Why does a country take on debt from other nations, associations, or organizations?
Doesn’t this mutual collaboration among nations, to help each other in times of financial need, turn sour and stale?
Doesn’t the indebted country suffer strenuous relations with other nations, as the debt objective goes down waters, and hampers both the development of its own, along with all the other nations’, who are connected to that specific debt instrument? !
Believe that debt is a very unique form of human behavior, that promotes both humanity and savagery!
When a debt is utilized for the good, it can boost a country’s economy at a great rate. But, if a debt instrument becomes impotent, then the country receives a death blow to its economy, which is much worse from the condition that the country was facing before borrowing the debt.
Like everything else, debt also has its pros and cons. Be it a household credit card debt, or a trillion-dollar sovereign debt.
This post is more of revisiting a topic that we have already surfaced, sometime back in time. If you are a frequent visitor to DebtCC, then you can pretty much remember the post, Importance of debt, and how it fuels The Market!
And, this discussion is just a petit spin-off from the mentioned post, only that here we will be evaluating, whether or not should a nation use debt to fuel its economy and growth.
Debt marks unison:
When a country does not have enough internal wealth or funds, to speed up a certain form of employment, development, or construction, then that country must get help from other nations. Bills, bonds, and/or stocks are issued for the project, or the development item and other nations are invited to purchase these debt instruments, to provide monetary help to the country in need! This financial connection between/among two or more countries establishes an amicable relationship.
No party wants to break this connectivity, as all the parties involved will suffer a drastic economic breakdown, that too when the debt amount is of a pretty huge figure..
If a country backs out in the middle of a debt deal, then all the parties will lose interest and wealth. That can never be a desired situation for the global economy.
Therefore, borrowing and lending of debt establish a saturated prioritization for all the countries involved in the transaction.
This helps in maintaining a strong bond among the nations of the world.
As of the current times, more or less all the countries are somewhat indebted to one another, through the series of bonds and bills they issue and purchase.
Some have little national debt, while others have a lot more. Those who are having trouble in paying off their national, and/or governmental debt, are obviously in a risky zone, just like any other normal defaulter is.
But yes, war is never the answer, so the lending country can either exit the deal, by withstanding the loss, and cutting down all future lending practices with the defaulting country, or it can increase the interest amount and give the defaulting nation an extended period to pay off the debt.
So, should a country halt a prospect or get help from debts?
This depends on the prospect, and the capability of the country to pay back its debts. Obviously, if a country can make a successful and fruitful decision, by borrowing money from other nations, and repay them off in time, without defaulting, then there’s absolutely no harm in borrowing and issuing debt instruments.
In fact, by making a debt deal, it will push the global economy a little further toward betterment.But, if the game gets played the other way round, then it will sink the economy pretty badly, both for the nation borrowing debt, and the one lending the resources.
Hence, if a country feels that the prospect, for which the debt is borrowed, might not be very profitable, then it is a big problem to agree on a debt vehicle with another nation.
A nation must assess the future, to increase its fiscal or sovereign debt. It is very difficult to evade debt after it has been issued and decided upon by multiple nations.
Thus to take on a debt, a country needs to foresee into the future, and decide on several other components that define the country’s economy
These components include existing debt figures, the prospect itself (for which the debt is to be issued), Gross Domestic Product, and many other factors surrounding investment and the market!
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