What happens to a nation which goes bankrupt?ALTax
When a country fails to pay its creditors on time, it is said to go into default, the national equivalent of going bankrupt.
When a country goes bust, the pain is felt on very deep levels. The most basic systems and institutions that people have come to depend on simply disappear. Power companies stop operating, the police stopped working, gas stations close, grocery stores run out of food, postal workers stop delivering mail, retirement checks stopped coming, and banks close their doors with bankers fleeing the country, taking people’s life savings with them.
This is what happened in Argentina in 1999.
In Argentina’s case, wealthy people took their money and fled the country. Over $40 billion left the country in one single night. This resulted in a run on the banks, followed by a collapse of the country’s national currency. Argentina’s citizens were so desperate and panicked that many spent nights sleeping in front of the automated teller machines.
In reaction to this, the government froze all bank accounts for one year, only allowing people to withdraw minor amounts of $250 per week.
Iceland, with just under 320,000 residents, was the first domino to fall in the 2008 global financial meltdown, when its banks defaulted on $85 billion.
Iceland was hit harder by the crisis than many other countries because of its inflated banking system. In just five years, the banks went from being almost entirely domestic lenders to major international financial intermediaries.
Unbeknownst to most of the population, the country basically turned itself into a massive hedge fund. The whole nation was caught up in a web of deception.
In a matter of weeks after the banks’ collapse, the unemployment rate jumped to 10 percent, house prices fell, the currency plunged and inflation surged.
But Iceland used a different rulebook than Argentina.
They refused to bail out the banks and jealously guarded, and even expanded, social programs. This may represent a model for other countries facing a similar calamity in the future.
Just after three years after Iceland’s economic implosion, the country is showing strong signs of recovery.
Some countries appear to be at that moment once more.
Greece is in the same situation as Argentina it was 25 years ago. Countries like Greece, Italy, Portugal and Spain have not developed strong economies to compensate for their fading demographics. When the real estate bubble broke, there were few industries to step in and fill the gap.
Unfortunately for the bureaucrats, dissent against the Greek bailout plan is spreading across Europe and leaders can no longer ignore the growing wave of opposition in Finland, the Netherlands, Austria, and Germany.
Over 200 years ago, Napoleon was forced to sell France’s claim to 828,000 square miles of land in the New World in order to cover his war expenses. US President Thomas Jefferson happily obliged, paying the modern equivalent of around $315 million (based on the gold price), roughly 59 cents per acre in today’s money.
In today’s environments, people and resources can react instantly to any adversarial conditions. So, if taxes go beyond a certain pain threshold, people will simply fold their tent and move elsewhere.
Those left behind will feel trapped, and as a result, will become very angry at the situation. This anger will be channeled towards any person, company, or entity they feel is culpable in the matter. In most cases, this will be banks, financial institutions, and government officials.
With the fester mood ramping up in Europe, and the current attitude toward imposing hardships on the people of a country for the improprieties of a few, this will not end well.
The next chapter in global unrest is about to begin, and for the growing ranks of the unemployed, this will become their new occupation.