What happens when a country goes bust

[WhiskeyGirl]

What happens when a country goes bust

Sometimes it is wise for a person to declare bankruptcy but the same is almost never true for a nation. When debts are overwhelming and bills unpayable, an individual or a company can seek the mercy of the courts and obtain protection from aggressive creditors. In the case of Argentina, which declared a moratorium on its debt repayments in December 2001 and within days defaulted on $93 billion (£59.6 billion) in sovereign borrowings, it was the beginning of a nightmare.

There is no bankruptcy court for nations. Defaulting sovereigns pay the ultimate price; they are sent to Coventry, shunned by commercial banks until, somehow, they can purge their debt. The only recourse is to the International Monetary Fund, which can provide emergency loans. Currently, the IMF has a pot of money, some $200 billion from contributing states, which is almost certainly inadequate to the scale of the potential demand that might emerge in the months to come. Iceland has already secured $2 billion, Ukraine has been promised upwards of $16 billion and Hungary is expecting double-digit billions. We have commitments for about 15 per cent of the kitty and the dominoes are tumbling.

For Argentina, the months that followed its "bankruptcy" were horrendous. The country went into a brutal downward spiral of inflation, currency collapse and the rationing of cash by the banks. In a nation that is a big agricultural exporter, children went hungry and and the economy imploded, shrinking by 13 per cent in a year. Unable to borrow to pay its bills, the state was forced to cut public sector wages, slash the state pension and unemployment soared to 20 per cent. Unable to pay for goods with cash, many Argentinians resorted to barter.

A sovereign default forces a nation into self-reliance mode and, if the Government lacks the will to reform its economy, it will tempted to print money to pay wages and pensions. When the choice is between paying Citigroup and paying pensioners, the political choice is obvious. However, it is no solution as the result is hyperinflation and more chaos.

IMF loans come with tough medicine and it is this that makes the institution unpopular and its intervention greatly feared. Ukraine is now debating the passage of a law that is a precondition to the IMF bailout and, from what is reported, the country will be forced into an austere regime of budget cuts, tax increases and measures designed to get Ukraine's inflation under control. Iceland has just raised interest rates by 6 per cent — a harsh monetary tightening aimed at shoring up its currency but which will bring further misery to its people.

read more here -
http://business.timesonline.co.uk/tol/business/economics/article5031413.ece

Who will be there to bail out the US?

[caesu]

China/Japan are already bailing out the U.S.A. for years.
that's where the U.S. has it's national debt of over a trillion dollars.

they could pull the rug away from under the U.S. any moment.
but they don't, because then they are losing that consumer market.

for a moment i had the nightmare that if McCain would have become president.
he would just bomb the debt the U.S. has in Asia away.
the might be a very short term solution.
but as a result no country would ever lend the U.S. a single dime (voluntarily).

[Anna]

Well, the first thing we need to do is stop all foreign aid and also stop paying the lion's share for such things as the UN and NATO.  Also since we are the biggest charity donator, we need to stop all that as well.

That would be a tremendous savings right there.

[caesu]

the U.S. might be a large foreign aid donator, but per capita and % of GDP they rank pretty low.
http://www.nationmaster.com/graph/eco_eco_aid_don-economy-economic-aid-donor
or do bombs count as foreign aid?

and cutting of money to NATO wouldn't be a very smart idea.
already they are having a hard time finding NATO members who want to help them out with their mess in Afghanistan.
partly as a result of Bush just following his gut and being stubbornly thickly skulled while estranging longtime allies.

[crazybabyborg]

the U.S. might be a large foreign aid donator, but per capita and % of GDP they rank pretty low.
http://www.nationmaster.com/graph/eco_eco_aid_don-economy-economic-aid-donor
or do bombs count as foreign aid?

and cutting of money to NATO wouldn't be a very smart idea.
already they are having a hard time finding NATO members who want to help them out with their mess in Afghanistan.
partly as a result of Bush just following his gut and being stubbornly thickly skulled while estranging longtime allies.

Well, your candidate, if you can believe what he has said during the campaign, plans to make Afghanistan the focus of American war, so if it's a mess, it will only get bigger under an Obama administration.

[WhiskeyGirl]

the U.S. might be a large foreign aid donator, but per capita and % of GDP they rank pretty low.
http://www.nationmaster.com/graph/eco_eco_aid_don-economy-economic-aid-donor
or do bombs count as foreign aid?

and cutting of money to NATO wouldn't be a very smart idea.
already they are having a hard time finding NATO members who want to help them out with their mess in Afghanistan.
partly as a result of Bush just following his gut and being stubbornly thickly skulled while estranging longtime allies.

What about the money American's give out of their pockets?  Not related to the money the Federal/State/Local government take?

IIRC, American's have always been very generous and have a tradition of giving to the less fortunate, including those in foreign lands.

I've seen TV programs that look for sponsorship to return folks from Eastern Europe to Israel, sponsor orphans/orphanages, build wells, etc.

How much do American's give as individuals compared to others on the globe?  Are American's as individuals among the most generous or the most stingy?

[caesu]

the U.S. might be a large foreign aid donator, but per capita and % of GDP they rank pretty low.
http://www.nationmaster.com/graph/eco_eco_aid_don-economy-economic-aid-donor
or do bombs count as foreign aid?

and cutting of money to NATO wouldn't be a very smart idea.
already they are having a hard time finding NATO members who want to help them out with their mess in Afghanistan.
partly as a result of Bush just following his gut and being stubbornly thickly skulled while estranging longtime allies.

Well, your candidate, if you can believe what he has said during the campaign, plans to make Afghanistan the focus of American war, so if it's a mess, it will only get bigger under an Obama administration.

yes, he plans to clean up the mess. Bush diverted resources and lost allies because of his adventure in Iraq.
Obama  will be able to work with allies and finish the War in Afghanistan and finally go after Bin Laden again.
in Pakistan they are praying for Obama to become President.
they believe he will be able to defeat terrorism together with the new Pakistani government and NATO allies.
Petraeus and Obama are in agreement on the strategy.

McCain wants to repeat the Iraq surge in Afghanistan, Petraeus dismissed that idea straight away.