Hot answers tagged

20

In general, there are three kinds of debt: Secured debt, like a mortgage or a repurchase agreement. With a mortgage, for example, the debt is secured by a lien on the home, and if the debtor does not pay, the creditor can seize the home. Unsecured debt, like a credit card or corporate bond. Governments will generally allow creditors to liquidate many of the ...


5

Every of the United States except Vermont is required by law to balance their budgets. 45 states have some sort of constitutional balanced budget provision and another 4 have it by statute. (Source) According to Inman (2003), such balanced budget provisions were mostly adopted after the state defaults of the 1840s: Following the defaults of state debts ...


5

Two reasons: The United States has a capable federal government that takes care of social insurance transfers and countercyclical economic policies. The American states spend less. The American states have stronger anti-tax sentiments, and increasing public spendings face opposition from business and rich people. Take the 2008 crisis for example. As for ...


3

Until the euro remains the official currency, the public and private sector in Greece have to pay wages and invoices in euro. They're also paying external debt in euros. But euros are fleeing the country and the banking system. And Greece can't print more of them. It means that firms and people have less and less liquidity. To escape the barter economy, ...


3

There were two substantial reasons why Britain led, and the world followed, in recapitalising the banking system. The first is that a very large proportion of citizens' money on deposit at banks is protected by the State anyway, so the State was already liable for that cost. The second is that the banks are responsible for carrying a very large proportion ...


3

Because the banks are not loaning their own money but that of depositors. One may also argue that the depositors should know the risks and if their bank makes bad investments it is partly their fault so they cannot complain should they lose their deposits. But a functioning banking system is essential to the current economic system. The bankruptcy of a big ...


2

@dismalscience said it all. I'd add that the EU is trying to get Greece's property in two indirect ways. First, the troika demanded Greece to privatize some of its public assets. While privatization benefits the bull market, asset prices in Greece are, of course, at their prehistoric levels. Greek companies are all cash constrained now, and the likely buyer ...


2

Unsustainable is a strong word for describing state budgets. The three worse states going by credit rating are Illinois, California, and New Jersey. Each of them has a better credit rating then Greece. First you need to understand why Greece defaulted and not Spain or Portugal. Greece is a mess (technically speaking). First, Wiki tax evasion and corruption ...


2

As far as I recall, you're dead on: they don't have to. The contracts don't allow for "some countries kicking others out of the Euro Zone", they never envisioned this scenario when writing them. On the other side, Greece can, and should, leave on its own. Sharing the currency is hurting them economically, the only reason they're not is that the continuous ...


2

A standard ("vanilla") interest rate swap is a contract in which one party pays a fixed rate of interest, and the other pays a floating rate (typically LiBOR, but it depends upon the market convention in the currency). (There are a lot of interest rates that deviate from this formula, but they have the same "system risk" characteristics as standard swaps.) ...


2

This is a good question! It turns out that exactly as you predict, if you get the transcripts or recordings from the meetings with judge Griesa in NY, some of the representatives of the non-holdouts said they were willing to sign off on the RUFO clause, voiding it. The logic, as you describe is that this would free Argentina to pay the holdouts, letting ...


2

Perhaps you should look up the following collection of studies, Dornbusch and Edwards (ed.), The Macroeconomics of Populism in Latin America(1991) It is freely downloadable from its official site. Here is the opening paragraph of the Editors' piece "Latin America’s economic history seems to repeat itself endlessly, following irregular and dramatic ...


2

Let's split the problems into two categories, proximate and fundamental. It is easy to confuse the two categories or mix the problems of fundamental nature with those of proximate. Econoimc historians, in the pursuit of determining the causes of Britain's industrialisation have come up with several plausible explanations. I think we can use their framework ...


2

"Some form of debt write-off" means usually, mutually agreed (between creditor and debtor) elimination of a portion or the whole of debt. "Partial default": I had the contractual obligation to pay EUR $100$ on Monday, but I paid only EUR $80$. Technically speaking, this is not always (or immediately) considered a "default", but a "credit incident" (...


2

To make sense of your question, your $U$ should be $$ U = u(C_1) + \beta (1-p)E_1 [ u(C_2) ] + \beta p E_1[u(Y_2 - T_2)]. $$ (This definition of $U$ assumes that the default event is independent of other sources of uncertainty in the economy.) If the bond defaults, saving $S_1$ from the first period is wiped out. If there is uncertainty in period-2 ...


1

the administration would threaten to selectively not pay its Treasury Bond obligations to China What exactly would a default trigger? Selective default would be ineffective and it could backfire. It would be ineffective because, at any point in time, a treasury bond has the same value regardless of who holds it. If the USA disavows its obligations ...


1

at periods of default of Argentina, Ukraine and Panama, the data tells exactly the opposite: exports increased in the wake of the sovereign default. What can explain this? Sovereign default may trigger a depreciation of the domestic currency. When that happens, it has a two-fold effect on the domestic economy: On the one hand, foreign immediate inputs (...


1

There is an example of its use at definedterm.com from a Cemex 2006 Note saying "Obligation Acceleration" means one or more Obligations in an aggregate amount of not less that the Default Requirement have become due and payable before they would otherwise have been due and payable as a result of, or on the basis of, the occurrence of a default, event of ...


1

If I refuse to pay its a default. If you say I don't have to pay its a write-off.


Only top voted, non community-wiki answers of a minimum length are eligible