Final answer:
Failure to pay just debts or continual accumulation of debt can jeopardize a member's credit rating, interest rates, and borrowing ability, leading to broader economic consequences including loss of investor confidence and potential banking crises due to asset-liability mismatches.
Step-by-step explanation:
If a member fails to pay just debts or repeatedly incurs debts, several aspects may be jeopardized. The member's creditworthiness and reputation for financial reliability will be compromised, potentially resulting in higher interest rates for future borrowing or the inability to secure loans at all.
Nations or entities that fail to manage their debts could face economic collapse, investor confidence erosion, and difficulties in borrowing money. Historic examples include Detroit and Puerto Rico restructuring their debts, and countries like Turkey, Brazil, Venezuela, and Argentina defaulting on loans multiple times, impacting their economies and credibility in the international market.
For banks, the risk of loan defaults is significant because of the assets liabilities mismatch. Rapid interest rate hikes can lead banks into a situation where they are paying out more in interest to depositors than they are receiving from borrowers, which is unsustainable in the long term. In summary, failure to manage debts can lead to a cascade of financial and economic problems, affecting both the debtor and the broader financial system.