Governor Bill Walker is using money from next week’s $2.4 billion sale — the equivalent of $3,186 for every resident — to pay down the state’s debt to public-employee retirement funds, wagering it can earn more on stocks, bonds and other investments than it will cost to borrow.
Japan’s continual spending since the 1990s has brought government debt to nearly 250% of annual economic output, the worst ratio in the world, without generating sustained growth.
After years of wrangling with regulators, the $2.7 trillion industry will give up its rock-solid, dollar-for-dollar guarantee for institutional funds that invest mainly in riskier, non-government debt.
Debt has emerged as one of China’s biggest challenges, with the country’s debt load rising to 250 percent of gross domestic product (GDP). Excessive credit growth is signaling an increasing risk of a banking crisis in the next three years, the Bank of International Settlements (BIS) warned recently.
“The probably more effective mode of QE going forward is going to be some type of infrastructure projects, here in the U.S.,” Corbat said in his remarks.
Some people argue that negative interest rates are unnatural and unprecedented. This is certainly an emotive topic but we should at least get the facts straight. Negative rates are not unprecedented in any meaningful sense. Before paper currency, monarchs routinely debased money, for example by introducing coins with a lower silver content and using these to repay debts.
The deal, rated just above junk status, is emblematic of a fever that has swept the $3.7 trillion U.S. municipal bond market: yield-chasing investors not only piling into riskier debt, but also increasingly willing to accept less protection in the event of a default.
The market value of negative-yielding sovereign, government-related, corporate and securitized debt in the Bloomberg Barclays Global Aggregate Index hit $12.2 trillion in June. That was the highest month-end total since the figure began its unprecedented climb in August 2014, when the total was $476 billion, up from less than $7 billion a year before that.
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