What happens when a large country defaults on their debt?
Not to mention any names, but I hear a large country is trying to decide if they will default on their debt next month.
Does the country's leader just call people and say "We're sorry, but we can't meet this month's payments?" Oh, I'll bet they won't be happy.
Do creditors repossess stuff? Reckon what tanks and helicopters will bring at an open auction?
Many learned economists have been on the media discussing potential circumstances and developments, but no one agrees. I suppose we'll have to wait until next month to find out.
11 Answers
The value of the currency decreases, and the credit rating is reduced. In other words, interest rates charged on future loans will also be greater and the amount that needs to be borrowed will also increase. The standard of living of the middle class will be adversely affected by this. It basically accelerates the decline of working class wages to the geometric mean with wages in competitor nations like China and India, and the accompanying equalization of the standard of living.
Really, it's just another way in which the unnamed country is becoming a "banana republic" in terms of how the majority live.
It's a big tax on those who can least afford it.
It's happening because the "conservatives" who found a way to loot the treasury in the Bush administration will not consider giving up those lucrative "perks" (huge tax cuts). Attempts by the underpriviledged to level the playing field are met with accusations of "class warfare". It's ironic that those charging liberals with trying to wage class warfare have themselves been waging a winning class war for over a decade now.
Here in the People's Republic of Vermont, where I have lived for 40 years (even though I just for the moment live just south of the border in Massachusetts, which I can't even spell), we put secession on the ballot in many town meetings over the years. Sort of a joke making an ironic point.
Ever since WWII it seems that some countries (including a Mediteranean nation shaped like a boot) seem to have flourished without a functional government. Is the US looking into that option? It would seem so...
A debt ceiling is something that a certain unnamed country has as law stating that the country can only borrow so much money. Once that amount is reached, government has to vote to increase the amount.
The vote comes up often, this is the first time it has been used as a political tool.
not voting up the debt ceiling for a prolonged time (in this case 6 months) raises the risk of defaulting on loans, since borrowing is no longer allowed.
Essentially it is like missing a payment on a credit card. You get charged more, and you pay later.
All of the other things (credit rating going down, interest rates going up) are all secondary effects.
if you miss a payment on your credit rating your credit score goes down, which means you generally don't get the best rates when you go for a loan, and if you have a bad rating (which is far from happening with the unnamed country) then you may not be able to get a loan at all.
As far as the repercussions, the credit rating would go from triple A to double A, and then to SD (selective default)
from triple A to double A no one really knows the side effects, but my opinion is that it would be a short term market event without any real side effects.
a selective default rating would raise interest rates for people living in that country, their currency would get devalued, etc.,
Dramatic events would occur if default was chosen for a prolonged period of time, or if the government of unnamed country implemented barbaric measures to cut aid in order to avoid default without raising the debt ceiling.
This is yet another good reason to learn Spanish or Portuguese. It may soon be that immigration FROM this unnamed country will become popular.
Chinese might be a good language to learn, too, as they are this unnamed country's biggest creditor.
Economically, I've long felt like said country is living in an inverted pyramid made of cards.
Peiple carrying money around in wheelbarrows to pay for a loaf of bread. (Germany 1930s) comes to mind.
$1000 trillion notes also.
I'm getting ready to go into my volunteer job now. I work a couple of days a week at a free health clinic that provides primary health care to people without insurance.
I just thought as I was putting on my shoes, it would be really bad if this unnamed country did not provide health care for its citizens. Then we'd probably consider it an "undeveloped nation" or a "third world country".
Thanks to everybody for their comments. This subject may be too sensitive to discuss right now, and I probably should not have started the thread.
I guess I just wanted to vent.
By default you mean not paying debts because they can't be paid? Woh, that must cause upheaval.
ha, piggy-backing others' posts, don't forget about:
- stock market crash
- stagnated/worse unemployment
And that's just in that unnamed country. The unnamed country's bonds have been considered "risk-free" world-wide because its low default risk, but what will happen on Aug 2?
"The irony of the situation at the moment, with markets opening tomorrow morning, is that the biggest threat to the world financial system comes from a few right-wing nutters in the American congress rather than the euro zone."
That is a quote from British Business Secretary Vince Cable on July 24.
Maybe GB will regain its pre-WWI title of "World's Banker"? Considering its amount of debt, maybe not, but it seems like everyone in the world (save a few million unnamed country's citizens) know what is going on the U.S will have dire consquences.
I had a professor who works for the Treasury, hopefully I will run into him this week so I can get some info. I think the most likely scenario is that social security or medicaid/medicare checks won't get sent out.
Well, if some of our members don't get paid (that live in that unnamed country) than they won't be able to afford to buy the basic necessities. That could affect a lot of our people here. I hope we will all be ok.
A mí no me parece que "al país innominado" caerá en "default." Todo esto solo es un juego de política para que los partidos puedan posicionarse para las elecciónes. Si cae en "default" dicho país, nadie será reelegido; y desde luego, el meta de ser elegido de nuevo dirige las políticas.
Fijense que ya se ha aumentado el techo de gasto una vez este año sin la polemica que se ve hoy día.
La diferencia esta vez es que el presidente esta pidiendo reforma comprensiva (en lugar de simplemente aumentar el techo de gasto) que esta chocando contra las ambiciónes electorales de los partidos.
Si no se alcanza un acuerdo, el techo de gasto simplemente será aumentado y el asunto se ahogará hasta la proxima vez (2012 ó 2013).
(corrections are welcomed)
