If you had not heard, countries borrow from each other. This borrowing is called sovereign debt. The lending and borrowing governments are the “sovereigns” I refer to below and in future posts. I have already wasted too much time and too many words on background information. Learn to use Google so I can get to the interesting stuff.
What I find interesting about sovereign debt is the sheer amount of money involved, and the ultimate unenforceability of the debts. Most borrowers, be they individuals or corporations, cannot obtain a five-figure loan without collateralizing tangible property of substantial value. Sovereigns, by contrast, routinely borrow hundreds of millions of dollars without any form of collateral.
The lack of collateral is why I am almost completely unconcerned about America’s massive deficit. Yes, we owe the Chinese googol dollars, but who cares? America is not a person, nor is China. The only way to “force” debt repayment is by physically taking a person’s hand and guiding it across their checkbook. This obviously cannot occur between abstract constructs like countries.
But couldn’t our creditors just start a war with us, you may ask? Yes, of course, I may respond. However, war is an unlikely and probably futile step in sovereign debt collection. Research (that I do not feel like linking to at the moment, but might later) indicates that military force is rarely, if ever, used to collect overdue debt from a sovereign.
Why? I’ll tell you later.
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