If a Government is hopelessy overleaveraged and over-indebted, who will it default on
- its workers, or
- its pensioners, or
- its supliers, or
- its future taxpayers, ... but NOT
- its current creditors and bondholders
Is this what is now called the "moral hazard trade" or rather a case of crashing of the weakest link ?
The effort to cut spending seems to be falling first and foremost on US Federal civil servants, the workers, whose.
This suggests that breaking that "labor contract" is seen as the path of least resistance or least cost for a debt-pressed Government.
The same was seen nearly everywhere in the Eurozone debt crisis, with the cuts to wages and pensions as the primary deleveraging mechanism.
In contrast, in a corporate default, workers are given top priority in repayment.
Reforma do IRC e Portugal perde dois lugares no 'ranking' da competitividade
A análise de António Gaspar, Mariana Abrantes de Sousa, Mário Caldeira Dias e Rogério Fernandes Ferreira, num programa conduzido por Catarina Tavares Machado. "Conselho Consultivo" de 6 de Setembro de 2013.