What is the default and what we can expect from him

In 1998, in the vocabulary of Russians there is a new and scary word default. What it is – really few people know, but the fact that nothing good comes from defaulting should not wait known to all. And that word comes from the English default and it means non-compliance. Or rather, when the debtor refuses to pay its debt or the interest thereon.

Actually, there are three options of default. And one that happened 14 years ago, refers to the first of them, a state or a sovereign default. This event is thoroughly shocked Russia and led to severe economic crisis. And there are several reasons that led Russia to this. And the main reason was the populist economic policy of Russia, as well as a pyramid of government 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 prices for raw materials, which was the basis of Russia's exports also caused the Russians to “a skin” learned, what is the default.

The Consequences of this crisis significantly changed the development of the economy and the country as a whole. Plummeted, the ruble. If to default for one dollar gave 6 rubles, then six months later the ratio was already 21 rubles for one dollar. And this has led to the loss of confidence of the population and foreign investors to the state, to the Russian banking system and, of course, to the national currency. What is the default well understood, many small businesses and small banks. They could not stand such a shock and “successfully” went bankrupt. And the whole banking system of the country for another six months was in collapse.

But most of all from this state to state, ordinary citizens suffer. What is the default for ordinary workers? It is primarily the loss of all the labor savings. But this is only half the problem. The crisis bankrupted many businesses in which these people worked. And those that are not closed, still stopped to pay workers wages. People had to look for any opportunity to earn money just to survive. Because prices for commodities have increased with the growth of the dollar, that is in 3-4 times. And it is, accordingly, contributed to the growth of crime.

Then, in 1998, Russia had three opportunities to exit the crisis. It was possible to print more rubles and plunge the country into another round of inflation. But the hyperinflation of the early 90-ies have not yet forgotten, and therefore the government did not dare to take this step. It was also possible to refuse to pay foreign debts. But this option is considered unacceptable. So I chose the third scenario for exiting the crisis, and the government refused to pay on the domestic debt (GKO). And then what is the default learned the Russians themselves.

In the history of the development of the world economy there were many state defaults. And the classic example of this is the story that happened with Edward III – the English king. He in 1327, refused to pay the debts of his predecessor, who is seriously indebted to Italian bankers. And in 1650 Oliver Cromwell was looking hard money to conquer Ireland. He then went into debt to London to the rich but also to many Protestants from all over Europe. After winning he promised to pay them and also with the officers and soldiers of the army of the Irish lands. But these lands, of course, not enough at all. And if foreign investors Cromwell learned that is the default. It just “forgot” with them to pay.

The concept of default applies not only on a national scale. For example, corporate default – the bankruptcy of a private company. A private default – it's already private when the borrower refuses or cannot repay its debt to the creditor. All kinds of defaults can be divided into two classes. This is the actual default, that is the complete inability of the borrower to repay its debts nor to a specific period, or in the future, in other words, the real bankruptcy. What is technical default? This scenario, when the lender still has a chance to get their money. That is, the borrower is unable to repay on time, but after some time he will be able to fulfill all the conditions of the contract on crediting.