vania-janet/multiturn-rag-retrieval-data huggingface dataset:
"This is a hard question to answer.  Government debt and mortgages are loosely related.  Banks typically use yields on government bonds to determine mortgage interest rates.  The banks must be able to get higher rates from the mortgage otherwise they would buy government bonds. Your question mentions default so I'm assuming a country has reneged on its promise to pay either the principal or interest on government bonds. The main thing to consider is ""Who does not get their money?"".  In other words, who does the government decide not to pay.  This is the important part.  The government will have some money so they could pay some bond holders.  They must decide who to shaft. For example, let's look at who holds Greek government debt.  Around 70% of Greek government debt is held outside Greece.  See table below.  The Greek government could decide to default only on the debt to foreign holders.  In that case the banks in France and Switzerland would take the loss on their bonds.  This could cause severe problems in France and Switzerland depending on the percentage of Greek bonds that make up the banks' assets.  Greek banks would still face losses, however, since the price of their Greek bond holdings would drop sharply when the government defaults.  Interestingly, the losses for the Greek banks may be smaller than the losses faced by the French and Swiss banks.  This is usually the favored option chosen by government since the French and Swiss don't vote in Greece. Yields on Greek government bonds would rise dramatically.  If your Greek mortgage is an adjustable rate mortgage then you could see some big adjustments upward.  If you live in France or Switzerland then the bank that owns your mortgage may go under if Greece defaults.  During liquidation the bank will sell their assets which includes mortgages and you will probably not notice any difference in your mortgage. As I stated earlier: this is a hard question to answer since the two financial instruments involved (bonds and mortgages) are similar but may or may not be related."
The answer is far more simple.   The purchasers of periphery debt have been banks in the periphery. Since these countries don't have a central bank, their private banks were swallowing the national debt since nobody else wanted to touch it.   When the market value of that debt plummets, the banks have massive holes they need to fill on their balance sheets to fulfill capital requirements and solvency. Therefore, the banks themselves need to be injected with liquidity.  Now you can see why its a reiterative problem.
It's kind of like a fat guy bellyflopping into a pool from the high diving board; the wave travels out, reflects off the side of the pool and comes back to you a little later.  GFC I causes increased government spending to bail out banks/stop economies going into reverse. It also causes a tightening of the credit markets as fake paper goes bad. So the deficit can't be cheaply covered where financiers (who's fraud caused GFC I) don't see an easy return. So we get GFC II as sovereign entities go bad; caused by GFC I and those self same fraudulent bankers.  Who still aren't in jail, and are still paying themselves bonuses.
"You are violating the Uncovered Interest Rate Parity.  If Country A has interest rate of 4% and Country B has interest rate of 1%, Country B's expected exchange rate must appreciate by 3% compared to spot. The ""persistent pressure to further depreciate"" doesn't magically occur by decree of the supreme leader. If there is room for risk free profit, the entire Country B would deposit their money at Country A, since Country A has higher interest rate and ""appreciates"" as you said. The entire Country A will also borrow their money at Country B.  The exception is Capital Control. Certain people are given the opportunity to get the risk free profit, and the others are prohibited from making those transactions, making UIP to not hold."
I disagree.  The question is leading, it presumes that backstopping the banks was a cause, not an effect, of poor government funding, which is absolutely insane.  A country cannot be brought down by the financial sector, it's just not possible, not even where the country doesn't have monetary authority.
They tried printing more of their own currency to buy the foreign stuff with but that quickly drove down the value of German currency. So lesson number two from Germany is you don't want to be on the hook for a currency you don't issue. Put the two together and you have a real supply shock + foreign-denominated debt eviscerating the buying power of German currency. It wasn't debt:GDP but the real basis for their economy collapsing out from under them pushed along by a need for foreign currency. &gt;My question is, at what point do we engage Washington's unlimited money printing presses until we reach that point? In answer to your question, the printing presses are what funds the real economy. The worry in terms of avoiding ""that point"" is in making sure we keep that real economy productive and fully funded. Ironically, taking our eye off the ball to focus on budget balance at the expense of real output pushes the economy in the direction you're afraid of going. See also: the euro zone today."
"The default scenario that we're talking about in the Summer of 2011 is a discretionary situation where the government refuses to borrow money over a certain level and thus becomes insolvent. That's an important distinction, because the US has the best credit in the world and still carries enormous borrowing power -- so much so that the massive increases in borrowing over the last decade of war and malaise have not affected the nation's ability to borrow additional money. From a personal finance point of view, my guess is that after the ""drop dead date"" disclosed by the Treasury, you'd have a period of chaos and increasing liquidity issues after government runs out of gimmicks like ""borrowing"" from various internal accounts and ""selling"" assets to government authorities.  I don't think the markets believe that the Democrats and Republicans are really willing to destroy the country. If they are, the market doesn't like surprises."
This sounds like a neat magic trick to make the debt go away, but the laws of economics are not to be conned. Anything is possible--a currency crash, a bond market crash--anything. This is the very definition of debt monetization that resulted in hyperinflation in places like Weimar Germany and Zimbabwe. Is Japan different? We shall see. We will find out soon, as Japan has taken a major step in that direction.  Jared Dillian is the author of All the Evil of This World, and the editor of the 10th Man newsletter for Mauldin Economics. Subscribe here. *Forbes articles have 8 tracking cookies and 9 tracking scripts. This comment has none.*(https://www.reddit.com/r/raws/comments/68xk37/about/)"
As others said, Greece cannot set.monetary policy because that is the job of the ECB. If you meant fiscal policy, then you are right: their high levels of debt plus their default this year make it so that they cannot unilaterally borrow more money to run a deficit as the private market will not lend to them. This makes them dependent on a bailout.
If the last price (exchange rate) is 1.2 Dollars per Euro, and the bank gets more requests to buy USD for Euros than Euros for USD, it adjusts the rate downwards until the buying pressure is even. If the USD gets more expensive, at some point fewer people will want to buy it (or want to buy products from the US that cost USD). The bank maintains a spread (like buy for 1.19 and sell for 1.21) so it can take a profit. You should think of currency like any other commodity, and consider purchases for currency as a form of barter. The value of currency is merely a convention, but it works. The currency is needed in transactions, so it maintains value in this global market of bartering goods/services and other currencies. As supply and demand for this and other commodities/goods/services fluctuate, so does the quantity of any particular currency necessary to conduct any of these transactions. A official ""basket of goods"" and the price of those goods is used to determine consumer price indexes / inflation etc. The official price of this particular basket of goods is not a fundamental driver of exchange rates on a day to day basis."
I am going to add in an opinion here from the Wall Street Journal that I read this morning in What's at Stake in the Greek Vote, in light of current events and elections in Greece. The article claims that if the election results make it sound like a break from the Euro is imminent then ... we will see a full-fledged bank run. Greek banks would collapse ... The market exchange-rate would likely be two or three drachmas to the euro, which would double or triple the Greek price of imported goods within a few days. Prices of assets, including real-estate assets, would crumble. Those who moved their deposits abroad would be able to buy these assets cheaply, leading to a significant, regressive redistribution of Greek wealth. In short, you'd lose two-thirds of your savings unless you were storing them somewhere safe from the conversion. The article also predicts difficulty importing goods (other nations will demand to be paid in euro, not drachma) leading to disruption of trade and various supply shortages.  I will note that the predictions here seem to be in opposition to some other advice here which suggests that real estate will be an effective hedge.
The safest financial decisions that you can make in Greece involve getting your money out of Greece. That said, it depends. If the economy is going to implode and you'll be out of the job with devalued savings -- you'll be bankrupt anyway. You didn't mention enough about your situation for anyone to really answer the question. In a high-inflation environment, *if*you have the assets to weather the storm, holding debt on real property and durable goods is a good thing. The key considerations are:  If you have the means, times of crisis are great opportunities.
The prices seem very low even considering the risk? The prices are low because of the risk. Nothing happens to the banks if the sovereign defaults. However, the sovereign debt holders - lose some or all the money they lent to that sovereign. Incidentally, many banks invest in the treasury bonds of various countries, especially those they're located in. They also invest in other companies that rely on the government, or the currency. If that dependency is too high - the bank may fail. If the dependency is not high, or non-existent - the bank will survive. If the bank fails - yes, your shares will be wiped out, that's what happens with bankrupt companies. If you considering investing in banks in a country that you think may default - research them and see how much investments they have that will be affected by that default.
So you are saying down the road the FED might cancel out the amount of T-Bills and MBS they hold with the Treasury? If you think that you are in that group of left leaning economists who don't believe in American exceptionalism on anything but for some reason carve out an exception for economics. Has anything close to that level of debt cancelation ever happened before? It would permanently damage America's reputation and if it went really bad it would be a disaster unlike this country has ever experienced.
e.g. a European company has to pay 1 million USD exactly one year from now While that is theoretically possible, that is not a very common case. Mostly likely if they had to make a 1 million USD payment a year from now and they had the cash on hand they would be able to just make the payment today.  A more common scenario for currency forwards is for investment hedging.  Say that European company wants to buy into a mutual fund of some sort, say FUSEX. That is a USD based mutual fund. You can't buy into it directly with Euros. So if the company wants to buy into the fund they would need to convert their Euros to to USD. But now they have an extra risk parameter. They are not just exposed to the fluctuations of the fund, they are also exposed to the fluctuations of the currency market. Perhaps that fund will make a killing, but the exchange rate will tank and they will lose all their gains. By creating a forward to hedge their currency exposure risk they do not face this risk (flip side: if the exchange rate rises in a favorable rate they also don't get that benefit, unless they use an FX Option, but that is generally more expensive and complicated).
"But do you know about a US state risking to go default now or in the past?  In 1847 four states - Mississippi, Arkansas, Michigan, and Florida - failed to pay all or some of their debts.  All of these states had issued debt to invest in banks.  From the detailed source listed below: ""...it should be remembered that all cases of state debt  repudiation, as contrasted with mere default, involved banks.""  Jackson had killed the federal central bank 10 years earlier and the states were trying to create their own inflationary central banks.  Six other states delayed debt payments from three to six years (source, page 103, this source has more details).  This is the only case I know of where US states defaulted.  US cities default more frequently. I'm very confused do US single states like IOWA have debt and emits obligations on their own like Italy does in EU? Yes.  Individual states can issue their own bonds. Oh, and just another little thing I would like to know, is Dollar a fiat currency too like the Euro? Yes, the US dollar is a fiat currency.  I think the better question is: ""Is there any currency that is not a fiat currency?"""
It's a persistent myth that the US has any trouble whatsoever selling its debt. No country with it's own fiat currency has trouble selling debt.  Of course there is a limit to it and that limit comes in the form of inflation via currency weakness. The dollar is, in fact, still near historic highs even though it has come down some recently.  I would not be the slightest bit concerned until the DXY is down in the 70s.
My 0,02€ - I probably live in the same country as you. Stop worrying. The Euro zone has a 100.000€ guaranty deposit. So if any bank should fail, that's the amount you'll receive back. This applies to all bank accounts and deposits. Not to any investments. You should not have more than 100.000€ in any bank. So, lucky you, if you have more than that money, divide between a number of banks. As for the Euro, there might be an inflation, but at this moment the USA and China are in a currency battle that 'benefits' the Euro. Meaning you should not invest in dollars or yuan at this time. Look for undervalued currency to invest in as they should rise against the Euro.
"Switzerland is presumably where one moves the money in case of an apocalypse; although, they have lost some of that appeal now with the tax reporting to the EU and USA. Switzerland has a very old, stable banking industry, but this isn't the only appeal.  Their reputation for safeguarding money, be it despot or Nazi, is most of the attraction.  Low to no taxes is the second.  Also, there isn't much financially illegal despite recent changes.  Put that all together, and if a country is about to go to hell in handbasket because it borrowed too much or goes to war while Switzerland stays stable and very strict about paying depositors, those residents are going to try to move as much money to Switzerland as possible before its confiscated for one reason or another, sending the CHF up. Japan is a different duck.   They have persistently ~0% inflation thus low nominal and real interest rates.  With them, the so-called ""cash & carry trade"" or more ubiquitous ""carry trade"" dominates.  Many investors choose to borrow in JPY to buy investments denominated in other currencies.  If the countries of those other currencies are about to take their residents' money or go to war, putting money at jeopardy, the residents doing the carry trading will try to unwind their levered investments to reduce risk, sending the JPY up."
Also, interest rates and credit risk directly corelate to Greece's ability to service the debt.  Japan could be at 400% and Greece 50%, but if they can't make payments or have credit good enought to refi the debt, that's when they will default.   Meanwhile, the fact that they are risky drives up rates further and makes it even harder to make payments.  It's called the death spiral.   Japan has low rates, solid GDP and good credit = non-issue.
I personally don't agree with a currency union. I'd rather follow Ireland's example when they gained independence and created the Irish Pound and peg it to Sterling, which they did for over 70 years before transitioning to the Euro.   There isn't any debt to reject or default on.The UK treasury has already assured the debt market that it's 100% responsible for it.  Scotland has no responsibility for taking on any debt, but might/will in response to negotiations and in return for something.   Debt markets will be far more receptive of a country which has 0 government debt. We're not talking South Sudan or a tin pot south american country, we're talking about a mature northern european democratic state.   I should also note, that oil is a bonus, but not a required export. With oil, Scotland has higher revenue per person than the entire UK,  but if it disappeared tomorrow, we're only slightly below the UK average.  [Institute for financial studies.](http://www.ifs.org.uk/publications/6881)
That is kind of the point, one of the hopes is that it incentivizes banks to stop storing money and start injecting it into the economy themselves. Compared to the European Central Bank investing directly into the economy the way the US central bank has been doing. (The Federal Reserve buying mortgage backed securities) On a country level, individual European countries have tried this before in recent times with no noticeable effect.
A few things, Japan controls their currency and the Japanese had/have a high savings rate which allows them to afford this kind of spending. When you look at places like Greece they don't have any savings and can't control their currency so their problems are far worse.
For now we can pay off our debt in United States dollars. If we lose our reserve currency status, we would have to pay it off with a different currency. If we continued printing money we would be debasing our currency against the new reserve currency, which would mean that after we took on too much debt we wouldn't really be able to pay our creditors back after exchanging our devalued currency for the new one on the international markets. We are lucky enough not to have to worry about this now. But I think OP was referring to all countries in these situations. Other countries don't have the luxury of just printing out massive amounts of money to pay off their debts. That is why I am saying that America has a very disillusioned view of reality when it comes to deficit spending. We wouldn't have that any more if the UN followed through with its suggestion to create a global reserve currency or reverted back to the gold standard (I don't think the second option is nearly as realistic but we never know).
theoretically this concept makes sense.  However as recent numbers have shown ( I do not have the source handy but one can simply obtain this information via the ECB's website) banks have tapped this LTRO, something in the likes of 500 billion or so, and instead of buying Sovereign debt, they instead prefer to park this money with the ECB, paying something like 25 bps on deposits.  so instead of using this LTRO money to buy Sovereigns or perhaps lend to other banks, easing the strain on LIBOR, banks have just parked this money back with the ECB, as the ECB has seen its deposits once again reach record amounts (again, see the ECB website for proof).  Just this speaks volumes about the LTRO carry trade and how it is evidently not going to achieve its long term goal of bringing spreads down in Europe.  Perhaps in the short run yes, but if you look at the fundamentals (EURUSD, the EUR Basis Swap and the OIS-LIBOR Spread) they show how the situation in Europe is far from over, and the LTRO is nothing close to a long term and stable solution
intelligent economists ARE worried about japan because they've nearly exhausted their savings, and will not be able to attract interest from foreigners in buying their bonds when they need to. then they'll have to either impose austerity or just keep printing money; either course will result in a depression.
Giving the government more control over the distribution of goods and services, even more than it has now, is the recipe for imbalance that has doomed communism and socialism.  Even the most tax friendly of the euros are having problems with their systems. They simply aren't competitive.  https://www.thelocal.dk/20170829/denmarks-government-announces-new-tax-plan
^This.   As we can see with the pending $125b bail-out that Europe will provide. Imagine, if India was in the place of the Spanish? Who would conjure up such a bail-out for them?  As said by 23_47 earlier, the credit rating is a measure of risk. A country backed by a 17-country alliance (Eurozone) is less risky to invest in than a country without such support.
If the FT claims the U.S. has structural problems, I say keep doing what we are doing.   The FT was a staunch supporter of the Eurozone (along with The Economist) and look where that got them. Now they are reverting and some columns have favored departures or even a break up.
Money is no longer backed by gold. It's backed by the faith and credit of the issuing government. A new country,say, will first trade goods for dollars or other currency, so its ownership of gold is irrelevant. Its currency will trade at a value based on supply/demand for that currency. If it's an unstable currency, inflating too quickly, the exchange rate will reflect that as well.  More than that your question kind of mixes a number of issues, loosely related. First is the gold question, second, the question of currency exchange rates and they are derived, with an example of a new country. Both interesting, but distinct processes.
"&gt;  it emerged in Parliament that the European Commission, in return for allowing the nationalisation of the Rock, had placed a limit on how long the bank could stay in state ownership.  EU acts as though it's doing a favor by ""allowing"" Britain to nationalize its own bank? Shouldn't they be thrilled? Isn't the British Taxpayer the one footing the bill? And look at what a festering dung hole the eurozone has become. One can only guess what backroom deals have been hatched by wealthy investors to ""allow"" the breaking of EU rules by their counterparts in other countries."
First off, let me just say that you are an intelligent individual, and regardless of how heated this conversation gets I really appreciate the opportunity to talk with you about this.  I definitely don't disagree with you that Germany **got** it's debt by a different means and that the mechanisms that kept it in debt are different from the mechanisms that are effecting us today, but the discussion we're having does have everything to do with debt! We've been deficit spending for generations and we're trillions in the hole, and that's the psychological issue hanging over our heads.  I'm not arguing with the accepted principles of Macroeconomics. In fact, what's just occurred to me is that we could put together another Bretton-Woods type conference (which would hopefully learn from the mistakes of the previous systems) so we can design a system that will keep inflation low while we dump money into the economy. From what I understand, inflation has always been lower while these (albiet flawed) previous systems were in place, and the issue in my mind with dumping money while the debt situation is such a concern, is that speculators could sh*t the bed and devalue our currency