http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3147266/Pakistan-facing-bankruptcy.html

 

They have $8 billion in cash but $5 billion in outstanding liabilities, not to mention a leadership crisis.

 

I don't think things are boding well for the 6th most populous nation on earth, which is also a nuclear power and harbors a nuclear scientist who not only knows how to build bombs from scratch but already sold secrets to Iran and North Korea.

$5 billion liabilities? Pah - that is much less than any high street bank these days.

They can probably get the $5 billion from the U.S. government since they are such good "allies in our war on terror".

Yeah, we could just buy their country, impose martial law on the lawless provinces and Afghanistan will live happily ever after.

Where do you think they got their current cash on hand?

I think Pakistan, more than Iran is going to be the next foreign crisis.

How does a country go bankrupt? Surely you mean just the government?

 

Hm, it says they have 8 billion, owe 5 billion, and are asking for a 100 billion bailout.

I'm guessing you go bankrupt if you can't find a buyer for your debts. The debts being all the money you printed up to pay for stuff.

So, they can just print more money. Sure, it will cause inflation. But I've never heard of a country going bankrupt. Can they keep their house and car?

Well I'm no economist, but as I understand it they can certainly produce more money, but if that money isn't backed by something (like a bond or treasury bill) then it will fall in value at a correspondingly equal rate. In most cases the country in question is not self-sufficient, so goods and services will immediately become more expensive to offset the devalued currency, and you face hyperinflation.

 

In some cases the country is self-sufficient enough that it can essentially build an isolated economy and, if necessary, trade for foreign goods based on external resources. Cuba comes to mind as an example of that, and perhaps North Korea, particularly in its relationship with China. Iran is an interesting example -- able to trade its oil on foreign markets in exchange for tremendous import capability in spite of economic sanctions. But I digress.

 

I know consumer confidence also plays a role, but I believe as a general rule any market with working adults in it can be rescued from the hyperinflation trap with a little fiscal responsibility.

No foreign nation is going to buy up Pakistani treasury bonds in current economic conditions. In order to keep their currency stable, they'd have to back with something more tangible, like gold or silver.

To be honest, I think Iceland is in far greater economic trouble than Pakistan for the time being. Their top three major banks have gone under in the last week, all being heavily dependent upon debt to keep themselves afloat, and a good proportion of that in foreign currency apparently. I've read that the banks have about $300k of debt for every person in Iceland, and their loans totalled something like 5-6 times as much as they have in deposits. Their currency tanked and the government has had to bail them all out.

 

From reading some of the US news sites, it's not been widely reported which I guess I can understand, with there only being about 320,000 people in the country, but a lot of UK savers (~300,000) have got money over there which has all been frozen by (I guess) the Icelandic government. The banks are essentially entirely reliant in that money remaining in place because it's their main deposit base. Unfortunately the UK government hasn't taken kindly to all of this, and whilst they've guaranteed all savers getting all of their money back, they're not too impressed with Iceland, and have used anti-terrorism (!) laws to freeze as many Icelandic assets that they can get their hands on in order to get some of the money back. Very sorry state of affairs over there at the moment.

http://www.nytimes.com/2008/10/10/business/worldbusiness/10icebank.html

Thanks for the link. I expected that it was only a matter of time really.

This thing in Iceland is comical.

Not if you stand to lose a lot of money.

Perhaps you would like to explain the funny side of this.

http://www.independent.co.uk/news/uk/home-news/charities-see-163120m-frozen-in-iceland-bank-collapse-957874.html

Also, a lot of our local council money (~£820m) is tied up in Iceland at the moment. So 'comical' really isn't the word I'd use to describe it, really.

I agree, comical was a poor choice of words. Just kind of incomprehensible that an entire country could get so mired in their own personal debt.