February 16th, 2015 → 5:31 am @ // No Comments

“I’ll have my bond.  Speak not against my bond.
I have sworn an oath that I will have my bond.”  – Merchant of Venice

Warning: This post is a little wonky.  Greece’s new government has suggested a number of reforms to help the country get out from under its punishing austerity measures and recover their economy.  One of the best is an old idea which I have never understood why it hasn’t gotten more traction (but then again, I am not a macroeconomist) – GDP-indexed bonds.  Such bonds pay more when times are well, but also automatically pay less when times are tough, which 1) only makes sense, 2) reduces debt-to-GDP volatility, and 3) prevents pro-cyclical fiscal policy that exacerbates both busts and booms.  Since we know that creditors will have their bonds, why not make them smarter bonds?

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