Thursday, June 21, 2012

What happens when a country runs out of money?

John Donne once wrote, "No man is an island, Entire of itself. Each is a piece of the continent, A part of the main." What is true of humanity is doubly true for countries, even island nations (metaphorically speaking).

The nation of Greece is a study of what happens when a country cannot pay its bills. And when a majority of the people rely on government benefits and subsidies, the people suffer then the money stops flowing.

According to JohnGaltFla.com
Migrants are being attacked and are desperate to leave the country. Pharmacists are now refusing the government benefits card and demanding cash only for life saving drugs because they fear not being paid in Euros by the Greek bureaucracy, as payments are already many months behind in reimbursements. Sadly, soup lines are the longest since the end of World War II as the middle class has fallen into dire straits of poverty, forcing dumpster diving by parents and children around the nation.
And it is expected to get worse. Greece imports 40% of its total food supply and exporters from other nations no longer trust Greece pay its bills in a timely manner (if ever). Typically in such circumstances Greece would pay on credit or else shipments would be insured against default.
But the lines of credit for many importers in Greece has already been greatly reduced if not outright terminated by many European companies due to the crisis.
And
a more dire blow was struck this week when several major insurers declined to cover shipments of goods into Greece in case there is a default on payment.
Could this happen in America? The US government ignores debt risk and says, we can just print more money. But all countries are part of a larger global economy and if other nations stop trusting a currency or ability to pay, then the country is doomed.

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