Sovereign debt was eventually restructured through the creation of Brady bonds.

Debt equity swaps rescue the banks without rescuing their shareholders.

With credit markets impaired, the Fed could buy more government bonds or private sector debt.

Debt equity swaps would be a much better way to recapitalize the banks.

Objections to the idea start with the question of whether there would be adequate demand for these novel sovereign debt instruments.

With bonds of peripheral eurozone nations continuing to fall in value, the risk of Irish, Greek, and Portuguese sovereign defaults is higher than ever.

With the onset of the European sovereign debt crisis in 2010, banks appetite for public debt fell again.

As a result, the risks of debt deflation and eventual disorderly sovereign and private sector defaults are rising.

In the event of sovereign defaults, moreover, the cost of bailing out the banks may far exceed the cost of issuing Eurobonds or instituting a reasonable transfer regime.

Listen. It s two and a half trillion bucks in IOUs which have been used to build the interstate highway system and all of the things people have enjoyed since it has been set up.

The markets, not political debt ceilings, are taken seriously the introduction of Eurobonds would remove that disciplining function.

In November 2001, the authorities again restructured the public debt, this time exchanging dollar denominated bonds for domestic guaranteed loans.

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

Sovereign cocos have the advantage that their activation would not constitute a credit event triggering the credit default swaps written on the bonds. The existence of large quantities of CDS, together with uncertainty about who has written them, has fed the reluctance to proceed with restructuring.

In early 2013, the government was forced to announce a 32 devaluation, and stopped issuing government debt in dollars.

But these critics overlook his role in helping to fight that decade s sovereign debt crises, and his insistence that the US begin issuing inflation indexed bonds.

In the absence of a sovereign bankruptcy procedure, a coordinated solution which debt exchanges and CACs are designed to facilitate is the best option.

This scalability was magnified by the use of credit default swaps (CDSs), which offered phony insurance against default.

Objections to the idea start with the question of whether there would be adequate demand for these novel sovereign debt instruments. In fact, the success of banks in issuing cocos suggests that investors do have the appetite for them.

Extending this idea to sovereign debt, government bond covenants could stipulate that if a sovereign s debt GDP ratio exceeds a specified threshold, principal and interest payments to bondholders would be automatically reduced.

Third, Germany s long term interest rates would be unaffected, because Germany would neither be guaranteeing the debt conversion scheme nor backing the ECB s bond issues.

If interest rates on US Treasury securities were high and rising rapidly as the debt grew, I would agree with this argument.

BEIJING In the last 200 years, there have been more than 250 cases of sovereign debt default, and 68 cases of domestic debt default.

Jamaica, for example, would issue aluminum bonds Nigeria would issue oil bonds Sierra Leone would issue iron ore bonds and Mongolia would issue copper bonds.

Of course, the IOUs now lodged with the ECB may themselves have to be written down, threatening to undermine the ECB s own balance sheet.

But where can it go now to find it? Most of the sovereign debt is now held by the official sector, which traditionally does not allow any haircut.

Sovereign Environmental Risk

The supposed threat posed by government debt levels hasn t hurt these markets, at least in the relatively few countries that have inflation indexed bonds.

After all, investors are more likely to reject a longer period of lower payments on exchange bonds if they can seek immediate and full retribution for the original debt.

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

Bruegel, the Brussels based think tank, has proposed that eurobonds should constitute 60 of eurozone members outstanding external debt.

This suggests that taxpayer assets will no longer back government debt, at which point confidence in the JGB market is likely to shatter.

That s why the interest rate on Greek three year government debt recently soared past 100 and the yield on ten year bonds is 22 , implying that a 100 principal payable in ten years is worth less than 14 today.

Land titles

Those Fickle Sovereign Wealth Funds

Despite significantly lower debt GDP ratios and continuous debt restructuring, they eventually needed the large debt reduction that came with the issuance of Brady bonds to achieve some breathing room.

Before the disaster, Japan issued about 1.5 billion in earthquake related catastrophe bonds as a risk management device the debt is canceled if a precisely defined seismic event occurs.

To be sure, the bondholders might refuse, given that, if they individually declared the exchange bonds to be in default, they could demand in court immediate payment in full of the remaining debt.

Create Growth Linked Bonds

Eurobonds without Fear

The Trouble with Eurobonds

Negotiable documents of title

Sovereign Debt at Square One

The Root of All Sovereign Debt Crises

Nonetheless, Argentina s latest debt trauma shows that the global system for sovereign debt workouts remains badly in need of repair.