Mon May 25, 2020 8:49 pm
Do you remember that film - what doe sit say in ever dollar bill - "in God we trust".
It is almost the truth. It should say "in confidence we trust".
When it comes to Government's it actually isnt that different from you and I - you might lend me a million dollars, because you trust me to repay it. As soon as that trust starts to evaporate, the value of the loan changes, so the whole system is predicated on trust, trust America will pay its vast debt, trust the UK will, In the case of you and I when the trust fails, there are the Courts, in the case of Governments the market deals with the problem with exchange rates, the Government by printing money or, better still, other fiscal action to foster confidence it will repay the debt (fiscal tightening, more taxes etc).
Everyone can be a creditor, until the confidence in the main players falls apart and then we have a depression at the end of which the whole system recalibrates.