Government Bonds -- the New Junk?

By RANDALL W. FORSYTH
That's gold's message, more than inflation.
Barron's

FROM GREECE TO CALIFORNIA TO JAPAN, markets are beginning to worry about what traditionally is deemed a risk-free asset: government debt securities. And that arguably lies behind the rise in the price of gold.

In a provocative analysis, Standard & Poor's finds that gold is reflecting investor skittishness. And those concerns aren't just the usual ones typically associated with demand for the precious metal -- inflation -- but also concerns about the other safe harbor in times of trouble, supposedly risk-free government securities.

The traditional worry about excessive government debt is that it can be inflated away by central-bank money printing. The Federal Reserve can always buy Treasury securities without limit, forestalling any chance of default by the U.S. government. That, however, would involve an expansion of the central bank's balance sheet and, inevitably, produce Weimar-style hyperinflation.

But, at the risk of invoking the most dangerous term in finance and economics, there's something different this time. The governments about whose debts the markets most fret now cannot resort to the printing press.

(More here.)