Scott: If you know that the government can’t make good on all its promises, then at what point would you decide it’s time to get out of bonds?

Harry: I don’t believe there is any point, Scott. Because we don’t know how it’s going to unfold. And one of the ways it might unfold is through heavy taxation and it’s a very likely possibility which in itself could go two ways. Number one is: it might increase the need for people to borrow money because so much is being taken away by the government which would cause interest rates to go up because of the demand for money and it would be bad for bonds. Or, people may decide that they are so squeezed by taxation that they can’t afford to buy a new car which they would normally buy by putting a certain amount of money down or trading in their old car and then borrowing the rest of the money. Or they might say they’re not going to buy a new house, they’re going to continue to rent because they are afraid that they will not be able to afford the mortgage payments and so on. And so the increase in taxation could cause borrowing to shrink; it could go either way. And if borrowing shrunk, then of course interest rates would go down and bonds would be the one thing that would be saving you under such circumstances. If interest rates went way up and we had inflation as a result of it then it would be gold that would save you. The point is: you don’t know what it is you’re going to need, and that’s why you keep them; keep all four of these things. In 1980, after 10 years of rising interest rates which were bad for bonds, I couldn’t convince anybody to put money into bonds. Oh, I shouldn’t say I couldn’t convince anybody, but a lot of people said I absolutely think you’re nuts to put bonds in the portfolio. They are guaranteed to go down in value. But over the next ten years, in the 1980′s, they went up in value. And they helped to keep the portfolio going well when cash and gold were not doing well and stocks were doing reasonably well but were uncertain, going up for a while, then down for a while and so forth. So you never know. That’s why you need a balanced portfolio. And with that you can look at the future brightly, just as brightly as this music that’s playing now. [Music plays: Bob Crosby, Come Back Sweet Papa]

Been there myself. But when I looked at the data in context of an entire portfolio allocation I came around to Browne’s point of view.