I have to write a paper, I hate writing papers. I need a topic in International Finance. Here is one, but its harder than it may seem.
Everyone talks about the heavy debt burden the US has. Until recently most of the debt was held by Americans. That has recently changed, and now most (or at least half) of our debt is held internationally. So, now that there is a higher percentage of debt held by foreigners, does the probability of a sovereign default rise? In other words, is the US more likely to default on its debt now that the default will hurt foreigners more than it will *directly* hurt Americans?
Think of it this way, if you borrow from yourself, your debt situation isn't so bad. But if you borrow from someone else, you have much more to gain by defaulting.
Well, no worries, the US is no where near defaulting, but there is some probability, very low, and I wonder if it went up.
I am not going to study this much more. This is almost an impossible research topic. For one, the US risk of default is about zero, if not *actually* zero. Whats more, is there is nothing to compare the US to. Its the million pound elephant in a room of mice.
So I may look at much smaller countries. South America is the right place to look, SA keeps seeing sovereign defaults. Argentina has had about 5 since 1800 or so. Its still a hard topic, you need to tease out the %risk increase from Foreign debt vs the % risk increase from just more debt. I mean, countries may turn to foreign markets when domestic markets dry up. If thats true, the meer fact that the country aquired any foreign debt at all is a bad sign.
I think I need a new topic. I need to write a short paper in the next month (30 pages or so). There must be something easier... doubt it will be more interesting.