Can they just ignore the debt like it never existed? Are there real reprucussions for the government or impacts to the econony?
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Depends on who’s holding that debt. If it’s the country’s citizens, then defaulting on that debt will undermine the citizens’ confidence in the government and its financial institutions thus affecting the economy. If it’s foreign governments or institutions, then they can impose sanctions and make demands until the debt as paid or restructured.
Sovereign Debt Crisis is what to google.
The immediate thing that happens is a bond market crash. Everyone who owned that country’s bonds is suddenly out all of their money. That can cause a contagion crisis elsewhere. Those wiped out investors often owe money other places and this leads to further defaults. If it’s a small country, it might be contained but if it’s a large country like the United States, the whole world financial system would melt down.
A follow up problem is the country in question would have big problems taking on any debt going forward (who would buy it?). So if they are running any deficits, they would need immediate budget cuts to stay afloat. Bear in mind, the bond market crash will cause a decrease in the wealth of the country’s people which will cause a decrease in tax revenue which will increase their budget deficit.
So, it’s really bad. No one would ever do this on purpose.
Most sovereign governments can, in theory, ignore their debts and default. The repercussions will depend on who lent the government the money.
It is extremely likely that no private investor or enterprise will consider lending more money (in the short term). They might go so far as to cease or curtail lending to private enterprises in that country due to perceived instability and unreliability of the government. It is also likely the currency will devalue and there will be little incoming investment.
This makes it very difficult to do international trade. If the country relies on imports, it might find itself needing to pay upfront in a foreign currency. This is unsustainable. If few people buy their exports, foreign currency reserves will eventually run out. To trade, there is a need for at least a minimal framework of trust to allow transactions to occur.
Practically speaking, the country will probably have high inflation, lack of essential imported goods, any production that relies on importing goods will be severely impacted. The economy will shrink and the population might see high unemployment, declining quality of life, capital flight and also their most skilled people leaving the country. In the worst cases, social unrest, political upheaval, violence & crime increases, refugees fleeing the country etc etc.
In short, yes, there are usually huge repercussions if a government defaults on it’s debts.
Similar to a person who doesn’t pay of their debts, they will find it very hard, or more expensive to borrow in the future. But also with a lot more ramifications, depending on size. But it does happen. African developing countries tend to have higher interest rates when they borrow because they’re seen as not as stable as developed countries, and so they might just not pay back their debts. But it happens to rich countries as well, here in the UK we defaulted on our debts in the 70’s, and had to be bailed out by the IMF, which made our interest higher for the next decade or so, and the US recently a couple of times, has come close to defaulting (not because they couldn’t pay, but for political reasons, debt ceilings and closing of government for some reason, I’ll need an Americans help to fully explain) the repercussions of that would have been very bad, as the US dollar is used around the world as the backup or pegged currency, both officially and unofficially. Greece tried to ignore its debts during the Euro crisis, but realised that the repercussions would be disastrous, and eventually accepted austerity instead.
Governments sell Bonds to banks, other countries, I vestments funds etc. Bonds are basically loans, and the givt pays them back at a certain interval and rate. If a govt, company or whatever defaults on there Bonds, these buyers lose trust that they will ever get their money back, and new investors will also not trust them. The value of the bonds will plummet, and the ability for the Gov’t to raise new funds will get drastically harder.
For a Gov’t that runs deficits, that means the govt will risk going bankrupt, or have to massively reduce its spending. Since govt spending is on things for the people, that means the people get screwed, and you get civil unrest or revolution. The military budget would get slashed, putting the country at risk to its enemies.
Overall a sovereign debt default causes massive problems.
One thing not mentioned by others is the country could have its foreign assets seized. You can Google about Argentina as an example of this.
The main thing is that if you stop paying your debts other people will be less willing to loan you any more money.
You can’t really force a sovereign government to pay back any debts it doesn’t want to (unless you start a war over it), but you can stop giving them more money.
In the past when a government has defaulted and did the country equivalent of declaring bankruptcy, they soon afterwards found themselves in the position where the again needed money, but nobody was willing to loan them any because of the high risk that they wouldn’t pay the loan back again.
In response the country needed to raise the interest they were willing to pay much, much higher, which only helped pull them further into debt.
The impact on the economy for this can be huge and very bad.
They build up their military so big the people they owe money to are too scared to collect.
the most immediate impact is the collapse of the bonds market, anyone that owns Treasury bonds would lose their money and as treasury bonds are generally seen as the Most safe investment to make, the loss of faith here will likely cause the rest of the markets to panic because of all “people” the government was the one person you dont want to skip no their obligations.
after that it depends on who loaned who. 1st off no other foreign or private investor would provide you a loan so incurring more debt is out of the question, as no one will buy this.
if its serious enough a nation might find their foreign assets seized to consolidate the debt. now the question here is if a nation would survive having this done to them or if it would instead park conflict.
do yall think another country would be able to buy america? i mean people buy land all the time , what if another country had enough money to cover the debts & wanted the land too?
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