
Who defaults first: Greece or the US? - andrewaylett
http://www.bbc.co.uk/news/business-14025485
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nhaehnle
This whole discussion is very depressing, because it highlights how uninformed
the people are about what government debt represents. At least that is what a
poll with 70% against raising the debt ceiling tells me.

Government debt equals private assets, and so being against government debt is
being against (at least one form of) private assets.

If you are against the accumulation of private assets for whatever reason (for
example, because you're a communist - see what I did there?), there are still
better ways of preventing that than making the government commit economic
suicide.

Honestly, the US should just get rid of the debt ceiling altogether, and
recognize that the size of the budget deficit needs to be benchmarked not
against pseudo-religious standards, but against how much productive capacity
is available in the _real_ economy - because that is what you need to look at
to prevent inflation (which is the only possible negative economic outcome
from a budget deficit that is too large).

Edit: I would appreciate some feedback on why people vote me down. I try to
reply to questions and criticism as to the contents of what I write in a calm
and clear fashion. I hope people don't just vote me down because they disagree
with something that I write, or find it politically uncomfortable.

~~~
nodata
Why does government debt equal private assets?

and another question: why does a huge thing like a country need debt at all,
shouldn't it (on average) be debt free?

~~~
nhaehnle
_> why does a huge thing like a country need debt at all, shouldn't it (on
average) be debt free?_

Axiomatically, if you sum up over all worldwide assets and liabilities, they
sum to zero. That is a fact that simply follows from accounting. So the world
as a whole is (net) debt free (until we start trading with extraterrestrials,
then things might change).

The US probably is roughly net debt free on average, summing over all domestic
private and government assets and liabilities. I don't have time to run the
numbers right now. Certainly, even if the US is not debt free on average, its
net debt towards foreigners is much less than the government debt, and also
less than the sum of government debt held by foreigners.

If people just stopped looking only on one side of the coin, they would
realize that and chill out over the government debt.

~~~
stayjin
It is not that simple. Have you ever wandered why counties do not have to
issue balance sheets at the end of every fiscal year( or at least before every
election) ?

Do you understand how easy it would be to judge how a government performed by
comparing two of these? And ask all the right questions, exactly as MS
investors do with the "developers, developers, developers" CEO?

~~~
justincormack
Thats just because they dont want to share the information transparently. New
Zealand started issuing a real balance sheet quite some time back, and it is
very interesting. It is hard to do as you need to estimate long term
liabilities etc.

Here is a summary position and you can find the rest on the site
[http://www.treasury.govt.nz/government/longterm/fiscalpositi...](http://www.treasury.govt.nz/government/longterm/fiscalposition/2009/22.htm)

All governments should do this....

~~~
nodata
This is excellent. What prompted them to do this?

~~~
justincormack
I forget the original reasons, it was some time back. There is a statement
here: <http://www.treasury.govt.nz/budget/2010/is/04.htm>

I seem to remember it was partly prompted by a new government wanting to prove
they were fiscally responsible, but also I think there has always been quite
an awareness as there is a huge earthquake reconstruction fund (now entirely
in external assets) in case of disaster, which would prompt some thinking
about assets and liabilities.

~~~
stayjin
This is excellent indeed.

Actually, it might come as a surprise but Greece seems to have a lot of public
assets which would give it a much better clear position than many other
countries in Europe if they were to be compared.

However of course, it is no secret nowadays that even with a great clear
position, if cash flow is not positive you may easily go under.

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bad_user
So, this may be a stupid question but - What happens when a country defaults?
What are the consequences of that?

~~~
jvdh
Basically, it renogatiates the terms of outstanding debts to a new interest
rate, and longer terms.

See also: <http://en.wikipedia.org/wiki/Sovereign_default>

~~~
bad_user
So that doesn't sound so bad.

Why are people freaking out on the US, Greece and Spain?

Sorry, I'm totally unfamiliar with these things.

~~~
thaumaturgy
Because a default -- even a "technical" default in the form of an extension or
renegotiation -- indicates a serious problem in a country's finances, which
can affect its credit rating and, in turn, its ability to continue borrowing
as well as the value of its currency.

The U.S. has defaulted before, in 1933, but this would still be considered a
very significant event in global economics, and economists really don't need
another reason to get nervous right now.

There is, by the way, an interesting elephant in the room that I've yet to
hear mentioned anywhere: once we've gotten to the point that people start
discussing the possibility of simultaneous defaults of several major
countries, nobody's really sure what will happen next, _and_ , nobody's really
sure how to get out of the hole, since we've never been in this deep before.

~~~
gnosis
_"The U.S. has defaulted before, in 1933"_

So it's defaulted.. and look where it is now.

If Greece looks to the US as a model it should default, and the sooner the
better.

 _"Because a default ... can affect its credit rating and, in turn, its
ability to continue borrowing..."_

Borrowing is what got Greece in trouble in the first place. Perhaps putting
and end to borrowing from other countries would put it on a sounder financial
footing. At least it would never again get in to the situation where many
future generations would be forced to repay the debts of their ancestors.

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andrewaylett
I find it hard to believe that some kind of agreement won't be reached,
whether it'll be a sensible one or not, but it's certainly fair to say that
there's a chance of disaster, and that a US default would be an awful lot
worse than a Greek one.

~~~
thaumaturgy
An agreement absolutely will be reached, but that doesn't make the situation
much better. It's quite likely that Congress will have to accept yet another
increase of the debt ceiling, while we'll see even more cuts from social
services at home.

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stayjin
An honest, yet a little bit provocative, question: The "mainstream"
explanation regarding Greek dept is because Greeks are bon viveurs who spent
all the money they could put their hands on on drinking and gambling without
financial control. Does anybody know any explanation regarding the US debt?

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blumentopf
Hilarious typo in a headline in the middle of that article:

"Pubic opinion"

