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0 pointsphkahler3y ago0 comments

>> government doesn't need taxes to fund anything, it can just create money and sell bonds.

This is a nice fiction a lot of people spout. The consequences of that are inflation or default. Inflation is very unpopular but defaulting ends the game because investors won't buy the bonds after that. There are consequences to ignoring debt.

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andrepd3y ago

My country has an 8% budget surplus before interest payments, and 2% deficit after. What would be the consequences of ignoring/defaulting on that debt exactly? Seeing as how it's already doing fine with an 8% surplus.

I can think of other (political) consequences, but not economical per se, if you assume that a loan has a risk of default priced into its interest rate.

JackFr3y ago

The obvious consequence of defaulting in your debt is that it becomes difficult to go to the capital markets in the future if you need to.

Probably more politically disastrous is that if the debt is denominated in the domestic currency, it’s likely that a substantial portion of the bond holders are domestic and they will not be happy about having their wealth confiscated.