The frightening word "default". What does this mean?

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:55

New age - new terms. Naturally, everything is relative. And a new time comes into our lives without checking the calendar. At the end of the last century, society was faced with a concept that did not want to know at all. The fate of the representatives of Russia suddenly came default. What is this?

What is the threat? Now many people understand the answers to these questions, because they have experienced all this for themselves. Let's repeat the lessons of history so as not to forget the material covered with such difficulty.

Definition and history

The concept of "default" originated in economic law. This term began to be called the situation when the subject of relations is not able to fulfill the obligations assumed. Simply put, he promised a lot, but when it came to implementation, he turned out to be insolvent. At the same time, this concept is not purely state, as we used to think. They do not always mean, recognizing default, that this is a lack of funds and the inability to pay bills. There are other obligations that, for various reasons, the subject cannot fulfill. For example, he failed to cope with the situation and did notcan deliver already paid goods. Such an entity may declare default. What does this mean in practice? It will be liquidated, and the debts will be paid off using the currently available fixed assets and authorized capital.

Types of defaults

I must say that many consider the word "crisis" to be synonymous with this concept. That is, a situation where a turn in one direction or another is inevitable. It is clear that usually it is a terrible catastrophe. Others say, describing default, that this is an even scarier and more unpredictable situation. Often it threatens with a social collapse.

There are three types of default. Ordinary can declare an enterprise. By this it says that there is no money and there is nowhere to take it. Often after that the company is declared bankrupt. Technical is more of a legal trick. Payment of obligations is impossible, although in fact there is money. Most often announced when there are problems and inconsistencies with the documents. Sovereign - that's what people are afraid of. They are threatened by governments and states. We will tell you more about it.

Sovereign default

When the treasury is empty, resources are running out, the country is in crisis. To get out of it with the least losses, the government declares a default. What does this mean for the population? Depends on what kind of default is declared. The fact is that the state can refuse both internal and external obligations. In the first case, it stops paying those who borrowed money from it (other countries, various international funds). In the second -to their citizens. These debts, according to the statements of the state, are written off. That is, creditors cannot claim them. If you are interested in world events, you can watch how the EU is trying to pull one or another country out of the crisis. It's just that if, for example, Greece now defaults, the IMF will lose a lot of money that has already been invested in this country. It is much more profitable to give more, so that the debtor gives back what was previously borrowed, and so on.

At the state level, the situation with the accumulation of loans is growing exponentially. Now for economists, finding a way out of the debt carousel is one of the main issues.

It is believed that not one or two countries, but the whole world is now under the threat of default.

What default threatens the common man

If a country goes bankrupt, everyone suffers. The matter is that citizens cease to receive those payments which are established by the legislation. Allowances, pensions, etc. stop crediting their accounts. Further more. Cash benefits are just the tip of the iceberg. The state ceases to subsidize production, closes enterprises. Consequently, unemployment is rising against the backdrop of a jump in prices. It is almost impossible for entrepreneurs producing goods to survive in such a situation. And since there are no material values that cease to be produced (grown, and so on), it means that hunger sets in. There is no money to import food from another state either. This situation must be avoided by all possible means.