By J. Stiglitz, D. Heymann
This quantity offers a pluralistic dialogue from world-renowned students at the overseas elements of the debt challenge and customers for solution. It presents a accomplished overview of ways the debt challenge has impacted Western Europe, the rising markets and Latin the United States, and places ahead varied feedback for recovery.
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Additional info for Life After Debt: The Origins and Resolutions of Debt Crisis
Sample text
This is not a general case. When the public sectors are less trusted, and the demand is for some “outside” asset (central currencies, or gold in its times), an “external drain” can combine with “internal drain” (as was feared by Bagehot in the England of the 1870s) and lead to a financial and currency twin crisis (cf. Kaminsky and Reinhart, 1999). The resulting movements in exchange rates can further exacerbate the debt crisis, especially when there is a currency mismatch between assets and liabilities.
This is likely to entail difficult tradeoffs between hands-off approaches and direct action through bailouts or interventions that redefine the terms of contracts. In discussing sovereign debt crises, Heymann and Leijonhufvud remark that defaults tend to happen in extreme situations, and not without strenuous efforts to avoid them. Even so, ample room for disagreements between debtor and creditors are likely to remain. Since the prospect of relapse into payment difficulties would be particularly worrisome, sustainability should be a central consideration in debt restructuring.
When the public sectors are less trusted, and the demand is for some “outside” asset (central currencies, or gold in its times), an “external drain” can combine with “internal drain” (as was feared by Bagehot in the England of the 1870s) and lead to a financial and currency twin crisis (cf. Kaminsky and Reinhart, 1999). The resulting movements in exchange rates can further exacerbate the debt crisis, especially when there is a currency mismatch between assets and liabilities. Government lending operations in a crisis imply taking perhaps considerable credit risks.