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Comment by adventured | Hacker News Reader

A country defaults when it either can no longer make the payments, or when it can't pay back the real value rather than just the nominal value.

eg If I devalue my currency by 99%, and then attempt to pay off debts in that currency, that is a default, regardless of if a country were to try to pretend otherwise. The alternative to that context, would be that any nation can just freely debase their currency, pay back debts in worthless paper, and nobody cares because it's not a default - that's false.

Japan has to debase the Yen to pay its bills. Their government is insolvent due to the extreme debt. They have already defaulted.

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> Japan has to debase the Yen to pay its bills. Their government is insolvent due to the extreme debt. They have already defaulted.

Back in the real world: When I said earlier that Japan has to pay $250B this year to service their debt, that means there is an actual no-kidding line item in their fiscal year 2015 budget for the Ministry of Finance to pay that money to bondholders. They've budgeted the money already and it will be paid out starting in April just like it was in 2014, 2013, 2012, and so on.

Japan can only fund their government through debasing the Yen, because 50% of tax revenues are being consumed by interest payments, and that's rising by the year. That's a death spiral that is only going to get worse.

The government of Japan is plainly bankrupt. People that own Japanese government debt are already being paid back in devalued Yen. The only options left for Japan are to either openly default, or dramatically increase the debasement of the Yen - the last option is exactly what they will choose. So rather than an open default, they will default by destroying their currency.

Abenomics will be followed by a call for Abenomics 2, and a more dramatic destruction of the Yen. Japan has been living on borrowed time for 15+ years, maintaining a fake standard of living that was dependent on perpetually greater amounts of debt; the bill has come due. The exact same process is occurring in several of the biggest economies of Europe.

Please find me a single CDS contract that allows that definition of "default"? Or a law or a solvency judge who would agree? If your contract stated that you are to pay back 100 USD or JPY or whatever, on a certain date, and you pay exactly as stated, then that cannot be a default, regardless of the prevailing FX or inflation rate at the time. You should have FX or inflation hedged if you were worried about those risks...

You may consider it a "moral" default if the debt is paid back in inflated currency, but it is in no way a technical default and you can't just redefine long standing meanings of the word "default" to suit the point you're trying to make.

I'm not saying that nobody cares if debt is paid back in debased currency, but if it's paid back according to the letter of the contract, then it's not a default.

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