[after a narrow escape from a motorized traction table set on overload]
You are insolvent when you can’t pay your debts. Households and firms have struggled with insolvency for centuries. Insolvency is usually a balance sheet concept based around the valuation of assets. When the value of your assets is less than the value of your liabilities, you are insolvent. Usually you work out a repayment schedule with your creditors via a restructuring process.
For countries the notion of national insolvency is a newer, and potentially very misleading, idea. Countries aren’t corporations. Technically almost every country would be insolvent if if was asked to pay all of its debt using its available assets. All governments in practice secure their national debts on their abilities to levy taxes. You can’t really repossess a country, in fairness. When a sovereign borrows too much, it either pushes the debt into the future by rolling over its debt, or failing that, defaults on some or all of the debt. The history of sovereign debt is in fact the history of sovereign default. Defaults tend to happen, in bursts, about every 30 years or so. But before the current crisis, very little attention was paid to this idea of national insolvency. There are very few mentions of national insolvency during the East Asian crisis of the late 1990s, for example.
