What Happens When Government Runs Out Of Money

[Big Guy]

I was wondering at what happens when a government runs out of money?

My assumptions are that since government employees do not get paid, then police, law and order and the military are the first do disappear (not paid) with anarchy the new norm. Since currency no longer works then a barter system has to be used.

Any predictions on what could happen?

Are there any examples and/or templates?

[Shady]

Massive inflation if they need to start printing their own money because nobody will loan them anything.

[Bryan]

See Zimbabwe for a recent example. It's a really bad situation.

Edited July 6, 2015 by Bryan

[cybercoma]

See Zimbabwe for a recent example. It's a really bad situation.

Africa and South America are examples of how not to handle nations in debt. The IMF and banks around the world have been crippling these nations for 30 years. If you want to see how to properly handle these situations, then look no further than Germany following two world wars and sitting on massive debts. They recovered in less than a generation and that's because they weren't saddled with loans that had impossible terms demanding austerity. The IMF for the last 30 years has been binding nations' limbs together and throwing them in the ocean, asking them to swim.

[Shady]

Africa and South America are examples of how not to handle nations in debt. The IMF and banks around the world have been crippling these nations for 30 years. If you want to see how to properly handle these situations, then look no further than Germany following two world wars and sitting on massive debts. They recovered in less than a generation and that's because they weren't saddled with loans that had impossible terms demanding austerity. The IMF for the last 30 years has been binding nations' limbs together and throwing them in the ocean, asking them to swim.

It's always somebody else's fault right? Always.

[Bryan]

Germany followed a solid plan. Third world countries are where they are because they don't follow a sound plan. Greece is where they are because they refused to follow ANY plan that was proposed to them.

My family has been heavily involved in the building of a school and orphanage in Kenya. One of the things that really illustrated to me why they will always need help is how they got their water. They'd spend hours a day digging a dry river bed to get a bucket of muddy water. It didn't occur to them to walk to the actual river a few miles away, or better still to relocate the village closer to that river. The level of decision making was that backwards -- they do what they always do because that's what they've always done.

You can't keep spending more than you make forever. If you do and things go south, it's not the fault of the person who lent you the money, it's your fault for not cutting spending.

[Big Guy]

Interesting comparison of Argentina bankruptcy and that of Iceland:

http://www.futuristspeaker.com/2012/06/when-countries-go-bankrupt/

There appears to be different methods of regaining stability.

Edited July 6, 2015 by Big Guy

[-1=e^ipi]

The IMF and banks around the world have been crippling these nations for 30 years.

Crippling by lending them money? You have a very bizarre definition of crippling. Would these countries be better without loans?

[Argus]

Massive inflation if they need to start printing their own money because nobody will loan them anything.

I don't think that's the problem right now in Greece. It's that the government literally doesn't have any money. It doesn't have any cash to feed to the banks so their patrons can take it all out. The only money going to the banks is from the European central bank. Greece doesn't even have any paper bills to give people. I suppose it can still transfer money electronically to their accounts, assuming it isn't dead broke (a big assumption for Greece) but it's got no paper money to hand out. When you give up control of your national currency you don't even have the luxury of printing more cash to inflate your way out of debts. Someone in Greece should have been planning for this and getting the printing presses ready to roll, but my understanding is that has not been done.

[The_Squid]

It's always somebody else's fault right? Always.

Crippling by lending them money? You have a very bizarre definition of crippling. Would these countries be better without loans?

Neither of you read what Cybercoma wrote.

He said that Greece did a terrible job with their debt and shouldn't have put themselves in a position to have to be bailed out. Being bailed out does mean that they must abide by crippling restrictions resulting from their loans... but they should have followed other countries' (Germany's) example of how to do it...

[TimG]

Being bailed out does mean that they must abide by crippling restrictions resulting from their loans... but they should have followed other countries' (Germany's) example of how to do it...

There is something called a "moral hazard" that is created if too lenient terms are offered because it encourages other borrowers to make bad decisions based on the belief that if things go bad they will be generous bailout terms. IOW - the actions of the IMF and other lenders are not so much motivated by a desire to help the countries in question but to send a message that if one borrows too much hell is waiting for you. Edited July 6, 2015 by TimG

[Topaz]

How many times have the US government ran out of money and had to go to Congress to print more, so they could pay their bills and no matter if the country debt is 16 Trillion, the private bank, the Federal, won't let it happen , along with the IMF. I think Greece should let the EU but you watch, I doubt if the EU will let it because then the 3 other countries who have money problems may want to leave too. These UNIONS of countries are just another way of getting control over the countries finances.

[Derek 2.0]

I was wondering at what happens when a government runs out of money?

My assumptions are that since government employees do not get paid, then police, law and order and the military are the first do disappear (not paid) with anarchy the new norm. Since currency no longer works then a barter system has to be used.

In countless examples through history, when Government is no longer able to pay (or feed) those entrusted with securing law and order, likewise those who defend against threats both external and internal, the Government is then replaced by those entrusted to secure it..........or by someone else's army.

Any predictions on what could happen?

Are there any examples and/or templates?

Using Greece as an example, since its topical, the World's oldest democracy has seen centuries of invasions and civil wars and infighting, with the post-war period having seen a bloody civil war and the democratic government later replaced by the army in the later 60s.......Third times a charm?

[Big Guy]

There is another thread currently very active and focussing on the situation regarding Greece. I did not want to interrupt it with a theoretical question based on international economics. I have never understood international economists. The last three I have read (two of whom are Nobel Prize winners) completely disagree with each other.

I would assume that the greatest danger is the dissolution of the controls of societal structures where anarchy evolves soon to be followed by some kind of dictatorship based on military strength.

When a government is no longer able to pay for the services that create and maintain a democracy then the rules of survival begin to change. People who do not have enough to eat will do what is required for them to protect and feed their families and satisfy their personal needs.

It appears to me that the first danger is that humans turn to their basic instinct - survival for themselves and their families at any cost. The end justifies the means and the stronger dominate the weaker. This process is seldom peaceful but would result in death and chaos. This is the point where outside forces are able to sweep into the society and satisfy their own agendas,

There is profit in chaos.

[Freddy]

How many times have the US government ran out of money and had to go to Congress to print more, so they could pay their bills and no matter if the country debt is 16 Trillion, the private bank, the Federal, won't let it happen , along with the IMF. I think Greece should let the EU but you watch, I doubt if the EU will let it because then the 3 other countries who have money problems may want to leave too. These UNIONS of countries are just another way of getting control over the countries finances.

Greece is like one of the States within the United States defaulting badly

[Bryan]

There is something called a "moral hazard" that is created if too lenient terms are offered because it encourages other borrowers to make bad decisions based on the belief that if things go bad they will be generous bailout terms. IOW - the actions of the IMF and other lenders are not so much motivated by a desire to help the countries in question but to send a message that if one borrows too much hell is waiting for you.

That's just it. Regardless of how much compassion, or even personal interest one might have in a failed state, at this point you simply cannot afford to let them off the hook. Several other countries are in in imminent danger of being the next to default. The example of the one that did fail has to be a cautionary tale, not a lesson that there is always another chance.

[cybercoma]

It's always somebody else's fault right? Always.

Have someone re-read my post to you, explaining the finer points if necessary.

[cybercoma]

Greece is where they are because they refused to follow ANY plan that was proposed to them.

Greece is where it is because 1) it has crap compliance for taxes, and 2) austerity never works to fix economies. Look at where austerity has gotten us. We still haven't recovered from 2008 and we're heading back into a recession. Maybe at some point conservatives will get it, I won't hold my breath. It doesn't really matter. The historical examples are there that show you can't "save" your way out of a depression/recession. You can concentrate wealth to the top 1% very quickly that way, expand inequality, increase unemployment. But you're not going to grow the economy and get people back to work that way. Literally every austerity measure ever has worsened economic recessions everywhere.

[Bryan]

Look at where austerity has gotten us.

In a very good position to ride out whatever comes our way without having to default on loans.

[cybercoma]

In a very good position to ride out whatever comes our way without having to default on loans.

Right. We're riding it out alright with an economy that has shrunk 4 months in a row. Do you even know what's going on or do you just repost the nonsense that conservative hack editorials write?

[Bryan]

Economies ebb and flow. Ours especially so with artificially low oil prices. Good thing our house is in order, and the price will always go back up.

[cybercoma]

Oil is a volatile commodity. The Harper Government™ was told that repeatedly. Remember the whole Dutch Disease thing? You know those warnings from Mulcair that when the bottom falls out, we're going to be stuck with our d---- in our hands?

Oh look. Here we are.

A responsible government would have smoothed out those transitions by diversifying.

Edited July 7, 2015 by cybercoma

[blueblood]

Oil is a volatile commodity. The Harper Government was told that repeatedly. Remember the whole Dutch Disease thing? You know those warnings from Mulcair that when the bottom falls out, we're going to be stuck with our d---- in our hands?

Oh look. Here we are.

A responsible government would have smoothed out those transitions by diversifying.

No the dutch disease was when people thought oul would never fall. However new tech has accomplished that. Even still its floating north of 50$ which 12 years ago was a lot of money.

However what to diversify to? China and mexico are lower cost manufacturing and our unions priced ourselves out of that market and the service industry needs some kind of production to service instead of how the americans did it 10 years ago by essentially indebting themselves to oblivion.

Simple economics say that canada is most efficient at bringing natural resources into production unless people in eastern canada are willing to take a paycut. The times of chinese and mexicans living as peasants is over...

[cybercoma]

The times of chinese and mexicans living as peasants is over...

Right. All that industry over there is just pulling them right out of peasantry. It's over there because they live like peasants.

[blueblood]

Right. All that industry over there is just pulling them right out of peasantry. It's over there because they live like peasants.

It might be mean, but its certainly better than they were before. What would china and mexico be without the factories?