement given everything we've seen in the last year. The president doesn't have the authority to withhold funding to the states, or to deploy the national guard (absent an emergency), or to use the Justice Department as his personal law firm, and yet... All he needs to do is have the appropriate person fail to do their job and nothing gets paid.
The risk for credit default is very close to zero, but the risk for renegotiated contract terms is not zero. That's what the whole Mar-a-Lago Accords was about. It is a strategy that describes in detail how that would be executed. The likeliness for which is up for debate, of course, but it's certainly not a risk free asset.
Add to that the rampant debt increase over many decades and zero political will to rectify the situation, which is why the rate of return is so much higher than in more politically stable countries such as for example Switzerland, Germany or Sweden.
1. Trump has constantly stated how he believes the US has spent money and lives doing things for the rest of the world. He just did it with Canada this week saying "Canada exists because of the US'.
2. The majority of his followers have some level of cult like adoration for him and therefore he isn't worried about losing support for radical actions.
3. Republican voters have been told to not trust the experts, news, or the opposing political party which eliminates all outside sources of information. This allows them to make claims about our debt or why we shouldn't pay it and many of these voters won't get opposing views.
4. Trump wants a massive increase in spending for the military and has cut taxes. While at the same time Republicans ran on the high debt. Not paying it by claiming it's invalid solves that.
> The CFR Sovereign Risk Tracker can be used to gauge the vulnerability of emerging markets to default on external debt.
Sort of definitionally, nothing in that list is going to be more politically stable than the US.
In the second link, the author gives slightly lower country risk premiums (0% vs 0.2%) to Australia, Canada, Denmark, Germany, Liechtenstein, Luxembourg, Netherlands, New Zealand, Norway, Singapore, Sweden, and Switzerland. Setting aside the practicality of these recommendations (how much debt does Liechtenstein issue? or Germany, for that matter?): in a world where the US is unstable, it's hard to imagine Canada being risk-free.
What makes you say "certainly," especially in the hypothetical scenario where the US is unstable? Canada has a relatively much shorter history as an independent nation. Canada heavily benefits from its southern neighbor, and has a host of domestic economic issues (low wages, high housing prices; whatever the farmers are on about) that could cause instability as well. I think Canada is reasonably stable, I just quibble with "certainly" and "more" politically stable as compared with the US.
Your "long history as a nation" mostly means you have a flawed constitution, no counter powers, a broken political system and absolutely _zero_ attempts to fix it.
There's a reason proper countries have had 5+ constitutions and keep changing them.
Canada will not invade allies and will adhere to the rule of law. Their forward looking economics are more favorable as they strengthen ties with China and Europe. By decoupling from the US, their economic risk declines, and their sovereign debt risk is downstream of that.
You are arguing as if nothing material in the US has changed while at the same time arguing “be more polite towards my ignorance|avoidance of the situation.” It comes across as arguing in bad faith.
The US can no longer be trusted based on the actions of this administration. Other countries are pragmatically and reasonably adjusting accordingly, very publicly. There are other options besides the US from an economic, trade, investment, and defense ally perspective. These are facts. Whether you believe them is a choice.
...what? That literally makes no sense. "Europe" is not a country. "Europe" does not dream of being an empire, because it has no cohesive governing body or even identity as a whole - maybe France or UK dream of being empires but collectively? Does Slovakia or Portugal dream of being empires?
That is such a naively simplistic view of how the world works it reads like it's straight from a Daily Mail or Fox News headline, which always say "Europe does X" - like, who is Europe? Are they in the room with us now?
"Europe is learning" should say - (some) European states are learning, and they are learning that you cannot negotiate with convicted criminals and fascists - they will betray you on a whim because they do not answer to anyone, not even themselves.
Again, is this Europe in the room with us? Or have you eaten too much American propaganda that treats "Europe" as if it was one country? Maybe it's time to lie down my dude.
No I just think this is so obvious by reading literally any news website for 5 minutes that I can only conclude that someone saying it's "hypothetical" is either acting maliciously or they are actually ignorant of what's going on.
On the first page, I see 9 countries which it claims have a default risk of 50% or higher in the next 5 years. Which means a probability of at least 1-0.5^9=0.998 that at least one of them will default.
That's a crazily high confidence prediction. What is their track record? What did they predict 5 years ago and how did those predictions bear out?
To be clear, those countries are: Argentina, Belarus, Ghana, Pakistan, Russia, Sri Lanka, Tunisia, Ukraine, and Venezuela. It would not be shocking if any of those countries defaulted. Also: your math assumes events are independent, but at least the Belarus/Russia/Ukraine events are probably not independent.
Edit: whoops, CFR only gives Russia a 9/10 score, not the full 10/10 score of 50% default probability.
