When we do a class on debt markets one important class is that of Debt Rating.
There we say the highest and the best borrower is rated AAA. However we do not even ask – the Sovereign debt is not rated. It is supposed to be above default.
When the Japenese companies were running huge surpluses they invested in US bonds at the rate 1US $ = 350 Yen. Now 1 US $ = 85 yen. Has the Government of US defaulted? No of course not, but they have taken the bottom out of the dollar. How was this possible. Because they suddenly said ‘Our dollar is not connected to the Gold’ .
So governments do not default, but they make their currency useless. In the current form, the US government WILL default (anyway they are each tree that they have for a billion dollars – just by printing notes).
One day the rest of the world is likely to say ‘Please give me goods, not your toilet paper’. A few friends in US tell me if you use purchasing power parity theory, the rupee dollar rate is more like Rs. 12 to Rs. 15!
Well it may not be far away when you say here is a Yen, give me a dollar!
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