If bonds are supposedly safer since the returns are known, and the odds of a country going bankrupt is not as great as that of a corporation, then what is going on in Europe?

Greece has been over-spending, and with bonds due soon they realize that they are unable to pay them back.  Infused in urgency, the Prime Minister made the mistake of calling a referendum after successful negotiations to lower return rate of bonds with other countries.  This led to an immediate huge drop in the stock market.

Italy, with five times the debt of Greece, rushes to sell bonds in order to get an influx of cash to pay back past bonds.  However, the inevitable increase in bond rate to attract higher-risk takers only makes it harder.  This vicious cycle continues and the level of difficulty to sell the bond will only accelerate.

Debt crisis, an everyday term today, was unheard of before – that a whole entire country’s financial system would fail, and Europe too.  As news stories compile, I am not optimistic about the situation.  Does anyone actually know what to do?

With no solution in view, what does this mean for the countries involved and the Euro?

Reference:
–LA Times: Stocks tumble worldwide on fears of Eurozone blow-up
–The New York Times: Italy and Greece act with more force on the debt crisis

The class on stocks left me hanging, especially with all this talk in the news about bonds and the debt crisis.  What are these again?

Stocks

The stock market is the trading of capital.  The buying of a stock gives out ownership of the company; earnings reflect their profitability.  Returns are unknown since much of the stock market is based on speculation, but they are always proportional to risk.

Bonds

On the other hand, bonds can be regarded as loans to a corporation or government, in which the institution does not want to give up any control or profit.  Rather, an interest rate and maturity time is set.  Having fixed returns makes bonds safer than stocks, in which it is possible for investments to become completely worthless.

Which would you choose to invest (risk) in?

Considering the time value of money, people are pushed to invest because money left stagnant will surely depreciate.  Even though earnings would be minimized by high inflation rates, I would buy bonds to ensure that the worth of my savings stays atop.  Of course, confidence in a company’s potential would motivate me to buy their stocks for a chance to earn big.

All things apart, invest intelligibly.  Like gambling, stay within your limit.  It’s always better to be on the safe side.

References:
–Stocks and Bonds: How to choose the right option