What is default and what can you expect from it?

In 1998 in the vocabulary of Russians there was a new and terrible word default. What is it - a few people really know, but that it is not necessary to expect anything good from a default, everyone knows. And this word has come from the English default and it means a default. Or rather, it is when the debtor refuses to pay its debt or interest on it.

In general, there are three options for default. And the one that happened 14 years ago, refers to the first of them, state or sovereign default. This event thoroughly shook Russia and led to a severe economic crisis. And there are several reasons that led the RF to this. And the main reason was Russia's populist economic policy, as well as a whole pyramid of state short-term obligations (GKO). By that time, Russia had accumulated a huge public debt, which was generated by the collapse of the economies of Asia. The liquidity crisis and the fall in world raw material prices, which were the basis for Russia's exports, also became the reason for Russians to learn at their own skin what a default was.

The consequences of this crisis have significantly changed the development of the economy and the country as a whole. The ruble has fallen sharply. If before the default for one dollar was given 6 rubles, then six months later this ratio was already 21 rubles for one dollar. And this led to a loss of confidence of the country's population, and foreign investors to the state itself, to the Russian banking system and, of course, to the national currency. What is a default well understood by numerous small businesses and small banks. They could not stand such a shock and "safely" went bankrupt. Yes, and the entire banking system of the country was still half a year in collapse.

But most of all from this state in the state, ordinary citizens suffer. What is a default for ordinary hard workers? This, above all, the loss of all labor savings. But this is only half the trouble. As a result of the crisis, many enterprises on which these people worked went bankrupt. And those who did not close, still stopped paying workers a salary. People had to look for any opportunities for earning to just survive. After all, prices for essential goods grew with the growth of the dollar, that is, 3-4 times. And this, respectively, contributed to the growth of crime.

Then, in 1998, Russia had three opportunities to overcome the crisis. It was possible to print more rubles and drive the country into another round of inflation. But the hyperinflation of the early 90s had not yet forgotten, and therefore the government did not dare to take such a step. It was also possible to refuse to pay foreign debts. But this option was considered unacceptable. Therefore, they chose the third scenario to overcome the crisis, and the government refused to pay on internal debts (T-bills). And then that such a default was learned by the Russians themselves.

In the history of the world economy, there have been many state defaults. And the classic example of this is the story that happened with Edward III - the English king. In 1327, he refused to pay the debts of his predecessor, who seriously owed Italian bankers. And in 1650 Oliver Cromwell was intensively looking for money to conquer Ireland. And he then got into debt to the London rich, and also to many Protestants from all over Europe. After the victory, he promised to pay them, as well as with the officers and soldiers of his army the Irish lands. But of course, all of these lands did not have enough. And then foreign investors Cromwell learned what is default. He simply "forgot" to pay them.

Also, the concept of default is applied not only on a national scale. For example, a corporate default is the bankruptcy of a private company. A private default is when a private borrower already refuses or can not repay his debt to the creditor. Also, all types of defaults can be divided into two classes. This is the actual default, that is, the total inability of the borrower to pay its debts either in a specific time or in the future, in simple terms, real bankruptcy. And what is technical default? This is a scenario where the lender still has a chance to get his money. That is, the borrower does not have the opportunity to repay the debt on time, but after a certain time, he will be able to fulfill all the terms of the loan agreement.