Most investors believe that US government debt is risk-free. Why shouldn’t they, all the economic and financial textbooks, media and bond gurus say so?
Did you know that it used to be a fact that the earth was flat and that “health cigars” were a thing? Obviously, these facts and myths have been debunked, as have many others that seem equally absurd today.
Facts, even if we are not 100% sure they are facts, provide stability in an otherwise chaotic world. Our need for stability allows unproven “facts” to perpetuate themselves.
In this article, we challenge a “fact” that serves as the basis for pricing all financial assets. However, our concern about the risk-free state of public debt may be very different from what you think we might be going with this article.
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