Question

What unique issues arise when a government, as opposed to a business, is declared bankrupt? Will the Coronavirus bankrupt local governments, and how?

Answer 1

When the government will be bankrupt, it will mean that all the organisations within the economy will collapse and it will mean that the central bank will not be having enough money in order to discharge its debt and all of its debt will be enforced upon Central Bank and Federal bank and there will be a complete collapse of the economy and this will also mean that there will be a widespread unemployment situation and stagflation and social tensions along with civil unrest in the economy as we can see in case of economies like zimbabwean economy or venezuelan economy where the government has gone completely bankrupt and there is no value for this currency and there is a a exploding rate of inflation and there is no Central Bank to control with the deteriorating situations.

it will also mean that these countries will be on the mercy of international institutions and they will be slowly providing with new loans for restructuring the old loans and the entire economy will collapse and there will be large death of the people and social unrest along with the value of savings and deposits will become almost negligible.

Coronavirus can bankrupt the government because the government which are almost ladden with debt and these governments are also having short term repayment in the form of interest and if they will not be able to repay with their interest then these debtholders can enforce their debt on the government and there may be a panic which can trigger the insolvency of the government because they do not have enough liquidity on their hands at the current time when the economy is already in shambles due to coronavirus so it can lead to complete collapse of the system.