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Considering the fact that the US collects ten times the revenue it needs to pay interest on the debt, do foreign countries have a safer alternative to US Treasury bonds?

Whether or not the debt ceiling is raised, the federal government collects significantly more revenue than it needs to fulfill U.S. debt obligations," Forbes wrote. "If the debt ceiling is reached, the government will still have ten times as much revenue as it needs to make debt payments. The only way the U.S. will immediately default upon reaching the debt ceiling is if the government actively chooses to do so by not making debt payments."

Forbes' also passed a bill, the Full Faith and Credit Act would require the Secretary of the Treasury (Treasury) to make timely payments of principal and interest when the statutory debt limit is reached. The House passed this legislation since their has been conflicting statements from the Treasury whether they could prioritize payments on the debt.

Additionally, the 14th Amendment requires that the US debt is paid, to do otherwise is unconstitutional.

The validity of public debt of the United States [...], shall not be questioned.

Given all that:

  • Do foreign countries have a safer alternative to US Treasury bonds?
  • If so, what are they and how much money do foreign governments have invested in that alternative relative to US bonds?
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The ratings issued by the various credit rating agencies gives a convenient at-a-glance of how safe they consider a country's debt. Wikipedia has a summery of the credit ratings of various nations.

Standard and Poor's currently rates the USA's bonds as A- (long term), which is below AAA, AA+, AA, AA-, A+, and A. The next grades down are BBB+, BBB, and BBB-. Bonds below BBB- are considered speculative and not suitable for investments.

The following countries have a rating of A or higher, placing them above the USA and thus considered to be safer

  • United Kingdom
  • Australia
  • Canada
  • Denmark
  • Finland
  • Germany
  • Hong Kong
  • Liechtenstein
  • Luxembourg
  • Netherlands
  • Norway
  • Singapore
  • Sweden
  • Switzerland
  • Abu Dhabi, UAE
  • Belgium
  • Kuwait
  • New Zealand
  • Qatar
  • Bermuda
  • China
  • Czech Republic
  • Estonia
  • Japan
  • Saudi Arabia
  • Taiwan
  • Chile
  • Israel
  • South Korea
  • Oman
  • Ras Al Khaimah, UAE
  • Slovakia
  • Trinidad and Tobago

Dagong also rates the USA as A- (same scale as S&P) and the following countries as A or higher.

  • Finland
  • Hong Kong
  • Luxembourg
  • Norway
  • Singapore
  • Switzerland
  • China
  • Australia
  • Austria
  • Canada
  • Denmark
  • Germany
  • Macao
  • Netherlands
  • Sweden
  • Kuwait
  • New Zealand
  • Chile
  • Saudi Arabia
  • Cayman Islands
  • Japan
  • South Korea
  • Taiwan
  • Qatar
  • Belgium
  • Czech Republic
  • France
  • Malaysia
  • United Kingdom
  • Botswana
  • Estonia
  • Russia
  • South Africa
  • Spain

Fitch, DBRS, and JCR all still rate the USA as AAA and Moody's still rates them as Aaa, the highest ratings possible, though Fitch, DBRS, and Moody's give a negative outlook and DBRS currently has their AAA rating under review and may downgrade it in the near future.

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    @user1873 - See here for how much each country holds in US bonds. As far as I know, no country makes public how much their government has invested in specific securities. I suggest you accept this answer, because it's the best you're going to be able to get. – Bobson Oct 24 '13 at 13:50
  • Compro01 the question has been slightly updated. Would you mind taking a look at the later revision and updating your answer? – yannis Oct 24 '13 at 14:55
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Consider the following: investment in any country other than the USA will be nominated in a currency other than US dollar. But US dollar is the only currency whose rate rises when there is a worldwide crisis. If the US defaults on its debt, the world crisis will be inevitable, so all other currencies will quickly fall against dollar. Besides this, such crisis will spark financial problems to other countries as well.

You should also consider that the USA has the strongest army in the world and it is absolutely unpredictable whom they will bomb the next time - it can be any country except themselves and their closest allies. Even Europe is not safe.

As such, I think only investment in gold is more reliable than investment in dollars. Also you can consider real estate, but its price falls dramatically at crisis time, and also it is not prone to wars - your apartment can be bombed out or taken by a confronting side.

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    Gold tends to be too inflexible for monetary policy. I'd expect the global reserve currency and petrodollar to shift from USD to a mixed-currency basket or a IMF-writ-abstraction. But in any case, I think your answer needs to elaborate on how gold would replace US bonds for these countries given the massive bond-holdings currently held; and to what extent (if any) central banks have divested their US bonds already. user1873 is seeking hard data I think, in light of earlier questions on the same theme. – LateralFractal Oct 25 '13 at 12:14
  • Hmm. In the past the USD has been the currency of refuge when there is a world crisis, because it is generally the least affected. But when it is the cause of the crisis, weho knows what will happen? – DJClayworth Oct 27 '13 at 19:16
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Compro01 is right on what the Ratings Agencies say. But as we all know, Ratings Agencies are a lot of the time full of BS themselves (such as giving investment grades to mortgage-backed securities in the US in 2007). Instead, I will offer you a piece written by Michael Lewis in Boomerang (Travels in the New Third World), on what the world did when Standard & Poor downgraded their rating on US debt:

On August 5, 2011, moments after the U.S. government watched a rating agency lower its credit rating for the first time in American history, the market for U.S. Treasury bonds soared. Four days later, the interest rates paid by the U.S. government on its new 10-year bonds were plummeting on their way to record lows(1). The price of gold rose right alongside the price of U.S. Treasury bonds, but the prices of virtually all stocks and other bonds in rich Western countries went into a free fall. The net effect of a major U.S. rating agency’s saying that the U.S. government was less likely than before to repay its debts was to lower the cost of borrowing for the U.S. government and to raise it for everyone else. This told you a lot of what you needed to know about the ability of the U.S. government to live beyond its means: it had, for the moment, a blank check. The shakier the United States government appeared, up to some faraway point, the more cheaply it would be able to borrow.

(1) For those unfamiliar with economics, a lower interest rate means that more people are trying to buy your bonds, so you can set the interest you pay on your debt to be cheaper.

Given this, I'd argue that at the present there is nothing safer than a note from the US treasury.

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