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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Believe it or not, they are actually given more money by the bank. In most cases, defaulting on a debt would be more expensive than lending them more money. A bank profits from interests charged on loans, no loan means no interest hence no profits. It’s a complex web, but really look into it.
What if the national bank creates money, on order of the government, in its own national currency – is it then safe to create money without loan/interest? Is inflation the only risk?
The Dominion of Newfoundland (now the Canadian province of Newfoundland and Labrador) couldn’t pay for its debts in 1934 and gave up being a country over it. The British government ran Newfoundland with an appointed commission until they joined Canada in 1949. So there can be repercussions just not usually.
so far? a pandemic…
There are several countries that defaulted international payments. Their currency was valued at zero, so now they are using US Dollar officially for internal payments.
https://en.wikipedia.org/wiki/Currency_substitution#Countries_using_the_US_dollar_alongside_other_currencies
Simple- The entire country goes into a panic and chaos ensues.
No one has money, Everyone starts fighting, People get killed, people start stealing, people get angry nothing is getting better an eventually the entire collapse of said country.
Government backed bonds are basically debenture bonds, and they’re not really secured by anything. Defaulting on your debt, not paying it back, or implying that you might not pay it back will just lead to it being harder to get financing going forward, and/or will make your interest rates higher. Also, remember that not all debt is held other countries, a lot of it is held by private citizens or financial institutions. The financial institutions generally do their homework to make sure the debt will be paid back.
I’d imagine that the two cases where a national debt wouldn’t be paid back would be if a crazy “anti-establishment” but autocratic leader like Trump or Putin came into to power, and they had this crazy idea that they could just forgiven themselves of the debt… or that the country fell on really hard times and basically was completely insolvent — or they got invaded or something like that.
For us they write up and sign a bill that says they can spend more money we dont have. Then they cut taxes for billionaires.
They default on the debts they acquired, the lenders will go to an international arbitration tribunal that will surely freeze as many international assets as they could to restitute the lenders. The country’s bond (how most countries get money) will be worth nothing, nobody will lend that country money, and no sane private company will make deals with them.
It depends on what type of debt.
In broad strokes you can say there are three types:
*1. When a country borrows in a different countries currency*.
This is the most dangerous.
When a country defaults: The foreign banks start sueing and seizing assets. New loans become impossible to get. Foreign trade becomes more difficult. Shortages on goods. The domestic currency looses value for trade. Inflation sets in. Every case of hyper inflation has occurred under this condition.
*2. When a country borrows in it’s own money but does not control it*.
All of the countries in the E.U. fall into this category. When Greece came close to default it didn’t really threaten the strength of the Euro. It also didn’t stop Greek businesses from foreign trade. It did cause the Greek government to drastically reduce spending leading to a deep and painful recession.
*3. When a country borrows in it’s own money and does control it*.
Japan is a good example of this.In this case a government borrows money from itself in a process more akin to printing money than debt. In this situation a government never really defaults when it can’t pay it’s bills it just loans itself some more money and keeps on spending. Basically the same as if you or I had an unlimited credit card and were allowed to pay it off using the same card. The danger of this is that a country is stuck constantly printing more and more money causing slow creeping inflation.
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