Do US Treasury bonds deserve an AAA rating?

In some sense, US Treasury bonds do deserve an AAA rating because it is highly unlikely that they will default. However, the difference between the US treasury and some corporate or municipal bond is that the US treasury will just print more money to avoid defaulting.



So what happens when Uncle Ben and King Henry does that. It weakens the dollar, therefore the price of gold and other competing currencies that are not pegged to the dollar goes up. Who gets hosed? Savers. People who think holding US dollars is the "fail-safe" way to invest while they think they are taking zero risk by keeping it under pillow or in a FDIC secured bank account.

According to the website foodtimeline.org, a 18 ounce box of Kellog's frosted flakes costs $1.99 in 1990 and now a 12 ounce box of frosted flakes costs $2.99 in 2008. If you do the math, it's about 11 cents an ounce vs. about 25 cents an ounce, so you are looking at a 130% inflation rate in Kellogs frosted flakes over a period of 18 years.

So in this case, do you really think that the inflation rate is really at 2%? I guess it depends on how you want to gather all the information out there and analyze it for yourself. It depends if you really take the government data at face value, but I would have to estimate that inflation is at least a good 5 percent, but more like at about 7-10 percent. There is a lot of other crap you can analyze... Gas prices, cost of a car, minimum wage, whatever and draw your own conclusion.

Now going back to the bonds, yes I believe it is a minimal risk that a default would occur, but when you redeem your case, you'll get screwed by inflation.