Germany s opposition to debt forgiveness is thus bad economics, bad politics (except at home), and bad history.

China s Hidden Debt Risk

Welcome to the BAD (Big Annual Deficits) decade of public debt.

Debtor countries pay substantial risk premiums for financing their government debt.

But failure is not always a bad thing a banker operating an all equity bank, with no need ever to repay investors, would be likelier to take unwarranted risk. The need to repay or roll over debt imposes discipline, giving the banker a stronger incentive to manage risk carefully.

By contrast, reckless reality testing and unnecessary risk taking are often part of bad luck.

In paragraph 120, the Board recommended that UNRWA revise its accounting policy for the treatment of provision for bad debt of loans, taking into account the type, geographical distribution and all risk factors affecting the recoverability of loans.

And a stronger economy would help domestic banks by reducing potential bad debt and mortgage defaults.

And now the safety and security of US debt are at risk.

Investors were not worried about default risk on Spanish or Irish sovereign debt, or about Italy s chronically large sovereign debt.

With economic growth continuing, the potential risk posed by this debt will diminish.

Spain s huge risk premium has almost disappeared, but its debt problems have not.

The real risk concerns the potential for bad political choices to make climate policies worse than necessary.

Of course, some believe that the Fed s mass purchases of US debt poses an even bigger risk than Europe s sovereign debt crisis.

If heavily indebted countries have to pay heavy risk premiums, their debt becomes unsustainable.

Socializing public debt is already posing a risk to the still stable eurozone countries.

The risk stemming from local government debt is exacerbated further by massive amounts of non explicit debt acquired through arrears, credits, and guarantees.

Moreover, the size of the bad debt threatening banks remains unknown, and could amount to several hundred billion dollars.

One reason to be concerned about the bad deal that American taxpayers are getting is the looming national debt.

A similar battle is now brewing about America s debt ceiling, which, if unresolved, introduces the risk of a technical default on US public debt.

Now China is experiencing a fourth instance of elevated debt risk, this time characterized by high levels of accumulated local government and corporate debt.

So if the firm takes on too much debt, the cost of debt rises as creditors demand a higher risk premium, and ROE decreases.

Indeed, increased debt servicing obligations resulting from higher interest rates, along with weakening export prospects, ran the risk of reproducing an unsustainable debt burden.

Large financial intermediaries endanger the entire financial system when they use the wrong risk model and make bad decisions.

Borrowing increases risk in any business you can t go bankrupt if you have no debt.

The risk premia on the sovereign debt of Greece, Ireland, and others have not diminished.

The theory does not say that markets cannot plummet if the news is bad, or if investors become risk averse.

It didn t work. Eurozone sovereign debt turned out not to be homogenous with respect to risk.

Greece simply cannot afford to repay its debt at interest rates that reflect the inherent risk.

And, as Reinhart and Rogoff say, a correlation between high debt and low growth is a sign that one should investigate whether debt is a risk.

But the risk that the world s investors currently are trying to avoid by rushing into US, Japanese, and German sovereign debt is not a fundamental risk.

The risk of default or debt restructuring induces creditors to be more careful in their lending decisions.

Similarly, too big to fail banks would not care about the failure risk associated with debt financing.

But Europeans, while having launched national recovery plans, remain unwilling to take on a similar debt risk.

In some countries with high levels of debt and impaired growth, fiscal stimulus could raise the risk premium on sovereign debt and be counterproductive others have more flexibility.

Often, securities are created that are backed by sophisticated portfolios containing good and bad assets whose true risk cannot easily be assessed.

Something started to cause investors to fear that Greek debt had a slightly higher risk of eventual default.

The major risk to the sustained role of the dollar is the large and growing US national debt.

debt service coverage reduces the financial risk to investors and translates into lower borrowing costs for the borrower.

But the promise of a return to the status quo ante of risk free public debt is not compatible with the continuing limits on the socialization of national debt.

To believe that any country issuing debt in its own currency is risk free as long as the exchange rate is flexible is astonishingly naive. For one thing, there is still inflation risk, particularly for countries with weak fiscal institutions and heavy debt burdens.

Europe as a whole is not in bad fiscal shape its debt to GDP ratio compares favorably with that of the United States.

Managing modern debt crises always involves the extraordinary logic of throwing good money after bad in the hope of masking the underlying unsustainability.

Another major risk of interest rate liberalization in China stems from rising public debt, particularly local government debt, which has grown significantly in the wake of the global financial crisis.

Investors thus assumed that they did not need to assess the credit risk of eurozone countries (national) public debt.