[toomuchtodo]

Sovereign debt of a more politically stable nation state or other monetary union, if you are investing at these levels. If you're an individual, you have more options, although there will be fierce debate about the risk profile (as US Treasuries were historically considered to be risk free).

https://www.bogleheads.org/forum/viewtopic.php?t=449401

[arjie]

The disciple went to his master and said "Master, I am considering stopping doing a thing and starting to do a different thing. But I am not certain what the new thing is that I should be doing".

The master turned to the disciple and said: "A better thing"

The disciple was enlightened.

EDIT: Oh damn it. The entirety of the comment was "Sovereign debt of a more politically stable nation state or other monetary union" at the time I replied. Ah well.

[loeg]

Which nation states might you consider more politically stable than the US, even now?

[Braxton1980]

Almost every 1st world country has a more predictable and honest leader right now

[loeg]

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.

[well_ackshually]

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.

[HWR_14]

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.

[reducesuffering]

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%.

[randerson]

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.

[vkou]

This president has publicly mulled not paying its debts.

It's time to stop magical, wishful thinking about how you want the world to be, and deal with the world as it is.

[loeg]

The president can mull whatever he wants; he doesn't have the authority to not pay.

[vkou]

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.

---

[1] https://en.wikipedia.org/wiki/Mao_(card_game) [2]

[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.

[jshier]

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.

[Braxton1980]

You can't be serious, Trump doesn't care. He can do whatever he wants, drag it through the courts for a long time. If he loses try another method

[xorcist]

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.

[Braxton1980]

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.

[toomuchtodo]

https://www.cfr.org/trackers/cfr-sovereign-risk-tracker

https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile...

[loeg]

> 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.

[epgui]

Nothing is risk-free. But Canada is certainly more politically stable than the US.

[vkou]

Canada is more internally stable, but is less externally stable, given that invasion and occupation is on the table.

Canada needs to pursue further armament (Carney is pursuing a doubling of its defense budget) and training in asymmetrical warfare.

[loeg]

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.

[well_ackshually]

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.

[toomuchtodo]

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.

[gambiting]

>>especially in the hypothetical scenario where the US is unstable?

How does it feel to bury your head in the sand so hard that you can't see what's happening around you?

[CamperBob2]

All historically-stable Western nations seem to be subject to the same influences that brought us Trump, though.

They (we) are all under attack.

[abdullahkhalids]

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?

[loeg]

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.

[blitzar]

Iran

[thatguy0900]

I'm not sure a country can survive running out of water no matter how many revolutions they put down

[blitzar]

> more politically stable than the US

[kavalg]

But I am having a hard time identifying this union/nation. Unfortunately, it feels like the EU is set on a downward trajectory.

[coredev_]

I'm a bit baffled by this - are you saying that you can't identify a single market in the whole world that is worth to invest in & stable except US?

Also I don't see that EU as a whole is on a downward trajectory, there are a lot of areas that are super strong, one being the defence industry.

US on the other hand - who wants to invest in or trade with them when they treat the rest of the world (including close friends) as shit.

[kasey_junk]

You can’t invest in EU sovereign debt though, only the constituent countries.

The problem is that US treasuries have a bunch of features that can’t be replicated because of the size of the US economy. The only choice that comes close is China whose bonds are too illiberal to trade the same (and China has no interest in liberalizing them).

[jacquesm]

You can actually, but the volumes are too low to absorb a massive sell-off of US treasury paper.

[kasey_junk]

It’s not just that the market isn’t deep enough. The current incarnation of EU bonds are not secured the same way typical sovereign bonds are. And they sort of can’t be without the member states ceding more sovereignty.

We’ll see if the EU member countries can approve a framework for bonds that are closer to a treasury in its guarantees, I’m skeptical but it could happen, but they don’t exist right now.

[jacquesm]

As they say: under enough pressure everything becomes a liquid. The current situation is in many ways unprecedented and I think that Trump may well be the antagonist that forces the EU to band together more effectively.

[toomuchtodo]

So the EU should issue more volume and establish a strategy to start rotating from US debt to EU debt. No one is calling for dumping $8T of treasuries on the market overnight; it's entirely reasonable to start issuing Euro debt and communicating the expectation to start selling down US treasuries to European entities that hold them.

"Plan the work and work the plan."

[jacquesm]

Yes, they should. The interesting bit here is that the USA has been an endless sink for funds simply because they have been spending way above their means, and that this worked in large part because there was trust. Breaking that trust is super risky from a US point of view. Europe has been more conservative in their spending and as a result needs a place to park their excesses, because there are not enough ways to spend those internally. I think that this is a luxury problem to have, but at the same time I realize that financing the USA any further is something that is not responsible from an EU perspective.

[loeg]

Not "worth to invest in," just the higher criteria GP asked for: "a more politically stable nation state." It has to be strictly more stable than the US, not just investable.

[piva00]

Switzerland is usually the gold standard for politically stable.

[kavalg]

In the context of sovereign debt, yes. I don't even feel that that the US is stable enough. Of course, everyone sees the world through their own eyes, but in my world, the EU has been going down post-covid in terms of e.g. purchasing power, industrial base, business opportunities for the small/medium business. The defense industry is strong, because it is currently needed and funded, but how long can that be sustained?

[tick_tock_tick]

I mean there is a second almost if not more critical requirement which is has a big enough and liquid enough debt market to function like US treasuries.

> Also I don't see that EU as a whole is on a downward trajectory

That's an extremely contrarian take that you can't justify with EU defense did good for once in it's life. Maybe we'll see something from the EU but remember the USA and EU GDP were basically identical 10 years ago now the US is 50% bigger.

Seriously in 2008 the EU had a bigger GDP and now is a fraction of the USA and member nations have done basically nothing to fix the core issues that left them behind.

> US on the other hand - who wants to invest in or trade with them when they treat the rest of the world (including close friends) as shit.

Sadly it doesn't really matter about a "want" it's a need at this point unless people are going to cut off their arm and collapse their own economies they don't really get a choice.

[coredev_]

Fair, but a bit slower growth than US is not a downward trajectory. Also there is currency effects involved.

Isn't US injecting a lot of loaned money into the economy in a rate that might not be sustainable long term? Their debt-to-GDP ratio is way higher than EUs?