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It actually reads to me that he is saying something quite similar to what I have been thinking recently: countries go bankrupt, we need a bankruptcy court/proce

by netcan 11y ago

It actually reads to me that he is saying something quite similar to what I have been thinking recently: countries go bankrupt, we need a bankruptcy court/procedure for governments. The US needs it for its bankrupt local governments. The EU needs it for member states. The rationale behind bankruptcy is this: if a borrower cannot repay their debts in full, the lender cannot receive them in full. This isn't negotiable. It's an artefact of reality. Given that the lender will not receive their payment in full, it makes sense we may as well have a process that acknowledges this fact and moves things forward. There is no point to debtors prisons. Debt means risk and if bankruptcy happens, that risk plays out. The current Greek situation is exactly that. The troika cannot receive its repayments in full. Greece simply cannot repay them. It's not marginal. It's not possible if only Greece would... It's not going to happen. They owe too much and their economy is in collapse. It is game over for these loans.

Spooky23 11y ago
Sovereigns don't need bankruptcy protection, they just stop paying. Somebody will always lend money to states, even poorly managed states. At the end of the day, three people with the most to lose are the richer countries of the world, because they are also in debt, and a sovereign default will screw up all of the debt models. In the U.S., there is municipal bankruptcy. U.S. States cannot go bankrupt, which will be interesting when states run as poorly as Greece (ie Illinois) get hit by a tidal wave of retirement obligations.
cm2187 11y ago
For a court to mean anything, you need an authority to enforce its decision. You would need some form of international army. Who would control it? Who will enforce a decision against Russia or China (or the US!).
netcan 11y ago
EDIT: (I should have read to the end): I disagree with Pickety on his "maximum allowable budget" committee. It's an unnecessary violation of sovereignty, and I think that sovereignty is important. If bankruptcy norms existed, they could create a market discipline. As government approached the intervention threshold, their bonds would decrease a little in value. Also in my governments-can-declare-bankrupcy world, this can happen a lot sooner and the defaults can be much smaller.
NamTaf 11y ago
The only rational argument for 'a country MUST repay its debts!' that I can make is if it is being charged interest on those debts no higher than the CPI increase of that currency. The whole point of interest in a loan is to cover 2 points: 1) The lost purchasing power of that money i.e.: the cost of inflation over the period of the debt, and 2) The priced-in risk that the loan will not be repaid in a small portion of cases. This is why unsecured debt attracts a higher interest rate than secured debt and is why all debt incurs a higher interest rate than inflation. I don't understand why popular opinion towards debt seems to invert at some point. I'm sure if you asked these same people whether bankruptcy processes should be outlawed many would say no, but yet at some point between 'person' and 'nation state' their opinion changes without changing any of the inbuilt mechanisms for supporting that process (interest on a loan to price in risk). It's a fascinating example of once you make something sufficiently faceless, peoples' views towards it changes. See also: politics towards social classes, etc.

by netcan 11y ago

Spooky23 11y ago

Sovereigns don't need bankruptcy protection, they just stop paying. Somebody will always lend money to states, even poorly managed states. At the end of the day, three people with the most to lose are the richer countries of the world, because they are also in debt, and a sovereign default will screw up all of the debt models. In the U.S., there is municipal bankruptcy. U.S. States cannot go bankrupt, which will be interesting when states run as poorly as Greece (ie Illinois) get hit by a tidal wave of retirement obligations.

cm2187 11y ago

For a court to mean anything, you need an authority to enforce its decision. You would need some form of international army. Who would control it? Who will enforce a decision against Russia or China (or the US!).

netcan 11y ago

EDIT: (I should have read to the end): I disagree with Pickety on his "maximum allowable budget" committee. It's an unnecessary violation of sovereignty, and I think that sovereignty is important. If bankruptcy norms existed, they could create a market discipline. As government approached the intervention threshold, their bonds would decrease a little in value. Also in my governments-can-declare-bankrupcy world, this can happen a lot sooner and the defaults can be much smaller.

NamTaf 11y ago

The only rational argument for 'a country MUST repay its debts!' that I can make is if it is being charged interest on those debts no higher than the CPI increase of that currency. The whole point of interest in a loan is to cover 2 points: 1) The lost purchasing power of that money i.e.: the cost of inflation over the period of the debt, and 2) The priced-in risk that the loan will not be repaid in a small portion of cases. This is why unsecured debt attracts a higher interest rate than secured debt and is why all debt incurs a higher interest rate than inflation. I don't understand why popular opinion towards debt seems to invert at some point. I'm sure if you asked these same people whether bankruptcy processes should be outlawed many would say no, but yet at some point between 'person' and 'nation state' their opinion changes without changing any of the inbuilt mechanisms for supporting that process (interest on a loan to price in risk). It's a fascinating example of once you make something sufficiently faceless, peoples' views towards it changes. See also: politics towards social classes, etc.