It transfers it from individuals to sovereign states. It gets moved around. But it doesn't go away. In fact, it increases.
And — as the Greeks are demonstrating, in an admittedly extreme case — at some point you just get sick of it, and extremist parties are elected with the stated purpose of repudiating the debt.
And that's where this is heading. The call today by Alexis Tsipras, the head of the Left Coalition party in Greece, for an international tribunal to look into the legality of the entire Greek bailout is a Repudiate The Debt tribunal. Pure and simple.
So what happens from here? Greece is a special case. The IMF has likely concluded it has no one to negotiate with in the short term; the Greek government will run out of money almost at the same time as the next elections (June 10 likely). It is quite possible the IMF will move to a month by month disbursement until something can be worked out, or until the Greeks outright default.
Ian Bremmer, president of Eurasia Group, has an excellent new book out on what is happening in the global economy: "Every Nation for Itself: Winners and Losers in a G-Zero World." Check out this excerpt.
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