It is bizarre.
We have created a system that permits us to raid the "cookie jar", taking all the cookies replacing them with IOUs then we sell the jar stuffed with IOUs in order to go an buy more cookies to put in another cookie jar!
That is what is happening when we regard bonds as an asset. They are, for the most part, evidence of past consumption.
The only reason bonds have value is because they pay a coupon (or make interest payments) at regular intervals into the future along with a promise to return the funds that were borrowed to permit the past consumption which they are a record of. However, if the borrower is unable to repay that debt without borrowing more money and by the act of consuming, it inflates its financial strength (governments benefit from deficit spending by supporting tax paying businesses with higher demand for their goods than would otherwise have been the case), one has to ask the question whether those funds will be forthcoming in real terms.
When the bond bubble pops, there will not only be blood in the streets, but very likely a major change to the way our species eats cookies!
We have created a system that permits us to raid the "cookie jar", taking all the cookies replacing them with IOUs then we sell the jar stuffed with IOUs in order to go an buy more cookies to put in another cookie jar!
That is what is happening when we regard bonds as an asset. They are, for the most part, evidence of past consumption.
The only reason bonds have value is because they pay a coupon (or make interest payments) at regular intervals into the future along with a promise to return the funds that were borrowed to permit the past consumption which they are a record of. However, if the borrower is unable to repay that debt without borrowing more money and by the act of consuming, it inflates its financial strength (governments benefit from deficit spending by supporting tax paying businesses with higher demand for their goods than would otherwise have been the case), one has to ask the question whether those funds will be forthcoming in real terms.
When the bond bubble pops, there will not only be blood in the streets, but very likely a major change to the way our species eats cookies!
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