Map of Rucphen on Peripheral areas of the world that persisted in earlier means of production (either forced labor, as in the case of much of Latin America, or sharecropping, serfdom, or slavery) were forced into this position by the core powers so that the flow of resources and capital to the core powers could continue uninterruptedly. Critics of this system have argued that viewing the world economy as a system arranged by the core powers for their own benefit does not account for the constraints placed by indigenous history and circumstance. Feudal continues to be a pejorative description from the modern perspective, and the debates of how allegedly feudal economies transformed themselves to capitalist production continue to be important as many seek the solutions to the economic problems of the Third World. BIBLIOGRAPHY. Marc Bloch, Feudal Society (University of Chicago Press, 1961); Elizabeth A. R. Brown, The Tyranny of a Construct: Feudalism and Historians of Medieval Europe, American Historical Review (1974); Jack Goody, Economy and Feudalism in Africa, Economic History Review (v. Map of Rucphen 2016.
Political maps and economy of country;
Bonds and Risk
You will likely have heard the phrase the full faith and credit of the U.S. government. Those words are generally applied to U.S. Treasury debt, and define a measure of risk. In this case, it’s the assumed
absence of risk, because the full faith and credit of the U.S. government implies that the American government”despite its massive and mounting debts”will stand behind its debt and will repay all interest and principal due in a timely manner. For that reason, U.S. Treasury bonds are considered the gold standard in the debt market, presenting what investors call a risk-free rate of return, a phrase meaning that if you hold a U.S. Treasury obligation to maturity you will never lose a penny of principal or interest. Thus, you have zero risk.
At the opposite of the spectrum is junk, the name euphemistically attached to certain bonds because of the company’s financial situation. These junk bonds”also called high-yield bonds”are larded with risk and represent some of the highest default rates in the bond world.
In between Treasury and junk is a wide range of bonds spanning all levels of risk. Helping investors navigate the various risks are ratings agencies such as Standard & Poor’s, Moody’s Investors Service, and others that regularly rate bonds based upon the underlying financial health of the specific company, national government, or local municipality. At S&P, bond ratings stretch from AAA at the very top to D at the nadir. S&P Ratings of AAA down to BBB are considered investment-grade bonds. BB and below are junk-bond territory, also known as non-investment-grade or high-yield bonds. Moody’s ratings, and those published by other agencies, differ slightly.
These ratings help determine what interest rate a bond will carry. U.S. Treasury debt typically offers the lowest interest rates, because the risks are nearly nonexistent. You will receive your interest payments, and the Treasury Department will return your original principal at the bond’s maturity. Period.
Riskier issues, meanwhile, require that companies and governments entice investors with a bigger interest rate to compensate for the risk the investor is accepting. And everything below a Treasury carries default risk to some degree. The state of Washington’s
Public Power Supply System in the early 1980s canceled construction on a nuclear-power project that wildly overran its costs, and with no way to repay the debt, the power company defaulted on $2.5 billion in municipal bonds that were originally rated as investment-grade, meaning they were highly rated.
Such events are exceedingly rare with investment-grade debt, but they still happen. As I write this in late 2008, Jefferson County, Alabama, was facing the largest municipal-bond default in history” some $3.2 billion. The county found itself swamped by interest payments that had unexpectedly tripled, the result of political leaders’ heeding the advice of Wall Street bankers who pitched the county on a particular bond strategy that backfired.
Junk bonds, meanwhile, are called junk for a reason. They have historically experienced a greater default rate than have investment-grade bonds, and by an exceedingly wide margin. Junk bonds generally come from companies with balance sheets that are financially weak or are already overly leveraged by other debt obligations that must be repaid. A bad patch in the economy or the loss of a significant customer can unravel a company and leave junk-bond holders with little to show for their investment except an intricately engraved bond certificate worth nothing.
That said, junk bonds can be lucrative, and can have a place in some portfolios. Because of that relationship I mentioned between risk and rates, junk bond yields are routinely much higher than you’ll find on investment-grade bonds. Owning junk bonds, then, can enhance the overall returns in a portfolio. But if you’re going to own junk bonds, do so in a junk-bond mutual fund, where professional bond managers are paid to sift through the complex financials and covenants specific to each bond to determine which ones are better than others to own. You don’t want to go off randomly snapping up junk bonds just because of a big yield. You’re taking on too much default risk. In a fund, that same bond might well default, but the loss is spread across hundreds of bonds worth
hundreds of millions of dollars, so the pain is negligible. In your personal portfolio, the default of a single bond can be devastating. I’ll explain more about bond funds in a moment, and mutual funds in general later.
Along with default risk, all bonds including Treasury bonds also come packaged with interest-rate risk. The purest reason to own a bond is to capture the interest payment. But if interest rates in the broader economy rise to a level that exceeds the rate paid by the bond you own, well, you’ll awaken one morning to find that the bond you own is suddenly worth less than its par value. Investors, logically, want to own bonds that pay higher rates, making your bond less attractive to buyers and, thus, less valuable. The good news: If you never sell your bond, the fall in price is irrelevant, since the bond issuer will repay you the par value”assuming, of course, the company doesn’t first default on those bonds.
Turns out bonds aren’t always as safe as commentators sometimes make them out to be.
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