Let us take for granted the assertion that a government cannot default on its debt obligation if all of its debts are denominated in the local currency. For the more macroeconomic inclined, if a country controls both its fiscal and monetary policies, it can never default on its debts. Taking the axiomatic approach notwithstanding the […]

There is a narrative going around in Malaysia that a government which has a majority of its debts denominated in a local currency can never default on its borrowings. For the purpose of clarity, it is the case where a national government has control over both its fiscal and monetary policy. I have trouble with […]

For those who have been following the Greek crisis, they know that March 8 is the deadline for the bond swap that is essential in ensuring an orderly default of Greek bonds. Just 12 days later, Greece is due for repayment that without any haircut to its bondholders, there would be a chaotic default. The […]

I am in the opinion that the expected sovereign debt and banking crises in Europe have been postponed to the end of 2012 or early 2013. There are two reasons why I think so. The crisis in Europe is essentially two-fold. One is due to government debts. Two is the risk of default by European […]

More on CDS and the European crisis. U.S. banks increased sales of insurance against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the first half of 2011, boosting the risk of payouts in the event of defaults. Guarantees provided by U.S. lenders on government, bank and corporate debt in those […]

Not all bailouts are the same. When a bailout socializes┬álosses but privatizes gains, it can easily be judged through moral lens on top of existing economic reasoning. The interaction between government and the private entities is deplorable exactly because of lemon socialism. I find it harder to make a damning judgment when it is a […]