4 Comments

  1. C Alliss
    March 24, 2014 @ 12:32 pm

    When governments borrow money because not enough money was collected in taxes to pay the bills, there are interest payments added to the costs. Same as you if you borrow money right? Now in order just to pay the high interest they are borrowing money to pay just the interest. WOW is that crazy…..TITANIC ?

  2. Kim
    March 24, 2014 @ 12:42 pm

    No, governments can not go bankrupt. This is because a country is “sovereign”, which is a fancy way of saying it’s supremely independent. No one can tell a country what to do. (Though in practice you could force them to sign a treaty lest they be invaded, or something like that.)

    If a government runs out of money to pay its debts (and can’t lend any more), it has two options: it can print more money to pay all of the debt, for one. However, this leads to a huge amount of inflation and makes the currency almost worthless, so the country’s economy is ruined. It’s other option is to default: it simply decides not to pay its debt. No one is going to trust a country which defaults with its money, except at very high interest rates (a high risk, but also a high possible reward)–this will be very bad for a country’s economy, too.

    So a government can never go bankrupt. But when the money runs out, the economy is horribly affected whichever option the government takes. Essentially, the people pay the price for the government’s failure.

  3. Bflowing
    March 24, 2014 @ 1:32 pm

    No, it won’t go bankrupt. The debt ceiling is an artificial number, which why it has been increased over 70 times.
    No foreign nation is going to own a single square foot of American soil.
    The National debt is in the form of bonds and T-bills, for which there is no collateral. If in the unlikely and near impossible scenario the bonds become worthless, the holders of such are left with nothing.

  4. Peace through blinding force
    March 24, 2014 @ 2:27 pm

    The government HAS gone “bankrupt.” There is no actual bankruptcy mechanism for governments. When they acknowledge they CANNOT pay their obligations, or simply choose not to be responsible about them, they simply “monetize the debt.” That means they “print money” to make payments.
    That DOES cause economic downturn by reducing the value of money held throughout the economy.