So in line with a post I wrote quite a while back ago about corruption being arguably the worst ill a govt can face. I think debt is a ridiculous tool that govts / corporations can use, and again this goes back to the principal-agent problem.

So, debt is borrowing money to spend now (generally) by promising to repay higher amounts (with interest) in the future. Generally the entity doing the borrowing is evaluated for credit worthiness by the people doing the lending. A more credit worthy entity is given lower interest rate because the risk of default (not paying back) is lower - a higher interest rate compensates for taking on a higher risk of default. At least that's the theory. So if a person defaults, he is sued for bankruptcy, debt is discharged (with quite partial repayment) after serving some time out and taking on some consequences.

But then comes in all these corporate entities right, companies and arguably event trusts and foundations and whatnot. Ok so instead of evaluating the person you just have to evaluate the entity right? And there is no bankruptcy proceedings, you can just liquidate the corporate entity, sell all the assets, give a partial repayment and then the rest of the debt is just gone, bad debt, buyer (of debt) beware. The person making the decision to take on the debt, however, can come out much better than the corporate entity (which is liquidated and doesn't have feelings anyway), e.g if he personally pays himself a high salary from the borrowed monies. Well, arguably really buyer beware, greedy want to lend money and earn high interest then take the hit when the corporation uses its private limited liability status to block you from recovering the debt.

Then it comes to governments. Currently governments take on debt to do all sorts of spending, some productive, some consumptive. The government, like the corporation, is actually just a legal concept, everyone agrees this is the government then it is the government. Generally governments have rights to tax and ownership of land (that they haven't sold) vested by... who knows what, the will of the people or the threat of force and so on so forth. They can also create money by printing, but that will cause inflation.

So what happens when a government defaults? In the old days you could sail your ships up their river and point your guns at their government / commercial buildings and make them cede you territory. But nowadays thats kinda frowned upon. So generally the story, nowadays, goes that if a government defaults they will take a hit to their credit worthiness and then they won't be able to borrow money at low interest rates again anymore.

Theres no way to liquidate a government without war. And what is the claim that a government has on its people and/or land? In theory, an unlimited legal claim because the government makes the laws, in practice, who knows the limit? The population can disown the govt (at least parts of) and secede, resist seizure of assets / taxation, leave, vote in / rebel and install a new government that doesn't seize all they have.

A government taking debt has been said to be "stealing" from future generations, by enjoying now and letting the burden of repaying the debt / dealing with the repercussions fall on successive governments and the peoples that they govern. Well of course this only holds true if the debt is spent consumptively rather than productively. If it is productive, the future governments and peoples will have a higher return on investment of the debt than the interest and that will be good for them.

But perhaps the model can be expanded even more. The ability to pay the debt is based on the past (i.e previous credit worthiness) to access money in the present, to be paid back in the future. 

What happens when those in charge of a legal entity doesn't care about its future, or is not correctly incentivised to care about its future? Very destructive things can happen. Its like a person that is suicidal or just living in the short term. Could just spend all his/her money, max out the credit cards and eat, drink, party because tomorrow we die. Most peoples will not do that because it is bad for them and they bear the consequences, but those in charge might be long gone, either retired so that it is someone else's problem, or dead (because they are very old).

Who then has the duty to fight back and prevent such things from happening? The young who will inherit the future? The unborn who will do the same? But they are powerless currently.

History will judge, but dead people could care less about that.

Credit agencies worth anything will downgrade.

Future generations will default or die.

Hmm... I don't have a good solution to this. Even what I have previously said about old people should not be allowed to vote / take office is clearly flawed. A middle aged man can still not care. An old person with kids can care .etc.

Actually I think as a society this hurdle is impossible to be solved by systematic means. This misalignment of incentives is always there and we need the right people, who are not seeking self interest to be in charge, and enough people in a democracy, to not put people who are seeking self interest to be in charge. These farsighted, morally principled people have existed before and will continue to exist.

And a society that has rotted from within to only chase self interest, especially as a generation, will just fade away. Of course their kids will pay the consequences. And perhaps it is fitting that it is so, it is a pipe dream to think that it is unfair for kids to pay the consequences of their parent's sins. Anyway these are not eternal consequences, merely just a lot tougher a life leading to stronger peoples!