Countries actually do go bankrupt and disappear
March 4th, 2009By David Goldman
On Ukraine: an item I posted on the First Things blog.
By David Goldman
4 Responses to “Countries actually do go bankrupt and disappear”
Leave a Reply
You must be logged in to post a comment.
March 4th, 2009 at 11:07 am
Mr. Goldman,
How liquid are most of these sovereign credit spreads? I remember reading elsewhere that many times (likely not in the case of Ukraine, which seems to be in pretty big trouble) these sovereign CDS spreads arent that great of indicators because of their lack of liquidity? Perhaps I read incorrectly, but I just wanted your take on this. Sorry if the question makes no sense.
Thanks.
March 4th, 2009 at 7:39 pm
The title of your linked post begs the question, which country will be next?
Poland’s replacement rate is 1.27, Belarus’s is 1.23, Latvia’s is 1.29, Lithuania’s is 1.29, Slovakia’s is 1.34, and the Czech Republic is at 1.23. I can’t speak to the financial status of any of these countries, but I’m not sure it matters. How can *any* of them survive going forward?
(All numbers taken from the CIA’s World FactBook, available at https://www.cia.gov/library/publications/the-world-factbook/geos/lo.html)
March 5th, 2009 at 7:10 am
No, countries do not go bankrupt because of worsening dependency ratios. There´s one wrong assumption in this theory - presumable high and constant Life Expectancy. Wrong. As a country becomes poorer(as a result of low fertility rates), Life Expectancy starts falling, because of lack of funds to health care, pensions etc. Sad and cruel, but a fact. Life expectancy of russian males in 90´s was bellow 60. Life Expectancy in many african countries is still bellow 60. These countries will be in a state of hibernation. Low fertility rates, low life expectancy, declining population, poor economy. Either they will be taken over by some stronger neighbour or reform themselves.
As for developed countries with low fertility rates. Maybe they can avoid this. Germany and Japan are world leaders in industry automation, maybe they can replace missing labour with robots at one point. Who knows?
March 5th, 2009 at 7:34 am
At this point the bid/asked spread for Ukraine protection is 36.7 points vs 39.4 points. That’s of course very illiquid. Few participants want to write protection at any level.
And it’s true that constant fertility assumptions are wrong. If you read my post, I argue that emigration will decide the issue well before the long-term trends work out.