if i'm interpreting rogoff and reinhart correctly, if the debt is external, debt default is more likely, if the debt is domestic - the high/hyper inflation route is often chosen
You're making three mistakes: 1. If bondholders are always returned their principle and interest then there is no default or bankruptcy. 2. Printing money does not create hyper inflation and depression. The value of a currency derives from a government's demand that taxes are paid in that currency. Hyperinflation is a scenario where a government is no longer able to enforce taxation and the money supply spirals out of control as a result. This is what for example what happend in the Weimar Republic when France occupied the Ruhr area. 3. To say that bankruptcy would be "easier and healthier in the future" derives from a pretty dumb analogy to your own situation as an individual. If you're in alot of personal debt its always better to try and make it go away by declaring bankruptcy. If a government would declare bankruptcy and starts bouncing checks this would derail an entire nation. It's a good thing that the world's off the gold standard because it eliminates the possibility of a government bankruptcy for those governments that issue their own currency.
Yeah, but so what? You're arguing a technicality... Of course, if the Central Bank is not independent, the government, technically, should never need to default. Zimbabwe is a great modern example. However, when the CB is forced to engage in desperate monetization of govt debt to forestall a currency collapse, it doesn't really matter what you call it and whether it's defined as a default, strictly speaking. There's gonna be so much political and social unpleasantness that the correct terminology is gonna be the least of your concerns. Again, I hasten to add that I am not suggesting this happens in Japan, as it's a special place. There's a whole variety of reasons why Japan has been "circling the drain" for such a long time. However, all is certainly not well in both the Japanese economy, as well as Japanese politics.
Japan is birthing at half the replacement rate, and has virtually no immigration. It's going to lose about a million people a year over the next 40 years. No fiscal/monetary policy can overcome such a strong downtrend. It is the canonical example of a homogenous, "non-diverse" society -- and doomed long term stagnation/degradation unless they open the immigration spigot.
Debt monetization is a great tool to add liquidity and stabilize interest rates. It does not cause "political and social unpleasantness" but it solves a financial crisis. What governments currently do not understand is that in order to maintain the post-financial crisis stability they should also keep running large budget deficits. QE and programs like it only decrease interest rates and replenish bank reserves but they do nothing to get the general population spending again. I propose some aggressive income tax cuts to get the ball rolling again. Inflation is not an issue when you have the general population cutting back on spending in order to pay down debts.
That's not what I'm talking about. Obv, one-off measures taken in the aftermath of a crisis don't have to become a problem. However, you have to agree that the potential for a slippery slope is there even then. I am saying that when alhappens gets properly crazy it doesn't really matter whether it's technically defined as a default. There are good examples of this, such as what happened in Argentina during one of its many episodes of effective default. Moreover, if what you suggest were true we would never witness any defaults on domestic debt. In reality, it has happened quite a few times.
Argentina and Russia both had dollar-pegs at the time of default, which is what got them into trouble. There have been no defaults of countries who's debts are denominated in a fiat currency they have sovereign control over. There will not be any either as there's no reason to default. They're solvent by definition. Unless such a government gets overthrown or disintegrates and loses it's monopoly of force and the ability to enforce taxation there will be no default, and there will be no conditions which you describe as resembling a default, ie hyperinflation. These are not the end point of a slippery slope that starts with QE or some other monetary policy.
How are government like Greece and Ireland going to run even larger budget deficits though? They are already having problems just rolling over existing debt and are paying huge premiums to keep borrowing, despite having launched massive austerity programs. If it is this hard just to stay solvent with current debt in the face of aggressive spending cuts, what makes you think they could happily pump the deficit up to 15%, 20% without going bust? The markets will simply not lend at affordable rates, and they will be borrowing at 20%, 30%, 50%, 100% just like other defaulting nations before them (e.g. Argentina in 2000-2001, Russian in 1998), the interest required to service existing debt will reach a point of no return where the debt service payments exceed government cashflow and there is then no way to avoid default. Having local fiat currency just transfers the default into a currency devaluation and losses via inflation.