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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (86159)	12/1/2000 12:27:22 PM
From: Oblomov	Read Replies (1) \| Respond to of 132070

Tommaso, While ordinary bonds have risk related to the nominal interest rate, TIPS have risk related to the real interest rate. As the real interest rate falls, the nominal value of the bond increases, and vice versa.

To: Tommaso who wrote (86159)	12/1/2000 4:35:51 PM
From: Mike M2	Read Replies (1) \| Respond to of 132070

T, I haven't examined inflation indexed bonds but one concern I have is that presumably the gov't decides what the rate of inflation is. I have seen how the economic statistics have been manipulated in an effort ( I believe) to support the bubble. Mike is the bond guy but I figure there are 4 components of risk principal, interest rate risk, inflation and currency risk. Some may ignore currency risk of their native currencies but look at the SEA collapse of 1997 gold protected those people very well with the price of gold denominated in their respective currencies. As noted in your subsequent reply the principal value of bonds moves inversely with interest rates. Inflation- Weimar Germany tells that story. Principal - risk of default if the US defaults outright we're in trouble - governments chose to inflate their way out of debt. One issue forgotten by many is the US has defaulted on its debts before - the most recent example was going off the gold standard first US citizens in 1933 then 1971 for foreign central banks. This was a CONTRACTUAL DEFAULT we promised to pay in gold and broke that promise. It is not out of the question for the US to chose to default on the contractual terms of inflation indexed bonds in the future. The debt excesses of the 90s occurred in the private sector in the past private debts have been liquidated during deflationary depressions but public debt can be inflated away. the question is in the future will the government via the banking system purchase impaired private debt so it can be inflated away? I don't have an answer. I believe there is still a role for gold but it does try one's patience, HO HO HO Mike