What happens when governments default?

“But governments don’t default,” some will say.  “Countries carry on afterwards.”  But governments do default on occasion.  Argentina does it quite frequently — yet carries on being Argentina afterwards.  But this has only been since we’ve developed the modern nation-state.   And part of the business of becoming a nation-state is that the government gives itself a name.  That never used to happen before.  Countries were usually called by the name of the people who owned them or one of the existing cultures within them. For example, in the mid-19th century both Germany and Italy had many principalities, provinces and even free (independent) cities — and thus many different names to choose from.

The more usual response to the title question is to say “Governments aren’t countries.”  Governments can and do go into total default.  Countries never.  They will always have assets.  In extremis a defaulting government or a new government could nationalize some private property and then sell it to pay off its debts.  That’s never happened in the non-communist world, even in Argentina.  Usually some worthy organisation such as the International Monetary Fund (IMF) comes to its immediate rescue.

But what would happen if there’s a economic catastrophe even worse than 2008 as Alan Greenspan and others are suggesting?  With America, Europe and Japan, already deeply in debt, go down, what else can they do?  The IMF or the World Bank or anything has insufficient money to help by a very long chalk.

I’m not about to forecast anything but what I would say is that if I were the chief executive of one of the largest multinational corporations, say Google or Apple, with even now, a healthy on-going business, I’d be saying that something could be done. With the communication expertise of the dozen or so largest firms, the present level of world business could be saved by instituting a new digital currency and imposing it fan-wise downwards within days on all suppliers and customers.

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