We call it a lot things: bonds, debt, paper, loans. I prefer to call it fixed income in part because that’s what its called in the analyst community and in part because that its most salient feature. In all cases, however, what it seems to be to most people is confusing.
I can distinctly remember reading as a younger man “the corporate bond market is no place amateurs.” At the time that made it sound really elite and sexy. I wanted to learn more.
As I did, however, it seemed like there wasn’t a lot there, there. The formulas could get tedious at times but the basic concepts were bone simple. People agree to pay you a certain amount of money in the future. There is some chance they wont. There is some chance you’ll wish you had bought something else. That’s about the long and the short of it.
I filed it away as intellectually unimportant. Along with a lot of monetary economics by the way. But, that’s another story.
I went on with life.
Along the way I had friends who had problems with debt. I never really paid much attention to it, however. I loaned a few money when I thought I’d get it back. A loaned others money when I knew I wouldn’t.
However, I had never actually been in debt and the extent to which it haunted many of my friends never sunk in. More a reflection of my denseness than anything else.
I didn’t understood how most of the world sees debt until I got into long term relationships and my significant others would worry about it. A lot.
Why? I would ask, autisticly. Zero is just a number.
By that I meant that liabilities were simply negative assets. To have $3000 in assets is better than to have $1000 in assets. Likewise to have $1000 in assets is better than to have $1000 in liabilities. Yet, I didn’t see any distinction between those two positions. Debt is just negative assets. You cross zero, but so what? Zero is just a number. You don’t get all bent out of shape when you cross 37.
What’s so special about zero?
I’ve talked to a lot of people since then. And, I know that you are supposed to respect zero. I know that it is emotionally important for almost everyone. Sadly, I still can’t say that I really understand. Not in the way people seem to understand each other.
I tell myself little stories like “well zero is a meaningful amount of food or water to have, and so maybe this is like some sort evolutionary hold over” But, that doesn’t really mean anything. Its Ev-Psych story telling and it only serves to help me pretend like I can identify.
I’ve considered the fact that maybe I am just missing something in the analysis, something about the money itself. The problem is all the people I talk to seem to be horrible with fixed income. They don’t understand that you can make money by borrowing it. They don’t understand the significance of carry. They are consistently paying interest out of their nose for no reason and seem to have to think a minute before realizing that paying less interest and being paid interest are equally profitable.
And, to be quite frank, I wound up with a lot more money than them simply by playing with debt.
If I were a better man I might spend more time focusing on teaching financial literacy. But, to be honest, its hard enough for me to understand what my friends and family are talking about; to wrap my mind around their emotional connection to negative numbers.
I have to get better on this though, because of the way its warping our politics and becoming a national obsession. I see people arguing as if debt were obviously the biggest evil. And, then I see others saying, no unemployment is more evil.
No one, that I know, is salivating over a 0,9% carry on cash for five years and no liquidity constraints. That in a world where inflation expectations are much below it. Its like facing a the female cast of Nine, after they’ve chased you down to investigate rumors of your unparalleled virility
I understand the government is supposed to be an honest and chaste broker but good man are you completely immune to temptation. You a sell a trillion in bonds, you buy a trillion in real yielding capital and you just milk the crap out of it for free money.
Even if there is no specific financier to benefit it seems like such a tragedy to leave the deed undone. As if Marion Cotillard were crying herself to sleep for lack of company, its simply something a just god would never allow in a just world.
It’s a license to steal and only one agent on planet earth has been granted it – the US government. Yet, that government sits impotent, unable to see the bounty laid before it. And, the beauty sheds tears for a lover who can’t grasp that she pines for him.