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Comment by Pxtl | Hacker News Reader

Bankruptcy is perfectly normal for business institutions. Limited liability is the foundation of the entire stock market. It's a basic economic tool used for navigating choppy waters. We only attach a moral value to it when individuals and governments use the tool.

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Apples and oranges. The effect of a government bankruptcy on the economy and the society (present and future) is not really comparable to the effect of a bankruptcy amongst individual economic agents. Those are completely different scales.

Also, morality is always attached to anything which involves society and its institutions. For example, good faith in contracts (bona fides) which has evolved all the way from the roman republic is an example of codified morality which proved to be quite useful in societal transactions (i.e. it solidifies expectations of behavior and hastens transactions). Explicit moral value perhaps may not be visible ("basic economic tool") but it is certainly built into foundations of every and any contract.

Without bankruptcy protections, what prevents companies from lending out an unlimited sum of money? Countries don't die. You can't send them to debtors' prison. A lender could effectively sell a corrupt or stupid government unsustainable amounts of debt and then effectively put a lien on the country in perpetuity to get its money back. That hardly seems just towards the citizens, who committed no crime other than electing stupid leaders, many of whom might have been elected before they were even born.

Well, credit ratings prevent them.

This is objectively true, so the downvotes are a bit baffling. Credit ratings are directly related to the rate premium bond holders demand for the extra credit risk. It is simply a fact that if the credit ratings are lowered to a sufficient extent, the rate that investors demand for the borrowing will make it no longer feasible.

About 10% of HN downvotes I see are applied on ideological rather than rational or grounds (leaving out those for rudeness or other inappropriate behavior). I take an irrational downvote as a small victory, albeit after making sure that it wasn't just for being a smartass or missing the point.

Spot on. You reinvented the World Bank

https://www.one.org/international/issues/debt-cancellation/

http://www.huffingtonpost.com/marcelo-giugale/does-debt-forg...

YES, thank you

Sovereign states eponymously don't need bankruptcy protection, as banks cannot collect from them.

Countries pay back loans because they like to keep a good reputation for future loans, but this does not work in a situation where there is nothing to lose since you can't service loans anyway.

(Of course banks can enlist other states to do strong-arming: See eg Greece who were pressured to accept a deal worse than default to benefit foreign EU banks)

> See eg Greece who were pressured to accept a deal worse than default to benefit foreign EU banks

how are they being pressured?

If they don't agree, they will get booted from the Euro currency cooperation. Then they can't issue bonds in Euro. Would have to use their own currency - and that currency would not be in high demand. What would you use it for? Buy olives? Nah, export companies would rather be paid in Euros, dollars or just about anything else...

Well, maybe but what is the non-pressure course that the EU should take here? Isn't that what they (Greece) signed up for when they joined the euro?

Just answering from an economic perspective:

> What would you use it for? Buy olives?

No, of course not. What government sells olives ? You'd use it to pay Greek taxes. Those you'll pay anytime you want to buy anything from Greece.

So it doesn't matter if export companies get paid in Euros, Dollars, or anything else. They'd still owe taxes in (presumably) Drachma and that would create a market for Drachmas.

Yes, but don't you think as much taxable activity as possible would be moved out of Greek jurisdiction? Especially as Greece would probably have to raise taxes quite a bit to finance the government... if they no longer have access to a euro bond market to do so.

Indeed. In 1825, France demanded a sum of 150 million francs to be paid by Haiti for the loss of French property during the war two decades ago and threatened miliatry invasion in the event of non-payment. The sum was later reduced to 90 million francs and paid in installments until 1947, some 120 years later. Many believed this debt to be the thing that crushed any prospect of development in Haiti's early history as an independent country.

Not always. The US technically defaulted on its debts when we dumped the gold standard. Luckily for us, we were still the biggest global super power so we were able to tell everyone to just suck it. For reference, there's an estimated $7 Trillion in gold in the world and the US is now $19 Trillion in debt.

And the upside is that the economy is much larger than it could ever have been while stuck on gold.

Will it stay that way? What happens if it doesn't?

- SHALL WE PLAY A GAME?

- Love to. How about Global Thermonuclear War?

- WOULDN'T YOU PREFER A GOOD GAME OF CHESS?

- Later. Let's play global thermonuclear war.

I'm sure it matters, but not as much as a surface analysis would lead you to believe. If we had to hoard a bunch of gold to back up the size of our economy, and further demanded our trade counterparts do the same, then the price of gold would've risen and our ownership proportion of the total sum of gold would've matched our proportional global wealth. I don't have a strong opinion on asset backed currencies, but most of the things armchair economists say about it seem pretty irrational.

There's more people in the country, so there's proportionally more dollars + a little more as an incentive to spend your money. If dollars gained value faster than economic growth (which you just effectiveally capped at the amount of gold your country possesses) nobody would ever spend it. I know I wouldn't.

I'm not sure the current system which actively discourages thrift while enslaving our entire population to life-long debt is objectively better.

Why would you tie an economy's capacity with the limited supply of a good? These trillions of debt (could) have created equivalent value in infrastructure, education, military power etc. The fact that the gold equivalent of what amounts to a whole economy does not exist is not an indication that the value is not there in the economy.

I didn't make any value statements on whether or not I think an asset backed currency is preferable. I just pointed out that the US defaulted on its debt when we told the world we weren't going to pay them back what we promised.

"we"? The US abandoned the gold standard in the 1930s. The "we" that promised anything is long dead and has nothing to do with the "we" (US citizens) now.

A citizen today is no more accountable for actions taken that long ago than for actions taken 4000 years ago.

Nixon was the one that put the nail in the coffin of the gold standard and defaulted on our debt. I don't see how it makes a difference how old our debt is if we're still paying the interest on it.

With a company bankruptcy, the suffering is limited to employees and creditors, who eventually move on to other companies. With government bankruptcy, one can't exactly shrug it off and entrust local affairs to another more competent and better-run government.

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