That isn't how it works. It is never how it worked. Plenty of countries have defaulted, and they can still borrow money.

And yeah, it does effect other lender-borrower relationships. It's all people, and people get nervous.

Brazil in late 80s and Argentina in early 2000s default. Both spent a decade with no access to foreign debt whatsoever and prompted a massive crisis. In Argentina it let to the populist Kirschner govt.

Brazil is once again facing mounting debt due continuous budget deficit. This time the govt is pushing for austerity reforms that, if not approved, will lead once again to default. The govt approved ratings are abismal and populist candidates are expected to win next year's general election.

So, defaulting sucks.

Defaulting worked pretty well for Iceland. It worked poorly for Brazil and Argentina.

Not defaulting worked extremely poorly for Greece.

It all depends on the particular circumstances of a country. If you're going to be building massive amounts of infrastructure, then yeah, you may want to consider not defaulting. On the other hand, if the foundations of your economy are sound, you may do well to default, and live with the credit rating hit.

No defaulting and instead trying to rough it out and pay off a crippling debt is massively more harmful for a country. Because they have to basically cut all services and investments into the economy, which causes GDP to contract heavily, which causes a huge decrease in taxes, which causes yet more cuts in government investment.

You get a Greece like deflationary spiral that basically totally destroys your economy, and any hope you ever had of paying off the debt.

Bring on the defaults.

OK. Now tell me about the other side of the coin.

> Plenty of countries have defaulted, and they can still borrow money.

They're shut off from [cheap] public markets though. So while your statement is technically correct, they are usually stuck with lenders of last resort, such as IMF or direct country-to-country loans, which generally come with pretty harsh terms.

Because in case of governments something spurious always happen. That's a special case, and it doesn't have to be that way.

>Plenty of countries have defaulted, and they can still borrow money.

That's the lenders' fault. Bleed the suckers dry. Lenders like that shouldn't get to manage money.

The question is "what are the chances they will default (again?) within the time period of the loan?". That determines the interest rate and the change you will loan it to them.

If after the default, they are in a reasonable state, then yeah, people will lend them money, because there is a good chance they will make a big enough profit.

You WANT to be a lender which balances the risk with the rewards. You don't want one which just blanketly says no to something which has a low risk, which will make a lot of money because you are arse hurt about it.

Of course, but if the lenders miscalculate the risk then that's on them.

Many of those lenders are pension fund managers, who are responsible for managing normal people's retirement funding. This is not a good thing for anyone.

>>If someone has already defaulted on a loan, that will make you not want to lend to him anymore, perfect.

Yep, for example this is why no American bank will give loans to Donald Trump anymore. Too many bankruptcies. So he isn't worth the risk.

All but one of the big banks stopped loaning him or his ventures money after the first few bankruptcies

If you're a mutual fund or an ETF with exposure to PR municipal bonds, you're looking at somewhat of a loss come tomorrow morning.

If you have any spare cash on hand (investor inflows, interest payments and bonds redemptions on other bonds) your choices are:

1) Hold cash, the more the better, in order to prop up the value of the fund.

2) Lend it to another borrower.

I'd say that if you expect a smooth sailing or are in a situation where investors cannot liquidate, strategy (2) is reasonable. But even then you might want to extract some better terms from the borrower by quoting PR as a scare factor.

Most funds, however, will expect either investor outflows or markdowns in other municipal bonds with similar characteristics. For better or for worse, the municipal market is frozen for a new borrower, at least for the next few days.

Wrong. A borrower who defauls is more attractive than a tightwad who never borrows. There is a chance of making money on the former. People going into foreclosure get innudated with loan offers.