This post is not about organized crime. This post is about a proposal from Robert Shiller and Mark Kamstra featured in today’s New York Times. (Sanchez got the first down! At the opposing 46.) The idea is for the government to issue bonds whose payout is linked to GDP. (Sanchez sacked! Commentator yells, “Are they trying to kill Sanchez?”) In the case of Shillers proposed “trills,” the payout would be directly linked: each one would yield one-trillionth of quarterly GDP every three months.
It’s a fine idea, although I suspect that the benefits would be, well, limited. They protect against inflation, but so do inflation-linked bonds, and investors would presumably demand some sort of equity-ish premium. That said, they’d offer an easy way to diversify ... you get to buy a security linked to the income of every single income-earning entity in the country! On the other hand, the income stream won’t come directly from those entities, but via the tax revenue that they generate for the federal government.
(Holy s--t! Did that just happen? Challenge. Why yes, it did. Two-point conversion, 18-15.)
But that is not what this post is about. This post is just to point out that Argentina issued something not unlike the trill back in 2004. The “GDP kicker,” pronounced “keek-air,” aka a warrant, offered creditors payments equal to one-twentieth of the dollar value of all GDP growth above a threshold of 4.2% per year. Bosnia, Bulgaria, Costa Rica, and Singapore have issued similar securities. None of them are as simple as the trill, of course, but still. When have you heard of Argentina being a financial pioneer, in a good way? (Field goal! 21-15.)
Of course, there are some people who think that Argentina gave away the store with the kicker. And they may be right! Which is what worries me about the trill. It might turn out to be a rather expensive way to finance the borrowing needs of the government ... and that, ultimately, is what I tend to think government debt is for. Although Alexander Hamilton would not agree.