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The case for GDP bonds
Around the world, governments are struggling to drum up buyers for the mountain of bonds they need to sell. And that’s especially true for big deficit, low savings countries like Britain and the United States.
The returns they are offering on conventional government bonds are low and there’s the risk of inflation eating away at their value. Perhaps it is time for a different approach.
Rather than hiring investment banks to bamboozle the public into subscribing for unwanted conventional bonds, or cramming them down the throats of the banks as part of expanded reserve requirements, governments should consider issuing bonds linked to gross domestic product.
GDP bonds are not a new idea but few governments have issued them. Those that have don’t make for a distinguished roll call, including as they do Bosnia Herzegovina, Bulgaria and Argentina, which swapped conventional bondholders into GDP bonds after its currency collapse in 2001.
from Neil Collins:
Gilts buyers forced to pay protection money
It's expensive, this risk-free investment business. You can lend to the UK government for 28 years and be guaranteed a real return, after inflation, of a magnificent 0.816 per cent on your money.
Put another way, if there was no inflation over the period, 100 pounds would have turned into about 125 pounds by 2037, to add to the 81.6 pence a year (before tax) you'd have had in annual interest.
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The Wall
