My cynical view is that countries can do whatever they want and "freedom" only exists because it happens to be convenient and mutually beneficial (between government and people) for a particular period of time.
Bingo. You think the government will standby and watch the world economy collapse because some investment bank won't cancel their debt, or uphold our end of the deal to mutually cancel debt? Send in military, seize all assets, wipe the records. Yes, it's a dystopia, and there will be sociatal and economic consequences. But the alternative is far worse.
I think that the larger the world economies get, the closer we get to totalitarian policy being the only thing that works to mitigate disaster. Think economic collapse, climate change, viral epidemics. None can be solved by individual initiative, slow moving government policy, etc. They require large scale, immediate, dictorial action by large nation states.
You are right, and it is also the case that totalitarian policy can be implemented in a variety of ways and for a variety of reasons. It can be a last resort measure to save a society (e.g., when the UK canceled elections to deal with the Nazi threat).
Let's say, for example, that you convince the population of the most powerful economy on earth that they are the most free, most amazing society ever, while the rest of the developed world actually enjoys affordable health care and vacation time. Meanwhile, most of your citizens not only spend the vast amount of their time in an endless rat race that only benefits economically the top .001%, send their sons and daughters to stupid wars, while aggressively demanding the continuation of this state of affairs.
Another important trick to maintaining this state of affairs is to create very violent political debate about a very narrow and irrelevant set of topics (e.g. bullshit topics such as "cultural marxism", "red pill", "cucks and soyboys", "cultural appropriation", the corrupt blue guy vs the corrupt red gal... you get the picture).
> ... or uphold our end of the deal to mutually cancel debt?
What do you mean "mutually"? the government is the debtor and the banks/funds/citizens the creditors. There's no mutuality.
> Send in military, seize all assets, wipe the records.
No need for such drama. If a government says they won't pay back, that's pretty much the end of it. Maybe check out UN Charter Article 2 (4). Of course such unilateralism is quite stupid so governments tend to avoid it
I'm just describing the nature of the debt, and pointing out why countries' debts don't "cancel each other out" because it's a common misconception.