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What is the most common way in which governments effectively default on their debts?

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As explained in a 2009 Princeton University Press book titled "This Time is Different: Eight Centuries of Financial Folly," "inflation has long been the weapon of choice in sovereign defaults on domestic debt and, where possible, on international debt." In more detail, "governments engage in massive monetary expansion, in part because they can thereby gain a seigniorage tax on real money balances (by inflating down the value of citizen's currency and issuing more to meet demand)." "Seigniorage is simply the real income a government can realize by exercising its monopoly on printing currency," which "causes inflation, thereby lowering the purchasing power of existing currency." Such inflation, which has wide-ranging harmful effects on everyday people, is a common outcome of excessive government spending and borrowing.

DocumentationGovernment Debt EffectsInflation Effects

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