Why The World Economy Sucks

(h/t: yenta-fada)

What are we talking about here?

Business Dictionary offers a long-winded, technical definition of sovereign debt. In a nutshell, sovereign debt is debt that a government owes. If a debtor government cannot repay its debt, its creditors (bondholders) do not have the power to force it into bankruptcy and divide up its remaining assets. So if the debt goes bad, both the debtor government and its creditors are in a predicament.

Government debt. Under the doctrine of sovereign immunity, the repayment of sovereign debt cannot be forced by the creditors and it is thus subject to compulsory rescheduling, interest rate reduction, or even repudiation. The only protection available to the creditors is threat of the loss of credibility and lowering of the international standing (the sovereign debt rating) of the country which may make it much more difficult to borrow in the future.

The Greek Debt Crisis Explained in Four Minutes

Note: The above video makes some valid points about the financial house of cards that various governments are busily trying to prop up. That said, I place no faith in the ability of the IMF or any other international financial organization to do anything other than worsen the crash by attempting to delay the inevitable.

I also must point out that there is a tremendous difference between a private enterprise with a good credit rating borrowing at a low interest rate to invest in future productivity, and a government borrowing money for supposedly the same reason. Experience has proven governments to be incapable of investing borrowed money in anything that will result in economic expansion.

The real outcome of such wasteful spending will be more like this chilling ad by Citizens Against Government Waste (CAGW):

TV Ad: United States owes China

Originally published on 1389 Blog.