by Daniel Costello

Reader Chris Mills has a question, which he sent to us late yesterday while on his honeymoon in Fiji. We realize Planet Money is fun and these are confusing times worthy of time-intensive consideration. Still, we can't help but want to offer up some advice in addition to answering his question. To wit:

"Chris, try and keep the computer time to a minimum this week. Seems only right."

Here's Chris' question:

"Everyone keeps talking about treasury bonds and how they are the safest investment. We've been seeing rates very low, even negative. How are we so sure these bonds are so safe? How do we know that there won't be a time that these can't be repaid? Doesn't there come a point where the government could just sell too many of these? I know the Fed can always print money, but I wondered if you could explain to me what makes the security of treasury bonds such a fact?"

And here's our answer:

 

In short, your money in Treasury bills is safe.

Because U.S. government bonds are backed by the U.S. government and the U.S. has the most powerful economy in the world, these bonds are widely considered to be risk-free. When you purchase this type of bond, the U.S. government is guaranteeing that the interest and principal be paid according to the bond covenants. That is, they are guaranteeing that payments will be paid on time and in full.

Only a monumental downturn in the economy or, possibly, a very rare circumstance during a time of war would prevent the U.S. government from repaying its short- or long-term debts. However, even such events are unlikely to result in the U.S. government defaulting, since it has the ability to print additional money or increase taxes if additional capital is needed.

Those have their downsides too. If the amount of money in active circulation outstrips the available goods and services for sale, inflation could go through the roof. (Look at Zimbabwe lately for Exhibit A on that.) If the U.S. were to raise taxes, it could harm the economy and make a lot of people made of course. But you would still have your money.