Buying of Risky Assets and Safer Assets?

It makes it much easier for the government to borrow money. What happens is people "flee to safety" which means to sell stocks, bonds, commodities, and everything else and put your money into US government bonds. This drives the price of government bonds way up, and as a result, the government can offer treasury bonds at extremely low yields and people will still buy them.

That is the current situation. A 30 year treasury bond will yield a pathetic 4.3% return right now. Last fall at the height of the credit crisis they were yielding 2.5%!! That's a pretty sad investment return. Back in the 80's a government bond could yield 12% or more.

Obviously these low borrowing rates make it easy for the government to spend money. Now is a great time for the government to be investing in the economy, because if the government can borrow money at 4%, and then increase the GDP by 4% (thus increasing taxes by 4%) then the government can pay for the interest on the bonds :)

This has to be a joke. The only reason anybody invests in risky assets is because they have a higher expected, or at least potential, return. If the safe asset has a higher expected return, there is no question.