Imagine, all the largest economies or AA/AA+/AAA economies begin to have balanced budgets. This would mean, no new debt and existing debt either keeps getting rolled over into new debt to pay off old debt, and over time, the small surpluses keep eroding debt levels.
What happens to money in pension funds, or sovereign debt funds, money-market funds, etc. which is typically invested into short terms bonds/bills and is usually is in government debt because of the size of market, and how easy is it to buy or liquidate debt (at least, say debt from US, Germany, France, etc., you know the big economies or with AA or higher ratings).
If these countries start having small surpluses/balanced budgets – where does money flow? Stocks? Corporate debt? Or something equivalent to cash deposits/fixed deposits? Some countries also have infrastructure bonds – for example debt raised to construct a new highway with tolls and the debt + interest is paid off by toll revenue.
I think the money moving would be gargantuan, trillions of dollars, as pension funds currently hold somewhere around $11-14T in government debt all over the world.
Of course, different from sovereign funds that do invest in stocks and other forms of investment.
If more and more countries start having balanced/small surplus budgets, where does money that needs be in zero risk investments go?
byu/Ok-Pea3414 inAskEconomics
Posted by Ok-Pea3414
2 Comments
One does not necessarily lead to the other. Governments that run a surplus can still borrow large amounts. Singapore and Norway are examples. Both countries borrow but have massive sovereign wealth funds. As you say, the government has some interest in providing safe investments for their citizens (and others) and may want to use their budget’s strengths to borrow cheaply and use these funds to earn excess returns in other areas like the global stock market.
You don’t mention insurance companies, but they have bond heavy investments because they need to be risk averse. I use US insurance companies as an example here because I’m more familiar with their data than pension/sovereign wealth fund/money market fund data; we can see [here](https://content.naic.org/sites/default/files/capital-markets-special-reports-asset-mix-ye2022.pdf) that corporate bonds are already the majority type of bond within insurance companies overall, and [this](https://www.chicagofed.org/publications/chicago-fed-letter/2013/april-309), while much older, looks specifically at life insurance (which has longer time horizons).