Is your wealth denominated in terms of grams, acres or liters? If your answer is ‘YES’, then you are a visionary investor. If it is ‘NO’, then it could be your fault when your country defaults. If you think your country has never defaulted or might not ever default, it is time to think again.
When the fellow you loaned money to, and the one you paid a premium to insure that loan say, ‘You ask me for your money, I default’, you can call yourself ________, a bondholder.
Most of us learn about default first hand, when we lend money to someone and sadly realize later that the borrower considered it as a donation and not as a loan. This someone could be a friend, a relative, a bank or some other financial institution more intelligent than you. A prodigal government seldom keeps its promise. If your wealth is in the form of promissory notes/bonds issued by some prodigal government, then, it would be your fault when that government defaults. Across the world, It is no more a question of if but just when.
Almost every government in the world is trying to default in one way or another. Greece is talking about haircut but it actually means picking your wallet, not a trip to the (beauty) salon. Those at the losing end, the lenders (also know as bond holders) are not a happy lot. They do not want give up their right to invoke a credit default swap (CDS), a form of insurance on debt. But they are not sure, if the insurance company that sold them the CDS can honor its commitment, when even governments are failing to do so. Greece would be replaced by Portugal, Spain, Ireland, Italy and many more names/countries in continental Europe in the years to come but the rest of the story would be the same.
The english version of the story is a bit different, but the final outcome is still the same, ‘the lender loses’. In this version the borrower does not just say default, s/he does it by printing money to pay you back in full, in terms of currency not money. Is money different from currency? Yes it is.
Credit rating agencies are trying to make their presence felt, by downgrading credit ratings of a lot of companies and countries but they are too late as always. Prudent investors have long abandoned lending to such prodigal entities. They are investing in wealth that can be measured in terms of acres (of food producing farm land), grams (of bullion or base metals) or liters (of essential fluids like water, oil etc).
Do you want to be known as ________ (your choice of expletive) or a prudent investor? Dinakarananda wishes you a prosperous future and very happy Indian Republic day/ Australia day.