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Debt Crisis | Payday Loans

 

 

A debt crisis is an economic phenomenon that cross countries or supranational organizations when experiencing financing problems, usually related to difficulties in the payment of their commitments or the management of interest rates .

 

 

Generally, this type of financial crisis for countries arises from accumulating a large volume of debt , following the excessive issuance of public debt securities whose main purpose is more short-term financing and to be able to face imminent payments or budgetary commitments. That is, when the State does not address the payment of its commitments by returning the loans obtained or their respective interests .

 

The study of the size and the danger of this type of economic crisis focuses on the relationship between the public debt with that of a particular country and the volume of GDP in which it moves annually . This helps economists to know how much the State will have to produce in an exercise to be able to face its external debts. Another existing modality is to resort to the relation that keeps the GDP with the public deficit .

 

The debt crises are also known in the economic and financial sphere as public debt or sovereign debt crisis . Historically they have been experienced in warlike periods or together with other types of crises. A very clear example is the European debt crisis .

 

Main causes of a debt crisis

 

Main causes of a debt crisis

These are the main causes that can cause the debt crisis in a State:

 

Problems in the payment of the commitments that the State has regarding external agents, putting in doubt its future payment.

Complication when finding new lenders or creditors  in the financial market.

Increases in interest rates related to the debt assumed by the countries.

Incurring a sovereign debt crisis often leads to bankruptcies , serious problems to meet your internal payments or the inability to grow your domestic savings, which ultimately ends up harming not only the unpaid lenders but also the citizens of the own country, in matter of public cost (health, security, social services …).

 

 

Measures of the states before debt crisis

 

Measures of the states before debt crisis

As mechanisms of solution or settlement in these cases, the most common is that the State is committed to its creditors to meet new conditions in the loans , so that they can reduce the nominal value of public debt securities, lower the rate of interest or modify the due dates .

 

A more extreme case to the previous one is the negotiation of debt eliminations or suspensions , a concept of frequent presence in the economic news of recent years with what happened in countries like Greece , for example.

 

Alternatively, it is also common for states with the possibility to do so to implement expansive monetary policies , so that through the issuance of money and its injection into the economy of the country.

 

The common thing is to speak of debt crisis in macroeconomic environments, although by definition also in the microeconomic sphere when individuals or companies face larger debt volumes than they are capable of responding to.

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