I don’t think investors actually believe there is zero risk—the phrase “risk-free” is a holdover from the assumptions of theoretical asset pricing models, and now everyone who gets trained in economics or finance is just being sloppy.
It would take more than the USA ceasing to exist for bonds to become worthless—maybe the USA will peacefully disincorporate, but still unwind all its debts. It would take something that would destroy the productive capacity of the USA as a whole, or something that causes massive tax revolts—an asteroid strike, or an alien invasion maybe? If you’re an optimist about the economic effects of AI/nanotech etc, then it seems that should make the chance of defaults less likely, not more.
I don’t think investors actually believe there is zero risk—the phrase “risk-free” is a holdover from the assumptions of theoretical asset pricing models, and now everyone who gets trained in economics or finance is just being sloppy.
It would take more than the USA ceasing to exist for bonds to become worthless—maybe the USA will peacefully disincorporate, but still unwind all its debts. It would take something that would destroy the productive capacity of the USA as a whole, or something that causes massive tax revolts—an asteroid strike, or an alien invasion maybe? If you’re an optimist about the economic effects of AI/nanotech etc, then it seems that should make the chance of defaults less likely, not more.