strategic inter-government default

[Firefly]

This has the potential to be the dumbest question ever posted on AAM but please bear with me!

With lots of the western governments up to their necks in debt, what would happen if they came together over a weekend, say the US, the UK, France, Italy, Spain, oursevles and the Greeks and just hit the big red button and declared that all outstanding debt/government bonds would be repaid at a rate of 20%? National balance sheets would be sorted over night. I have a feeling that if enough governments came together to do this as a one-off, the markets would start to lend to them again as they would be in a better position to pay...there is always new money that needs to find a home....

 

[Chris]

Problem is that governments are the debtors and nobody knows exactly who the creditors are. Creditors include pensions, hedge funds, mutual funds, private investors, banks, central banks, I'm sure the list is endless.
For such a write down to happen governments would have to get the creditors to agree, and when you look at how difficult it was for Greece to get some sort of a write down, I don't think that this would be as "sime" as you make out.
I believe that a mandated 3-5% GDP budget surplus without additional taxation would solve the problem for a lot of countries in the medium term. But I don't think that any politician would find that appealing.

 

[coolhandluke]

This has the potential to be the dumbest question ever posted on AAM but please bear with me!

With lots of the western governments up to their necks in debt, what would happen if they came together over a weekend, say the US, the UK, France, Italy, Spain, oursevles and the Greeks and just hit the big red button and declared that all outstanding debt/government bonds would be repaid at a rate of 20%? National balance sheets would be sorted over night. I have a feeling that if enough governments came together to do this as a one-off, the markets would start to lend to them again as they would be in a better position to pay...there is always new money that needs to find a home....

They will not do that due to the risk factor, if you **** off the wrong people they could make things very difficult. They will just print money over time,making anybody with savings poorer and giving anybody with debts the ability to pay them off.

What what i can see, the germans are trying to prevent this with their we'll bail you(meaning them) out and then make sure you (us) can never borrow/lend like a lunatic again.
If massive amounts of euros gets printed to bail us all out, then the germans loose massive purchasing power, the uk and usa have already printed like crazy thats why oil prices etc. have risen.