Political Decisions
Jay explains that countries don't intend to default but it's always a political decision. Tracy suggests politicians may prioritize domestic interests over foreign investors. Multilateral organizations often intervene when countries face financial trouble.In this clip
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Related Questions
What about the overt default by the U.S. government on its gold bonds in 1933? The United States had promised the bondholders to redeem these bonds in gold coin but then refused to do so, offering depreciated paper currency instead. The case went to the Supreme Court, which upheld the sovereign power of the government to default if it chose to. Justice Harlan Stone, a member of the majority, stated, “As much as I deplore this refusal to fulfill the solemn promise of bonds of the United States, the government, through the exercise of its sovereign power…has rendered itself immune from liability,” demonstrating the classic risk of lending to a sovereign. In “American Default,” Sebastian Edwards concludes that it was an “excusable default,” but clearly a default.
Explain the difference between a sovereign default and a failure to meet all debt responsibilities