Reading about National Bankruptcy, I started wondering about Universal Bankruptcy.. But that is far from being possible. Let me explain why..
The universe is a close entity. Now, here, just like the fundamental law of physics, where same thing cannot exist in two places at the same time, in economic terms, all countries in this universe cannot be making profit at the same time. If one is in profits, one has to be in loss to keep the balance. Lets take a small village. If one gives some money to a fellow villager, then the taker owes that much money to the giver. So, the taker might put interest rates high so he makes profit. But the giver is in loss whily repaying it. This can be extended to as big geographical areas as possible.
How did Iceland get bankrupt? Remember, Iceland has still not declared itself bankrupt officially. The whole nation went bankrupt because it cannot repay other nations for the imports. This happened because all leading banks owed money in terms of foreign currency to other nations and now they are unable to repay them back. So, this is a classic example of a nation owing money to other nation.
Can all countries go bankrupt? Well, again, following the fundamental law of physics, the answer is no.. unless all countries decide to burn all their currencies and transform the liquid money to ash.. since we still assume that people are wise, we rule out this possibility.
When markets went up and down also, the law of physics must hold.. i.e., if Sensex is up, something else should go low, otherwise we cant account for the profits. But something caused an imbalance. If we wonder what that is.. then that’s the investor psyche.. which appreciated real estate/company stocks. This gave a virtual feeling of huge profits.. but when the same was depreciated, it resulted in a catastrophe. Rightly, mind of the market is controlling the inflation across countries.
I kept on thinking about it and the reason for national bankruptcy. Believe me.. I have got a headache now..
