Hey folk
What would happen in a default economy?
Interest rate will sky rocket. Why??
For example, you bought a car and you are a good debtor that service your loan timely. All of a sudden, you decide not to pay anymore. So in future(if you are able to loan again) creditor wouldn't trust you that much. They will demand high interest to be charged.
So if a country were to default, they have to service high interest for their bonds. To ensure that they have cash flow, they will charge high interest for people that take up loans eg mortgage, car loan, credit car etc. All interest rate will skyrocket. These will cost money drying up in the market.
On the other hand, the currency of that particular country will slide. Which allow export to be cheaper. These may eventually help out in the countries economy as export is cheaper.
