On Twitter I saw some post about universal income, some mentions that would add even more debts to countries (but that’s not the point of this) and some answers that countries, well their central banks actually, can just say “nope” to any kind of debts applied to them.
Is it technically true? And if so, what are the reasons it’s not applied, diplomatic, economic, capitalist unwritten rule?
In: Economics
Countries technically could choose to default, or simply say they weren’t going to pay back. Or they could print more money with which to pay back debt.
The problem is that defaulting makes it impossible, or at least much harder/more expensive, to borrow again. Government bonds are invested in because of the security of known returns and safety of one’s principal. If those benefits go away, investors won’t invest, especially not at the low interest rates governments typically can offer. A government like the U.S. can afford to borrow so much because investors are willing to buy bonds from them at 1 and 2% interest. If rates were 5% or 10% or 20%, then they couldn’t afford to do so.
And if the government printed more money to pay back debts, they’d fuel inflation, which would reduce everybody’s buying power, deplete everybody’s savings, and generally make a country less well off.
So both are very short sighted, though technically feasible, responses to debt but ones that would cause whole heaps of bigger problems for the country’s economy.
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