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Why Not Default?$
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Jerome Roos

Print publication date: 2019

Print ISBN-13: 9780691180106

Published to Princeton Scholarship Online: May 2019

DOI: 10.23943/princeton/9780691180106.001.0001

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From Great Depression to Financial Repression

From Great Depression to Financial Repression

Chapter:
(p.109) Seven From Great Depression to Financial Repression
Source:
Why Not Default?
Author(s):

Jerome Roos

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691180106.003.0008

This chapter considers the mass defaults of the Great Depression. The economic shock played a decisive role in depleting foreign-exchange reserves and circumscribing the debtors' ability to pay. However, the economic shock was only part of the story. In fact, the nearly universal resort to unilateral debt moratoriums in the 1930s was made possible at least in part by the relative weakness of the three enforcement mechanisms of debtor compliance, which left dispersed bondholders without the necessary leverage and coordination capacity to keep the debtors solvent while simultaneously imposing discipline on them. The chapter takes a closer look at the moratoriums themselves before turning to the conditions that caused the three enforcement mechanisms to fail. It also summarizes the consequences of the defaults.

Keywords:   sovereign default, sovereign debt, Great Depression, debt moratorium, debtor compliance

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