What Happens When Governments Go Broke?

This chapter focuses on government insolvencies and government spending. When governments take on so much debt that they can’t cover debt servicing, and when they face questions of their ultimate capacity to repay creditors, governments are driven to financial crisis. The most basic needs and services are provided by government; if it goes bankrupt, society is very adversely affected. Professor Sachs runs through a government’s income flows and balance sheet with taxes, spending on goods and services, investment, and interest. He talks about budget deficits and steps to be taken to move to a budget surplus, such as increases in taxes. Government insolvency leads to cuts of government services, social unrest, massive banking crises and radicalization of the society -- or to revolution. Historical examples are given, from the French Revolution, to the Bolshevik Revolution, to Bolivia, Poland, and Greece.


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