Theme: Incentives

No.

A modern government, capable of issuing its own currency, cannot go bankrupt per se. It cannot be unable to pay its debts as long as the debts are denominated in the government’s currency.

It can just pay off its DEBTES as a counterfeiter could.

What the government CAN do is print and SPEND money and inflate its way into zero purchasing power.

When people look at Venezuela or zimbabwe or most failed state economies, it’s because the government has spent the currency out of purchasing power. But there are a lot of ways to do that.

This is more difficult in relatively autarkic countries (America, France) that consume their own production and import very little than it is for countries that depend on imports and exports because of insufficient local production and productivity.

If you need imports and you spend your currency into low purchasing power, you might be able to get credit, or credit denominated in foreign currencies. And then you can go bankrupt on that debt. (ie: Greece).

If you need imports (particularly energy), and you spend your currency into zero purchasing power, then you’re the equivalent of bankrupt. Not because you have no money to spend, but because the money you have to spend has no purchasing power (isn’t worth anything.)

The problem European countries have, especially Italy, is that they can’t control their currencies so they can’t inflate away their debt by printing money. Occasional Inflating away debt (printing money to pay off debt) isn’t necessarily a bad thing because it takes time for such payments to work their way through the economy.

Borrowing against yourself – meaning printing money you expect to collect later in taxes somehow, or otherwise, turn into some sort of returns on capital (like airports or railways our energy production), isn’t a bad thing either. What you want to avoid is systemically affecting the pricing structure so that finance, industry, business, and consumers alter their behavior (stop spending).

What causes problems for all governments are ‘rents’ (privileges). Like.. you know, all those benefits we like to have. All those government salaries. …

Why is this problem serious? Because there is no feedback loop, so the problem of market correction is extended into the government leading to ‘government correction’ – and that’s really, really, really, bad.