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> Imagine the turmoil if a newly elected president of the United States announced that the U.S. government would no longer honor any outstanding Treasury bills
by vkou 4y ago
> Imagine the turmoil if a newly elected president of the United States announced that the U.S. government would no longer honor any outstanding Treasury bills because most of them were issued under his profligate predecessor.
Actually, I think the reason that the Gangwon government is not going to honor outstanding debts, here, is because the value of the collateral[1] has fallen below the outstanding cost of the debt. In such a situation, any rational economic actor would at least contemplate defaulting.
[1] In this case, the collateral was land (which has plummeted in value, and the creditors are welcome to), and his government assurances (to which Kim Jin-tae seems to assign a value of ~zero.[2])
[2] Which is the real scandal, and his constituents should be looking into hemp and lamp-posts. He, in his stewardship of the region burnt down an asset of significant value for a pittance of a budget line item. Burning the furniture to stay warm, and all that.
- ender341341 4y agoThat's a reasonable take for private businesses, and it would reflect poorly on that businesses reputation, when the government does it the trust is also lost, but there's also more consequences the bigger the starting trust was. There's a reason even with low interest rates US bonds are popular, if they default the rest of your investments are likely SOL too. The US faced similar issues previously before the federal government stepped in and outlawed states defaulting. https://en.wikipedia.org/wiki/State_defaults_in_the_United_States https://en.wikipedia.org/wiki/State_defaults_in_the_United_S...
- JamesianP 4y agoIt would be more analogous to some state announcing it will not bail out a state-sponsored corporate enterprise, and instead allow it go bankrupt in a downturn. From another perspective it is sanity, protecting taxpayers from being on the hook for speculation. The entire complaint here hinges on some kind of butterfly-effect argument, plus the precise wording of a "guarantee" that was only pointed at vaguely in the article.
- ender341341 4y agoIf the state won't follow through on it' guarantees in this case why would you assume they will on others, that guarantee is why investors are willing to take lower rates on those bonds in the first place.
- fbdab103 4y ago>Gangwon government is not going to honor outstanding debts, here, is because the value of the collateral[1] has fallen below the outstanding cost of the debt. Just because a deal goes badly for you, rarely do you get to kick over the table and walk away.
- vkou 4y agoBut sometimes you do, which is why lenders get to charge a premium, to deal with that kind of risk.