[lucky]

Well, first of all, as long as we have fiat money and debt is actually the new gold standard, its simple: without debt, there would be no money.

That's true, technically. But it's also pretty much true under gold standard, unless everybody lugged pieces of gold everywhere, which of course didn't happen under the gold standard. Without debt (i.e. liabilities) there can be no checking accounts, no banknotes, no bonds and, no mortgages, no business loans, gold standard or not. The institution of debt is a good thing.

Therefore, the only alternative to state debt is private debt. That is the core problem of why we cannot get rid of debt, and state debt seems to be ever increasing. Our economy couldnt operate at all if there is nobody with debt.

Again true, but only technically. It's not a "problem". There doesn't need to be a national debt, and nobody else has to have negative net worth. Liabilities need to exist, but they are a good thing rather than a "problem". One can hardly imagine an economy without pervasive liabilities, gold standard or not. It would hardly be possible to start most businesses without borrowing.

[Baff]

The thing about soveriegn debt in my country... is that it is the tip of the debt iceberg.
As vast as it is, it pales in comparison with all the private debts in my country.

[Wolfman]

The list of countries in real trouble right now is Greece, Portugal, and Ireland. Italy is on the brick and Spain is exposed, but they arent there yet. I have no idea why you would put the USA on that list in the first place. They still pay very low interest rates, and are basically free to print as much money as they want. As the dollar has a double function, operating both as a national and an international currency, it is pretty much safe from default and too much inflation, ever.

I said problems with debt in the sense of, debt collectors have come knocking, or the politicians are trying to deal with the debt. I am not aware of debt problems in Ireland or Portugal, and as I recall there are (or recently were) debt problems in Italy and Spain.

[Baff]

Ireland got massive debt problems. Had lots of bailouts, governments overthrown. Big unpopular austerity measures, prohibitive bond rates, IMF intervention... All the usual.

[Wolfman]

Sorry if I'm not paying attention to the economic situation of a few countries. Big deal. My point remains, only a few countries have debt problems. The rest of the world is fine.

[Baff]

Sorry if I'm not paying attention to the economic situation of a few countries. Big deal. My point remains, only a few countries have debt problems. The rest of the world is fine.

The rest of the world isn't fine because those few countries with the debt problems happen to be the ones with the bulk of global GDP.

We are talking about 60% of the worlds GDP.

So all the other countries in the world that depend on selling their goods to those rich countries are screwed up by it also. It's having a domino effect. Global contagion.

[Wolfman]

We are talking about 60% of the worlds GDP

How the hell do you figure that?

[Baff]

The EU + the US + Japan.

Broadly speaking that's 60% of global GDP.

Loosley allowing for a few in the EU to be debt free and some others in the world to be debt ridden.
I think that's a fairly reasonable guesstimate.

[Bubba]

Loosley allowing for a few in the EU to be debt free and some others in the world to be debt ridden. I think that's a fairly reasonable guesstimate.

The majority of the EU's GDP comes from the members that are doing relatively well: Germany, Denmark, Austria, Finland, Sweden, the Netherlands, France and some Eastern European members.

[Ombrageux]

No developed country is at risk of default with the very significant exception of the eurozone members. They face a renewed recession, worsening debt-to-GDP ratios, the failure of expansionary austerity, etc. This could very well lead to the default of major economies should they veer into a debt spiral. As it stands, Italy is the most likely candidate for default but, should this occur, it would surely drag the rest of the eurozone down with it.

These developments are contingent on the future actions of the European Central Bank and national governments deciding through the European Council (hah!).

All other developed countries can manage their debts through the actions of their central banks (lender of last resort keeping interest rates down, push come to shove some monetization) and the return to moderate economic growth.

[Wolfman]

The EU + the US + Japan.

The US doesn't have a debt crisis, that's artificial. The only EU states with debt problems are (apparently) Ireland, Italy and Greece. And I doubt Japan is having much problems with its debt.

[Bubba]

No developed country is at risk of default with the very significant exception of the eurozone members. They face a renewed recession, worsening debt-to-GDP ratios, the failure of expansionary austerity, etc. This could very well lead to the default of major economies should they veer into a debt spiral. As it stands, Italy is the most likely candidate for default but, should this occur, it would surely drag the rest of the eurozone down with it.

No Greece is, and Italy and Portugal are the only other EU members at risk of default, although Spain and Belgium are walking a thin line. I don't know where you got the idea that even Finland, Austria and the Netherlands are anywhere near defaulting.

[Baff]

The US doesn't have a debt crisis, that's artificial. The only EU states with debt problems are (apparently) Ireland, Italy and Greece. And I doubt Japan is having much problems with its debt.

That is the polar opposite of my own view.

[Wolfman]

Do I care?

[Ombrageux]

Bubba - There is no immediate risk to those countries, just as there was no immediate risk to Italy or Ireland until the Greek crisis's contagion spread. If Italy or Spain were to default it would lead to devastating consequences for the European banking sector and broader economy. The deepening of the recession caused by this could plausibly lead to defaults in the core countries. Bond yields are rising in even very safe eurozone countries (Austria, Finland) and I basically agree with the ratings agencies who threatened to downgrade the entire eurozone. Economic and financial interdependence is such that the thing stands or falls together.

We are talking an apocalyptic scenario here though which, I should hope, the ECB and European Council would prevent at the last minute.

[Bubba]

@Ombrageux

If the eurozone falls the whole world will follow so why limit your prophecy of doom to the eurozone? Also, have you considered the possibility that the Northern European eurozone members may leave the euro and form a new zone?

P.S. Greece was already in danger before the crisis, it's just that "official" records didn't show this because the Greek government cooked the books.

[Ombrageux]

Non-eurozone countries would be hurt by the collapse of the European economy, but they would not necessarily default, after all, they have central banks. Northern eurozone does not have this attribute of statehood.

[Bubba]

Non-eurozone countries would be hurt by the collapse of the European economy, but they would not necessarily default, after all, they have central banks. Northern eurozone does not have this attribute of statehood.

They could create one, already have their own national central banks and find other ways to deal with trouble.