Land values soared. States splurged on new programs. Then it all went bust, bringing down banks and state governments with them. This wasn't America in 2011, it was America in 1841, when a now-forgotten depression pushed eight states and a desolate territory called Florida into the unthinkable: They defaulted on debts.History repeats itself, but things are always a little different. One difference between then and now is that back then bonds were sacrosanct. When GM's bondholders took a hair cut during the GM bailout, an example was set. That example is that bondholders need not be paid back in full. This will wreak havoc on the bond markets once sovereigns begin partially defaulting on their bond obligations. And, of course, they'll try to avoid doing this as is the case in Portugal where debt worries have driven up bond yields:
Investors are worried the government won't be able to meet its debt obligations and may need a bailout like those provided to Greece and Ireland last year.Papering over your debt with other people's money, or, as in the case of Portugal, the money of other countries, is always the preferred option. But western countries have shown themselves unable to rein in the root cause of all of this debt: spending; therefore, I believe that they are merely deferring the day of reckoning.