New report - Other looming debt crises

[3rdRock]

http://www.theguardian.com/business/201 ... ebt-crises

Drama in Athens reflects a bigger truth: precarious countries across the globe owe trillions of dollars to lenders and investors who must be repaid

With its shuttered banks, furious public protests and iconoclastic politicians, the plight of Greece, brought to its knees by a crippling debt burden, has been gripping and heartbreaking in equal measure: a full-blown sovereign debt crisis on the doorstep of some of the wealthiest countries in the world.

Yet new analysis by the Jubilee Debt Campaign reveals that Greece’s plight is far from unique: more than 20 other countries are also wrestling with their own debt crises. Many more, from Senegal to Laos, lie in a debt danger zone, where an economic downturn or a sudden jump in interest rates on world debt markets could lead to disaster.

One of the lessons from the 2008 crash was that hefty debt levels can leave countries vulnerable to sudden shifts in market mood. But Jubilee reports that the rock-bottom interest rates across major economies, which have been a key response to the crisis, have in many cases prompted governments, firms and consumers to go on a fresh borrowing binge, storing up potential problems for the future.

Jubilee Debt Campaign Report: http://jubileedebt.org.uk/wp-content/up ... _07.15.pdf

[biffvernon]

investors who must be repaid

Why?

[fuzzy]

Many basic principles of economics are taken as religious dogma with no logic. Any textbook will tell you that interest is charged to cover the risk of default.

Funny how they don't refund you any interest when your mortgage payments have exceeded the amount borrowed or even when you have finished paying completely.

Funny how insurance for £200000 of house cost but a few £100 a year.

[3rdRock]

I seem to remember that someone brought to our attention the following series of articles from Golem XIV, in an earlier post last year.

http://www.golemxiv.co.uk/2014/09/next-crisis-part-one/

http://www.golemxiv.co.uk/2014/09/next- ... nifesto-1/

http://www.golemxiv.co.uk/2014/09/next- ... hip-earth/

Well worth revisiting, IMHO. Thanks again for the original post.

[johnhemming2]

In the 2005-2010 legislation was put through parliament (with my support - I was on one of the committees) that enabled the really poor countries to go properly bankrupt and draw a line.

These sort of things, however, are complex because of the issues of seniority of debt (IMF is supposed to be most senior) and the law that is used to interpret contracts.

A country can get funding at a lower interest rate by having the payments determined in accordance with either English Law (and that is how it is stated) or US Law in some defined state.

There is then Ricardo Hausmann's sensible point about what he calls "original sin", viz borrowing money in a hard currency.

Unless a country can properly go bankrupt if it does not pay then it can end up in a real mess financially and still potentially end up having to pay.

Hence these are really complex issues of detail.

[vtsnowedin]

investors who must be repaid

Why?

Because if you don't repay them they, nor anyone else , will ever invest in your projects ever again.

[vtsnowedin]

Many basic principles of economics are taken as religious dogma with no logic. Any textbook will tell you that interest is charged to cover the risk of default.

Funny how they don't refund you any interest when your mortgage payments have exceeded the amount borrowed or even when you have finished paying completely.

Funny how insurance for £200000 of house cost but a few £100 a year.

You have something twisted here. If there was no interest there would be no incentive to loan the money at all. Even if there was a very low risk of default the investment would have to pay equal to the next best possible use of the money. A high risk of default would command a higher interest rate to get investors to bet on that investment rather then some safer investment such as municipal bonds.
You seem to lack an understanding of how and why people invest money.

[biffvernon]

investors who must be repaid

Why?

Because if you don't repay them they, nor anyone else , will ever invest in your projects ever again.

An end to usury. Now that's a plan.

[vtsnowedin]

Why?

Because if you don't repay them they, nor anyone else , will ever invest in your projects ever again.

An end to usury. Now that's a plan.

A very bad plan.

[clv101]

investors who must be repaid

Why?

Because if you don't repay them they, nor anyone else , will ever invest in your projects ever again.

So how did we get into the situation where we need others to invest in our projects?

[PS_RalphW]

That isn't what happened with Argentina.

They were in default for four years, but they quickly recovered their economy into current account surplice, and rescheduled most of the original debt at about 30% of the original and resumed payment.

Argentina did have the advantage of large commodity exports. Greece only has tourism.

A small percentage of bondholders are still suing for full repayment.

[fuzzy]

Many basic principles of economics are taken as religious dogma with no logic. Any textbook will tell you that interest is charged to cover the risk of default.

Funny how they don't refund you any interest when your mortgage payments have exceeded the amount borrowed or even when you have finished paying completely.

Funny how insurance for £200000 of house cost but a few £100 a year.

You have something twisted here. If there was no interest there would be no incentive to loan the money at all. Even if there was a very low risk of default the investment would have to pay equal to the next best possible use of the money. A high risk of default would command a higher interest rate to get investors to bet on that investment rather then some safer investment such as municipal bonds.
You seem to lack an understanding of how and why people invest money.

Not really. I didn't say there should be no interest. The point is that finance is extremely poor value because it is almost the least competitive market there is. I am not a bank and neither are you, because we do not have a licence. Obviously the doctors and lawyers have a similair grasp on the government cajones. The trouble is after 100s of years, normalcy bias dominates the understanding. Have you ever seen a competitive bank? I can't remember second hand office furniture in one? Headquarters in Hull because the real estate is cheap? Nope.
The truth is that banking is an arrogant activity because governments restrict supply, and the business is a virus infected by the greedy and reckless. Mortgage creation does not require investing money, beyond the requirement for the bank to have reserve capital. The banks get free money in interest payments from customers, so they want to to loan debt into existence. However living on free money is not enough for the greedy, and they want to increase the loan pool as fast and as far as possible, so they borrow from money markets etc at daily fluctuating rates to loan to customers - ie they take risks because of greed..

[raspberry-blower]

Positive Money: Bank Robbery: Economists and the Banking System from Medieval times to Adam Smith

Here it is worth pointing out that our modern use of the word ‘credit’ is a narrow use of the word. ‘Credit’ is Latin for ‘believes’. Today, ‘credit’ means the belief of customers that a bank will pay out, on demand, some of its own money either to themselves or to a third party. In its wider meaning, ‘credit’ means any money that has value only because others believe in it. Paper notes and figures in a bank account are credit-money: without general credibility they are worthless. Gold coin is not ‘credit’ because it can be melted down and sold if it’s no longer wanted as money. Credit is money in its purest form: no more (nor less) than the ability to purchase what is offered for sale. How credit is created must be one of the most important factors in any economic system

[raspberry-blower]

Interesting guest article over at Club Orlov by Adrian Kuzminski:

What's wrong with our monetary system and how to fix it

But money is too important to be left to the bankers. There is no good reason to give any private group a lucrative monopoly over the creation of money; money creation should be the public service most people mistakenly believe it to be. Further, privatized money creation allows a few large banks and financial institutions not only to profit by simply making bookkeeping entries, but to direct overall investment in the economy to their corporate cronies, not the public at large.

Ordinary people can get the financing they need only on burdensome if not ruinous terms, leaving them as debt peons weighed down by mortgages, student loans, auto loans, credit card balances, etc. The interest payments extracted from these loans feed the private investment machine of Wall Street finance, represented by the ultimate creditor class: the notorious “one percenters.”

[fuzzy]

People seem to get fixated with the creation of money thing. Most public and business simply require a place to convert electronic funds to currency. Rarely, they need loans as well. All of this could be provided at cost/zero risk basis by the government.

The UK came close to this in the UK in the 90's when the Post Office wanted a banking licence for their counters even though they had run them before, but Mandelslime, presumably taking advice from his yacht owning buddies, said no. The city of course wants the government not to bank or the public would would not give the scum their money, and for the PO to be as unprofitable as possible for it's privatization.