The Control-Loving Economist is Coming Out of the Closet Again

Please read the third line as

rational investors move

instead of

rational investors more

Interest rates increase in response to historical inflation pattern which is in turn used to determine the future inflation pattern. In a fixed rate instrument you have to ensure that the borrower does not gain in relation to the lender (based on purchasing power parity). When interest rates fail to represent the errosion of purchasing power, rational investors more (or flight of capital occurs) to those currencies where they provide better protection.

Even though the nominal value of debt may seem to be increasing at a faster rate, what is more important to note is at what rate the real debt is increasing (inflation adjusted).

Interest rates provide rational investors with an understanding to whether they are safe guarding their interest (of protecting their wealth) or not.

I am not an economist. Would appreciate informed answers to some questions that I find intriguing and disturbing.

What happens if a sovereign country cannot meet its fiscal committments?
a) internally
b) externally

Why do countries at the edge of precipice that cannot meet their obligations are extended further aid packages?

Is their an international ``mechanism`` to wipe out a country`s international obligations?
(there are numerous third world countries that,
realistically, would not be in a postion to repay their debts in the next few millineums)

regards

I am not an economist. Would appreciate informed answers to some questions that I find intriguing and disturbing.

What happens if a sovereign country cannot meet its fiscal committments?
a) internally
b) externally

Why do countries at the edge of precipice that cannot meet their obligations are extended further aid packages?

Is their an international ``mechanism`` to wipe out a country`s international obligations?
(there are numerous third world countries that,
realistically, would not be in a postion to repay their debts in the next few millineums)

regards