Answers to all of your questions

One of my dear readers (possibly the only one... let's be honest), asked why we forgive foreign debt when our debt to foreigners runs so high...

Let me clarify a couple of things:

1) The two "pools" of debt are largely unrelated... Our debt TO foreigners is the result of free market trades of T-Bills and Bonds that are currently being held by foreign governments or investment entities... Our debt FROM foreigners is largely the result of direct loans to certain countries... Not only are they two distinctly different structures... but they're also two distinctly different groups... In the first group you have England, China and Japan and in the second group you have the likes of Nigeria, Chile, Thailand...

2) Any one debt forgiveness is relatively small, generally numbering in the millions. Our loans are spread around the world in various types and places. Forgiving any one of them is a pretty small drop in the bucket.

3) Perhaps the most important point to remember is that loans are generally denominated in the currency of the country RECEIVING the loan... This means that they "could" repay us simply by printing more money... That would force the government to engage in hyper inflation which would hurt them alot and trade with us quite a bit as well... They also "could" refuse to pay (as Russia did in '98-'99)... what are we going to do, invade?

4) There's a humanitarian aspect to debt forgiveness as well... Much of the debt in latin american and african countries was done in the 80's and early 90's without much thought by our government (or anyone else around the world) as to the ethics of spending the money... Many corrupt governments siphoned off our loans to line their own pockets... To hold that debt against the current government (even if the government is fundamentally the same as the old one) would be unnecessarily harmful on the citizenry.

5) A better question is not, why do we allow default, but rather, why do we do it? The reason is really quite simple... given the size of our budget, spending 1-1.5% on helping other countries is a pretty small amount... Most foreign aid now is just that, aid. We generally give money now and just attach strings to the likelihood of future giving... This kind of approach appears to be working much better than the old approach... Provide the government a path to getting more money and they'll generally jump through alot of hoops... The money does trickle back to us in terms of trade and stability as well...

I'm certainly in favor of cleaning up our foreign aid programs and making sure that we're doing things for the right reasons and in the right ways... I'm also opposed to the wholesale forgiveness of foreign debt... But that doesn't mean that there aren't instances where debt reduction/debt forgiveness shouldn't be considered (aha... a triple negative!).