Comments on: Not so Cheap Trills

By: dave

dave — Fri, 08 Jan 2010 22:03:24 +0000

Why not just give
Them an expiration
Date? A bond directly linked to
GDP is an interesting idea, but why make it last
Forever?

By: thruth

thruth — Mon, 04 Jan 2010 22:00:13 +0000

“Here’s the question: what do you think nominal GDP growth will be on average forever? If it is above 4.4%, one should be willing to pay an infinite amount to buy it. At lower rates of nominal GDP growth, the security will have a finite value that declines rapidly with lower nominal GDP growth.”

ahem… risk premium? but yes, why shouldn’t they fluctuate in value since they are effectively a claim on bond, stock and real property markets.

“They suck a lot of money in, and do not consider what it will do to the government in future years. I can say with confidence that a large issuance of trills would lead to the demise of the US Government. There is no way that the government could keep up with the payments, because most finance today relies on the idea that the economy can grow out of the debt burden. With trills, that is not possible.”

as the same logic applies, I guess developing nations should stop issuing US dollar denominated debt too?

I would like to think that both the buyers and sellers of such securities wouldn’t take the implications lightly. In any case, provided the govt does not issue vast sums, I can’t see the harm. Moreover, their pricing might yield useful signals to policy makers (especially the Fed)

By: Brent Buckner

Brent Buckner — Sun, 03 Jan 2010 20:59:33 +0000

David, thank you for your reply.

I understand that trills can’t be inflated away. I’m not saying that government would choose deflation as a policy goal. I am saying that in a case of unexpected deflation, trills would turn out to be less burdensome than was previously expected.

By: David Merkel

David Merkel — Thu, 31 Dec 2009 16:09:29 +0000

Brent, they can’t be inflated away, and the government would not shrink the economy to make trills cheaper.

By: Brent Buckner

Brent Buckner — Thu, 31 Dec 2009 12:45:24 +0000

You write about trills that they:
do not consider what it will do to the government in future years

I think that consideration is there. If nominal GDP grows more slowly then the effective rate of interest is lower.

By: RichL

RichL — Tue, 29 Dec 2009 07:49:53 +0000

If he was really in the government’s corner he’d have them issue zero coupon perpetuities!

By: Greg

Greg — Mon, 28 Dec 2009 14:05:10 +0000

>> Would be consols — perpetual bonds that ***never pay the principal back***

At least that part is honest!

By: Peter

Peter — Mon, 28 Dec 2009 01:53:18 +0000

At this point it is vividly clear even to the blind that the ruling Financial Oligarhy is plain nuts.
I would have titled Dr.Shiller’s NYT article:”Flying over CUCU’s land.”
THE GAME IS OVER.

By: Michael

Michael — Sun, 27 Dec 2009 20:08:57 +0000

I like Dr. Shiller. However, this might be the worst idea I’ve ever heard of. In fact, it is so bad that Dr. Shiller has lost some credibility (with me at least). I know you think they are bad idea but I don’t think “bad” properly describes trills. “Absolutely ruinous” is more appropriate.