Source: wechat official account: Jiubian has been authorized to reprint
After reading about Sri Lanka’s bankruptcy these two days, we can talk about it. Other bloggers are paying attention to how Sri Lanka went bankrupt. I don’t think Sri Lanka, a broken country, is worth writing a special article. I try to write about what happened to “national bankruptcy”.
In fact, national bankruptcy is not uncommon. A large number of bankrupt countries in recent years, Iceland, Greece, Argentina, Russia and so on, have experienced bankruptcy. The word “bankruptcy” sounds serious, but in fact, it is like that. Generally speaking, it means “no foreign exchange, no money owed to others”.
There are two kinds of debt. One is to owe your own money, which is called internal debt; One is to owe money to other countries, which is called foreign debt.
Domestic debt is easy to understand. It is generally to borrow money from banks and financial institutions. The money is deposited by the people. If it is owed by the government, it is normal to say that there is no breach of contract. If it is urgent, you can print more money to repay the debt, and suffer the people, but the cost is also great, which is easy to cause inflation out of control. Chang kaishen did this, and then inflation collapsed the country. Some time ago, the matter of Japanese government bonds made a lot of noise. In fact, they are also dominated by domestic debt. Now they do not fight, and they will not die for a while.
Foreign debt is more complex, usually borrowed from abroad, such as the well-known dollar debt. There is a problem here. If I am a government, I owe a lot of money, and I don’t pay it back, what can you do with me?
It mainly depends on your country’s dependence on other countries. Generally speaking, there will be no warships to collect debts, but if you rely heavily on others, even if there are no warships to come, it will be painful.
Because the country owes money, it rarely owes other governments, but owes other national financial institutions. For example, Russia owes a lot of money to the United States, not to the United States government, but to financial institutions such as JPMorgan Chase and Goldman Sachs. Countries generally do not go to war with other countries for the sake of financial institutions. I thought for a while, but I didn’t think of any relevant cases.
But it doesn’t mean you can get better without paying back. Because basically no country can be completely independent of the world economy, which is fatal. If you don’t pay back the money, it may be very painful. After reading this article, you will understand.
First of all, this debt cannot be eliminated. It has always been there, and the interest rate has been increasing. It’s like your credit card is in arrears, and you pretend not to exist, but that thing has been accumulating, and it will find you sooner or later.
This is a key point. Debt can only be reduced or exempted through negotiation (China has previously reduced or exempted Africa’s debt), but it can never be avoided. People die and debt disappears. When the country says that they don’t give you a reduction or exemption, you will always owe it. The next time you have something to do with the other party, the first thing for people is to ask for money, which is similar to the situation between us ordinary people.
Even if the government of your country changes, the money will have to be paid.
You may think this is a little too much. Is it appropriate to pay back the money owed by the previous dynasty? Of course, it is appropriate. For example, after the collapse of the former Soviet Union, it owed $96billion in debt, which was mainly inherited by Russia, which did not pay off until 2017.
Many people don’t understand why Russia wants to do this injustice. In fact, there is nothing difficult to understand. Russia wants to inherit the Soviet Union’s position in the United Nations and the world, as well as the Soviet Union’s overseas assets. The money owed by other countries to the Soviet Union should also be returned to Russia, so Russia took the debt. That is, rights and obligations are equal. You may not feel deeply about other people’s examples, but our own.
In recent years, China has made a lot of investment in those troubled countries overseas. Those countries are prone to government collapse. After the new government comes to power, it will generally recognize China’s investment and say that the borrowed money should be repaid in full. Because our country lends money to your country, your country will not pay back the money if you change the leadership. Is it sick?
Of course, when dealing with countries, it is impossible to rely on moral preaching or questioning whether the other party is ill. The main reason is that as long as you mix in this global village, you can’t escape a big country like China and the United States. Sooner or later, you will have a way to come back and pay the principal and interest. Therefore, there are few cases of default in these years. Generally, if something happens to them, they will discuss whether the interest rate can be lower.
Secondly, you owe others money. If you can stop borrowing money, your life should not be affected, but most countries don’t have that ability.
For example, Russia defaulted on a national debt in 1998. However, their country urgently needs more dollars to buy machinery and facilities. After all, Russia’s oil and gas drill bits and drilling depend on the West (nearly half of the Russian import list is to buy machinery and equipment). The main sellers are the United States, Germany and the Netherlands. At this time, they need to borrow money to buy equipment, otherwise they can’t drill out oil, and if they don’t sell oil, they will have no money.
But you just can’t repay your old debt. Who dares to borrow you again? There is only one way to borrow money at this time. You have to pay more.
It’s like a person who owes money to the bank and can’t pay it back, so he can only borrow usury. Russia can only be forced to borrow usury later, with an interest rate of 200%. It’s very frightening, but there is no move. He has to borrow it, otherwise the oil drilling will be shut down. Oil is the lifeblood of Russia, and nothing can be stopped.
Not only that, the country’s foreign exchange is too small, leading to a sharp decline in the exchange rate, and Russian people have to spend more money to buy the same thing. Of course, if the things you buy are Russia’s own, it has little impact.
It is precisely because of the painful lesson of the last breach of contract that after the outbreak of the Russian Ukrainian war, Russia still insisted on paying its debts despite the brutal sanctions imposed by the West. After all, the day of war must continue.
Sri Lanka, which is going bankrupt this time, will have a very difficult time. This country does not produce oil. Once it goes bankrupt, it will have no money to buy oil. Under the influence of the relationship between supply and demand, the oil price will soar, and soon most people can’t afford or buy oil.
You may say, if you can’t afford oil, don’t buy it, and don’t drive anymore. However, the problem is that oil is the basic raw material of many industries. The lack of oil will probably lead to the lack of electricity, which will further lead to the inability of a large number of industries to start work and large-scale unemployment, which belongs to shaking the national foundation. In addition, Sri Lanka is short of food. If there is no money to buy food, hunger will sweep the country, and finally the whole society will fall into great turbulence.
Is there one that has less impact after bankruptcy?
There are also, for example, Iceland.
Iceland borrowed money to buy American financial products before 2007. At that time, watching Wall Street play with subprime mortgages, they also wanted to make that money, so they borrowed a lot of money from Britain and the Netherlands to speculate in stocks in the United States to eat the price difference. Unexpectedly, the Yankees were furious, and Icelanders lost a lot.
So Icelanders came up with a trick to let the people decide not to repay the money by referendum. If they decide not to repay the money, they will have bad luck in the future. Everyone will bear it together, and don’t blame the government. So the first “referendum default” was opened. The Icelandic people voted not to repay the money. More than 90% of people thought that the bank borrowed money to speculate in stocks and did not give themselves points. Now that they have lost money, it is none of their business and they are quick to default. In fact, after financial institutions made money from stock speculation in those years, they also paid taxes to the government, and the government gave everyone points.
Fortunately, Iceland sounds very developed. In fact, it is a fishing and tourism country. Its energy mainly depends on geothermal energy, and its population is small. It does not depend on other developed countries. There will be no huge difficulties and riots like Sri Lanka in a short time. So the gesture of “not paying back the money this time and never seeing each other again” scared the creditor countries such as Britain and the Netherlands, and hurriedly pulled it to sit down. If you have something to say, don’t lift the table. If you have any difficulties, you can tell us, it’s not impossible to talk. Even help Iceland recover its economy as soon as possible.
Does Iceland look like some people who refuse to pay back their small loans? Finally, the small loan company is anxious. Brother, how much do you want to pay back?
But as I said above, it’s not a matter to hang up there until you repay the money. What’s more, it’s the same as if you owe someone else money. If you don’t repay the money of other countries, you basically don’t want to do business in the future. The problem is that there are countless people in the world, but there are only a few countries, and there are fewer countries that borrow money. There is no way to avoid Britain and the Netherlands in international business. Iceland also knows that it can’t make much money by fishing. In the future, it still has to continue to play finance, so it has to repay the money as soon as possible to restore its credit.
So after Iceland’s economy recovered, Britain and the Netherlands offered preferential terms. Iceland said it was willing to repay more than 100 billion euros of debt slowly, and was ready to repay 2.3 billion euros a year. The interest rate was 3%. Now it is working to repay the money, which is expected to take a generation.
And Greece, which originally owed a lot of money, was also prepared to learn from Iceland’s democratic default at the beginning, but the conditions were not as good as Iceland. Iceland was not a member of the European Union and was relatively independent. Greece can’t. when it joined the euro zone, it smashed the money printing machine, and there was no supporting talent. It can’t even print money. Seeing that Greece wanted to learn from Iceland to default, the European Central Bank was angry, and the Greek ATM could not withdraw money. The people were too painful, so the Greek government had to go back to the negotiating table and be repaired by those big guys.
Later, after a toss, Greece agreed to pay back the money in a down-to-earth manner. However, the advantage is that after it promised to repay the money, countries’ investment in it came up, because Greece does have some good assets, such as countless beautiful islands. It has maintained good relations with China over the years, rented ports, and attracted Chinese investment immigrants. Last year, their finance minister said that they finally paid off the money owed in 2007.
Unfortunately for Argentina, this country goes bankrupt every few years. Up to now, it has failed to pay back money nine times. If it fails to pay back money each time, it will have to be repaired, and the interest rate of borrowing money is getting higher and higher. This is also normal. If you fail to pay back the money on time for several times in a row, the interest on subsequent borrowing will rise.
Now Argentina, like a gambler, owes a lot of usury and fails to pay it every day. Every default will lead to a sharp rise in borrowing interest rates, let alone pay it back. After a period of time, it will continue to default. Now Argentina is “habitual bankruptcy”. However, it relies heavily on international trade and does not recognize Argentina’s currency internationally, so it can only live on usury all the time. Look, Argentina may have to go bankrupt again in the near future.
Is there a country that has done so well that people can’t help it?
Yes, North Korea. The biggest advantage of North Korea is that it does not rely on other countries, and there is nothing we can do about it. As we all know, North Korea did well before the collapse of the Soviet Union, mainly because the Soviet Union and Eastern European countries gave it low interest loans and the Soviet Union sold it oil at a low price. After the upheaval in Eastern Europe, the loans were gone, the oil was not sold, and the money owed by North Korea has not been repaid yet. For example, Hungary and the Czech Republic are the old creditors of North Korea, but fortunately, they do not need to deal with them, and those countries that do not repay the money have nothing to do with them. North Korea has been seeking relief. Every few years, it asks whether it can reduce 95% and return the rest with Korean ginseng.
There was another impressive news before, which was posted by observer. If you are interested, you can search it. It said that in the 1970s, North Korea bought 1000 Volvo 144 cars from Sweden. But 40 years later, the car is still running, but the money is still not paid. Sweden is still asking North Korea for money, but North Korea has no money, how can it pay back without money? Sweden has nothing to do with him.
Having said so much, you can basically see that the national bankruptcy is not very similar to ordinary people borrowing money. On the whole, debt cannot be avoided. Generally, those bankrupt countries finally repay their debts. But if you are not too afraid of others to repair you, be tough, maybe the creditor is afraid instead and sits down to talk about preferential terms with you. If you have the ability to close yourself up like North Korea, others can’t help you. But most countries can’t be so closed. They can only pay back the money honestly.
This time Sri Lanka went bankrupt, creditors were most likely to have to save it. Among its $50billion in foreign debt, there were also our $5billion. If it was completely cool, the money would not come back, so creditors were also anxious.
In the end, it should be able to save lives, but in this process, the people will be very, very painful. It is difficult to guarantee basic supplies such as oil, electricity and grain. If there is no pain, there will be a ghost.
Writing here, I have to say that our country is still very safe, with huge foreign exchange reserves, food security, and more importantly, our industrial production capacity can also prevent shortages. As long as we solve the current problems, we can stand still.
At the end of the article, let’s say again. Although there will be no problem in the past two years, we ordinary people should still maintain a cautious spending style, try not to waste money, and survive. In this year, surviving is victory, and not losing money is making money.
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