by Nouriel Roubini,
July 04 2014,
LIKE individuals, corporations and other private firms that rely on
bankruptcy procedures to reduce an excessive debt burden, countries
sometimes need orderly debt restructuring or reduction.
But the
continuing legal saga of Argentina’s fight with holdout creditors shows
that the international system for orderly sovereign-debt restructuring
may be broken.
Individuals, firms, or governments may end up with too much debt because of bad luck, bad decisions, or a combination.
If you get a mortgage but then lose your job, you have bad luck.
If
your debt becomes unsustainable because you borrowed too much to take
long vacations or buy expensive appliances, your bad behaviour is to
blame.
The same applies to corporate firms: some have bad luck and
their business plans fail, while others borrow too much to pay their
mediocre managers excessively.
Bad luck and bad behaviour
(policies) can also lead to unsustainable debt burdens for governments.
If a country’s terms of trade (the prices of its exports) deteriorate
and a recession persists for a long time, the government’s revenue base
may shrink and its debt burden may become excessive.
But an
unsustainable debt burden may also result from borrowing to spend too
much, failure to collect sufficient taxes, and other policies that
undermine the economy’s growth potential.
Read More @ http://www.bdlive.co.za/opinion/2014/07/04/debt-vultures-endanger-the-world
Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of RGE Roubini Global Economics