> it is unreasonable to consider the only risk of US debt to be default and you have to consider the inflation loss.
The Fed mandate says "stable prices AND maximum employment". It says nothing about setting the fed fund rate in a way that enables investors to earn money from lending to an entity which has a zero default risk.
They set the rate and investors use that as a reference point to calculate the rate of everything else, starting from the security which mostly resembles the overnight Fed fund rate : the US. Treasury with the shortest duration which if I recall correctly is the 4 weeks US Note.
When investors are very scared it happens that they get very defensive and pay the Fed govt. for the privilege of parking their money in US Treasuries. It makes sense even, you only have to get rich once and if you are born in America you are essentially already rich the moment you are born (on a global basis), the desire for capital and wealth preservation has steadily increased over time and the Federal Govt. like any borrower is taking advantage of this thirst for safety from investors at home and abroad, this phenomenon actually reduces the Federal Debt which was a huge topic of concern circa 2011-2014.
The Fed mandate says "stable prices AND maximum employment". It says nothing about setting the fed fund rate in a way that enables investors to earn money from lending to an entity which has a zero default risk.
They set the rate and investors use that as a reference point to calculate the rate of everything else, starting from the security which mostly resembles the overnight Fed fund rate : the US. Treasury with the shortest duration which if I recall correctly is the 4 weeks US Note.
When investors are very scared it happens that they get very defensive and pay the Fed govt. for the privilege of parking their money in US Treasuries. It makes sense even, you only have to get rich once and if you are born in America you are essentially already rich the moment you are born (on a global basis), the desire for capital and wealth preservation has steadily increased over time and the Federal Govt. like any borrower is taking advantage of this thirst for safety from investors at home and abroad, this phenomenon actually reduces the Federal Debt which was a huge topic of concern circa 2011-2014.