On today’s show we are taking a look at what can happen when politicians print too much money. The US, Japan, Canada, the UK, and Europe, China and many others are all at risk of becoming financially unstable. Argentina has a history of being fiscally irresponsible. The country has debased the currency a lot over the past two centuries. The country has also defaulted on its debt 9 times in the modern history.
Argentina defaulted on its foreign debt in December 2001. Many analysts thought this would lead the country into a long period of stagnation and would make it a pariah in the world’s financial markets for a long period of time. Oddly this did not occur.
A sovereign debt default occurs when a country does not meet a debt payment (principal or interest), that is it fails to meet the terms of a contractual agreement.
The incentives for avoiding default are not associated with the collateral damage but with the country’s reputation. A country’s incentive to make repayments is to preserve its future access to international credit markets and international trade. If you become known as a credit risk, then your borrowing costs go up which can have an impact for decades after a default event.
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Host: Victor Menasce
email: [email protected]
