21

Who would pay depends on the terms of the default. Sometimes holders of similar debts are not treated equally, and this can play out in different ways. Greeks could default on external debts but continue to pay internal creditors. Or because the ESM and other entities are providing ongoing financing, perhaps they will continue to be repaid when others are ...


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 ...


18

Is there a threshold we can pass in terms of debt-to-GDP that will cause a runaway sort of effect? No there is no threshold or magic number (at least not one we know of). Few years ago there was an influential research claiming that there is a threshold at about 90% debt-to-GDP ratio published by Reinhart and Rogoff where debt was supposed to start having ...


13

You have to understand how international debt works. These are not loans, but bonds. China buys a US bond for, e.g., 98 USD. This bond is a promise by the US Treasury to pay 100 USD one year from now. China owns a lot of this type of bonds. Once the bond hits maturity, China is paid 100 USD and the thing it typically does with these 100 USD is it buys the ...


12

Why doesn't the government create money, spend it for free without interest, and recollect it with taxes, you ask. Well, it does. That's exactly what public investment & spending, and the taxation system, do. The government creates money, puts it out into the economy, and collects it back through taxation and other payments. If it does that while ...


11

I'd add a historical perspective to the great answers already given. The data from a very illustrative article "The Greek Debt Restructuring: An Autopsy" by Jeromin Zettelmeyer, Christoph Trebesch, and Mitu Gulati. The private creditors would bear the losses if Greece defaulted before March 2012 These organizations held the Greek debt by 2011: The debt ...


11

The classic answer here would be Libya and Brunei, but I think Libya now has debt. Brunei is a strange case in that it uses a joint currency with Singapore dollar, controlled by the monetary authority of Singapore, so in effect you can use Singapore debt as a substitute for Brunei dollar investment. Not having any debt, and having a free currency is ...


10

Yes, I imagine there's reason to contest that claim. Consider the GDP to debt ratio. While it has risen over time and with the recent recession, it was not too far away from Germany which is considered, I think, the absolute picture of fiscal health. Consider also the critical point that the US government does not have a chance of death like a normal ...


8

Your get the basic intuition, but real-life situation is a bit different. First, I didn't really understand what you meant by "try to catch some 'fool'", but what you are calling foreign exchange bank is actually called the Foreign Exchange (market), and consist of buyers and sellers that are basically ready to buy and sell any currencies (almost all ...


8

There are several reasons why it makes still sense. Nominal negative return does not mean that real return is negative. There is a difference between nominal interest rates and real interest rates which can be expressed by the Fisher formula: $$ i \approx r + \pi$$ Where, $i$ is the nominal interest rate, $r$ is the real interest rate and $\pi$ is ...


7

Whether a country's debt is sustainable is a difficult question to answer. Bohn developped a framework for answering this question and the cited paper is a summary of much of its findings. Henning Bohn, 2005. "The Sustainability of Fiscal Policy in the United States," CESifo Working Paper Series 1446, CESifo Group Munich. Bohn proposes to estimate a ...


6

It's a holdover from the old Gold Standards. Gold standard regulation required all banks, including the central bank to hold gold as a regulatory asset. In the last gold standard, the Bretton Woods regime, the US in particular had to hold gold to back the dollar. The requirement went away with the collapse of the Bretton Woods agreement in 1973, but the gold ...


6

1.- The government imposed an austerity program and, in exchange, received assistance from the IMF and the EU. 2.- The ECB made it clear that it would do whatever as necessary to save the Euro, even buying sovereign bonds of Euro countries. 3.- A general improvement in financial conditions around 2013 throughout the world let to a decline in default premia....


6

The Russian default was an extraordinarily insignificant event compared with a current-day US default on all treasury securities. There are no remotely similar events to compare it to. This makes it hard to make guesses about all the ramifications. Still, speculating is fun. My guesses, based on a complete default (no money recovered) on all treasury ...


6

The US is in a privileged position of producing a currency that people in other countries want to use (as reserve). There's even a French name for that. Anyway, a result of that is cheap credit for the US government: Many believe that this dollar dominance has allowed the United States to live beyond its means, running sizable current account deficits ...


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 ...


5

Would you be satisfied with a graph of the last 20 years? Is yes, you can use Google Data Explorer. It seems to rely on Eurostat as well, so the data is probably available from them somewhere.


5

For any country that issues its own currency, having a sovereign debt in its own currency is a choice. It can always be monetised. This will cause a one-off inflation episode, but it does lessen, or entirely remove, the national debt. So for all countries with sovereign debt in currencies they themselves issue, then no amount of national debt is ...


5

You answered question (1) with your own chart. The United States had a “high” debt-to-GDP ratio in World War II - and there was no subsequent depression. (There was a sharp recession as a result of demobilisation, but that was short-lived.) For a country that borrows in its own currency, there is no obvious reason how a high debt-to-GDP creates recession ...


5

Relation between budget deficit and inflation? There is no direct relationship between budget deficits and inflation, however, inflation is one of the ways government can choose to finance government deficit, and consequently highly indebted nations often choose to do so for various reasons, but it is not a necessity. Government budget constraint is by ...


4

I guess it is for the same reason that other countries hold foreign reserves. The argument is that for some reason foreign markets become suddenly very adverse to take your currency, you should have some other medium of exchange that allow you to finance imports or serve short term external debt. This is very related to the Guidotti–Greenspan rule.


4

There is a lot of controversy in economics about the advisability or otherwise of government taxation and deficits, but let's skip that and just look at the figures. The U.S. National debt held by the public, is approximately \$13.3 trillion. Federal tax revenue for 2014 was slightly over \$3 trillion - which still left a \$500 billion deficit. Interest ...


4

The difference is that in buying the bond, the central bank now owns a bond, and a fiscal deficit has not been directly monetised. That means that: the government will have to keep paying interest on the bond, to the central bank, and will have to redeem it if it's not a perpetual. Remember, some governments are completely distinct entities from central ...


4

there are a few reasons: Directly selling bonds isn't a common method to get money from your people. Raising taxes works more effectively. A promise of future spending would be roughly equivalent to selling bonds. why not sell bonds to everybody? not just the Greeks? To a large extent, this has already been done. You don't get to 158% Dept to GDP without a ...


4

The IMF created its Historical Public Debt Database a few years back; that should do the trick for you. It's described in this paper, with annual data from 2012 back to as far as the late-1800s for some countries. You could pair that with the IMF/World Bank Quarterly Public Sector Debt statistics.


4

This Deutsche Bank figure from 2013 has some broad categories for German debt and compares it with other rich countries: A newer chart, using slightly with more granular categories. Note that Germany is DE.


4

This does not work like that. If you want to add-up all the debt in the world you will not end-up with 0. Think about a situation in which I owe you \$100, you owe someone else \$100, and this someone else owe me \$100. Total debt would be \$300, even if another guy is debt-free. Moreover, country debt (called sovereign debt) is not only owned by other ...


4

The ratio of government debt to GDP is a useful indicator because, broadly, the larger a country's GDP, the larger is the tax revenue the government could potentially raise to service the debt while maintaining other government expenditure at an acceptable level. Thus a very high debt / GDP ratio would raise doubts about the government's ability to service ...


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