So, defaulting on the debt would free up over 25% of GDP making spending cuts unnecessary. By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
Rolling over the debt doesn't entail Greece paying money, netwise. They repay a loan and issue another (albeit with a higher interest) to cover that repayment.
Interest on the other hand is a real cost, and when you're shut out of the capital markets because you've defaulted you'll either need to print money or reduce your deficit to zero, by definition. Peak oil is not an energy crisis. It is a liquid fuel crisis.
The critical factor in bankruptcy prevention is the necessity of either paying off or rolling over as-due debt. Most entities today - and I don't care who they are - are not in a position to wind down on debt. Thus they have to work to carry it forward. All of these entities can, therefore, be "blackmailed" by the major financial institutions.
The usual bond payment structure is insane and encourages borrowers to engage in "speculative finance" in Minsky's terms. Adverse conditions leading to gradually increasing debt principal ("deficit") are "ponzi finance", at which point the entity is vulnerable to a run (defined as the inability to place debt of any maturity). By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
Imagine if the usual mortgage were 25 years of interest-only ... & etc.
Paying simple versus compound interest payments makes a difference, other than that .... yeah.
The usual bond payment structure is insane ...
Can't argue with that, either. Before the Loot and Scoot School of Management came 'round it was possible for companies to amass a sinking fund which, in theory and occasional practice, was used to retire the debt. Now that pile of loot is mere fodder for the predators and makes the company even that more of a take-over target.
Add interest payments are an above the line tax deduction and dividends (cost of equity payments) are an after tax disbursement, and the debt/equity ratios get shoved to the debt side.
Adverse conditions leading to gradually increasing debt principal ("deficit") are "ponzi finance", at which point the entity is vulnerable to a run
I firmly maintain ANY system containing a unregulated - of whatever nature - positive feedback loop WILL jump the shark/reach a Tipping Point. The singular, exact nature of such is dependent on the focus or 'core' of the phenomena or phenomenological system undergoing transition. For banks it's a run. For Logisitic systems it's our old friend the Feigenbaum Logistic Map.
