Sovereign Debt

There's an interesting guest post at The Gormogons, about the interplay of Obama's military/foreign policy, Japan, and Iran.  Worth a read, but this part stood out:

There have been rumors circulating Dear Leader plans to administratively write off the nation's debt and at the stroke of a pen tell the world we now owe nothing to anyone, thus eliminating the record deficits he's run up.

Seems like a simple solution, the easy way out for those whose poor policy choices have left them in a sea of red ink, drowning in borrowing.  There are lots of those sorts around, and always has been.  Since a sovereign Nation State can always repudiate its debt, why don't they.  I mean, it almost never happens.  How come?

The answer is that repudiating sovereign debt is only an option for governments whose budget is already in balance.  Once they default, who will loan them more money?  And if your budget is balanced, do you really need to default?  And if you're running a big deficit, how do you fund it when nobody will lend to you?

Argentina defaulted ten years ago, and has been increasingly desperate ever since.  Nobody will loan them any more money, foreign investment fled, the peso went into free fall, and (correspondingly) inflation has drained the middle class' life blood.

Now it may be possible that Obama is clueless enough about economics, or such an ideologue that he just doesn't care.  But there would be nothing simple about an American government default, either to other nation's economies or to our own standard of living.