eli5 Why it’s bad for country to default on it’s debt?
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Governments issue bonds as investments to lenders. These bonds are issued with stated rates of return. So for example, you may buy a bond from your own state, with an expected rate of return and your state may use the money you’d paid to build some infrastructure. A bond is basically a loan, with interest. You buy the bond, the government uses the money, and later they pay you back with interest.
Bonds are rated in quality. A bond from a government which is very good at paying you back gets good ratings. A bond from a government with poor chance of paying you back gets bad ratings.
So, if a country defaults on its debt, it looks like a guy who can’t pay money back to those who lend to him. It’s like a friend of yours who never pays you back on a personal loan. He’s bankrupt, and stands very little chance of getting another loan from you. His bond is worth nothing, he can’t borrow. He’s a credit risk, so few want to lend him credit to buy or build things.
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