Saturday, June 23, 2012

100 Years of Debt

Click to enlarge.

Let's extrapolate that out to the year 2100.

Click to enlarge.

Got 100-Year Loan?

March 13, 2012
Government Plans for 100-Year Loans

The Treasury is planning to take advantage of Britain's historically low interest rates by taking out loans which will not be repaid for 100 years or more.


Source Data:
St. Louis Fed: Total Debt / Wages


Mr Slippery said...

Why bother with 100 year bonds when the UK already has perpetual bonds?

They were first used in 1720 after the South Sea bubble.

That should give everyone pause who thinks this was just a business cycle recession.

Stagflationary Mark said...

Mr Slippery,

Perhaps governments should consider offering inflation indexed annuities. They'd never pay the principal back but would instead pay more interest as long as the soldier is alive.

Oops. Did I say soldier? I meant bondholder. I wasn't trying to imply that the governments would look to default on the debts creatively. That would be ridiculous.

"Men, today you storm the radioactive machine gun nests. Captain Mallory, holder of a $1 million government annuity, will be leading the charge. Should he fall in battle, it will not be in vain. You shall each receive one additional box of chocolate rations."

Troy said...

Well, the good news is the higher the leverage goes, the lower the interest rate goes to compensate.

Here's that graph with TCMDO less TBTF:

dd said...

South Sea bubble is the model; but this go round it's not bonds being converted to equity; but rather to OTC derivatives. The beauty is bondholders don't even realize that their wealth is being upstreamed even as the derivatives further inflate the bubble.
It worked so well in the securitized and municipal bond markets that it's time to move on to the sovereign and corporate markets.
Can't wait for the next "nobody saw it coming" that obliterates a long held truism ie. housing always goes up; AAA rated bonds are safe.

Stagflationary Mark said...


Well, the good news is the higher the leverage goes, the lower the interest rate goes to compensate.

It sure does seem that way, much to the dismay of those gambling on TBT.

Stagflationary Mark said...


As a bondholder (TIPS and I-Bonds), I just buy bonds directly from the government and hold to maturity.

The big investment banks can make all the leveraged side bets (derivatives) they want, but for every dollar won that way there must be a dollar lost by someone else though. Derivatives are a zero sum game.

Once again, I would point to TBT. The little guy has been on the wrong side of that trade since at least the fund's inception (and quite possibly a LOT longer).

That's not to say that interest rates can't rise of course. Check this out.

June 25, 2012
Yahoo Message Board for TBT: I bought TLT today

I threw the towel! Finally. If you ask me, what's more likely to happen by year end, 10 yr at 1 or at 2 and I say 1.

I think this is the most ridiculous and manipulated (fed) market ever but I jut can't wait any more for TBT to go up.

Once again, if you knew my record as a trader you'd consider this the strongest buy signal EVER.

Good luck.

In my opinion, Traders = Gamblers. If one has a history of poor trading (as this person implies), then perhaps one should stay out of the casino.

1. The reason I bought was because the alternatives seemed worse on a risk/reward basis. I'm retired. I can't afford to swing for the fences any longer.
2. I never bought bonds because I cared what the Fed was doing. Not once.
3. I never bought with the intent to resell to a greater fool. If it was good enough to buy, it was good enough to hold to maturity.

Using this criteria, I would never buy 100-year bonds. It would break the last rule. It would require a greater fool someday (since I won't live 100 more years).

And lastly, I will repeat something I have said before.

If I am financially ruined by my decision to own bonds, then at least I won't be alone. It is the bond market that is propping everything else up. Sigh.