By default, what does youth slang mean? What does the word "default" mean?

In our country, the concept of “default” is associated with the events of 1998, when the Russian government refused to repay government short-term bonds on time, the dollar exchange rate jumped, citizens’ savings depreciated, and prices rose sharply. However, default is a broader concept that can concern both entire countries and individual companies. We’ll talk about what a default is, how it happens, how to determine its approach, and what it can turn out to be like in this article.

Default is a refusal to pay debts. Both for the principal amount of debt, and for interest and other obligations under the agreement with the creditor.

There is a broad and narrow concept of default. Narrow is a refusal to pay creditors of one enterprise. In fact, this is a harbinger of bankruptcy; after default, a monitoring procedure is prescribed.

The broad concept of default is the refusal to pay the debts of an entire state. Moreover, the country can either refuse to repay external borrowings, or fulfill internal financial obligations (including, for example, paying salaries in the public sector), or maybe both together.

History of defaults

As already mentioned, Russia fully encountered a similar phenomenon in 1998. Then the budget deficit was covered by issuing GKOs - government short-term bonds. When this instrument was introduced in 1997, rates on such securities were slightly above zero, and accordingly, the state easily paid their buyers.

At the beginning of 1998, the stock market began to fall, and rates on GKOs increased to 19%, and by August - to 49.2%. In order to repay the previous ones, the Ministry of Finance had to issue new ones (“GKO pyramid”), and in the end it became clear that the budget’s capacity to return debts to holders of short-term securities was not enough. On August 17, 1998, the government announced a technical default: the restructuring of state bonds with an increase in the term and a decrease in the size of payments on them.

But this is far from the first case of government default in world history. According to scientists from Harvard and the University of Maryland, from 1946 to 2006 alone, there were 169 sovereign defaults in the world. Among the countries, Spain experienced defaults more often than others - 6 times over the past two centuries. Greece has lived for almost half of its modern history in a state of refusal to pay international obligations.

Russia, figuratively speaking, showed the fig to creditors in 1918 (these debts were eventually repaid at the beginning of the 21st century). Great Britain refused to pay its debts to the United States in the 30s of the twentieth century (arguing this with the default of several American states on loans to the United Kingdom).

In the 21st century, Ecuador, Jamaica, and Greece have experienced defaults.

As for defaults of commercial companies, this is almost a common occurrence. In 2018, technical defaults in Russia included the well-known microfinance organization “Home Money”, the largest owner of Moscow commercial real estate O1 Properties, and the food company “Sibirsky Gonets”. Several financial organizations declared full (simple) defaults - PromSvyazCapital, TGPC-Finance-3, Promnefteservis, the famous RGS-Real Estate and others. A complete list of companies that refused to repay bonds, coupon and other loans can be found, for example, on the RusBonds website.

Despite the similarity of reasons for refusal to pay debts between an individual company and an entire state, there are also significant differences.

Reasons for the organization's default

The main reasons why a company becomes insolvent include:

negative market conditions;
adventurous management policy (lending without calculating risks);
a sharp increase in competition in the company's sector of activity;
increase in overdue and bad accounts receivable;
interruptions in the supply of raw materials, due to which the company cannot produce and sell products on time in order to make a profit and pay off creditors and investors;
instability of exchange rates, which may lead to a sharp increase in the cost of imported equipment/products necessary for the operation of the organization, as happened in the Russian Federation in 2014 after the imposition of sanctions.

Reasons for state default

Types of default

In the modern world, there are two types of refusal to pay debts: simple and technical.

Simple default

In its economic essence, this is the recognition by a legal entity of its bankruptcy - the complete impossibility of paying obligations. This usually happens when bonds, coupon payments, conventional loan payments, and so on come due. If this happens, the company itself or creditors initiate a monitoring procedure and then bankruptcy.

In the case of states, international financial organizations (for example, the International Monetary Fund) come into play, lending money to the defaulting country in exchange for certain structural changes in the economy, privatization of state assets and other measures.

There are two forms of simple default:

1 Sovereign default is the complete inability of a country to pay external and internal debts. The UN Charter prohibits other countries from using coercion to change the economic or political system to repay debts in such cases, but this has happened many times before - most often in third world countries.

2 Cross default (cross-default) - refusal to pay one debt is automatically regarded as a default on other obligations. Most often used in the commercial sphere, when one company is provided with several lines of credit. Refusal to pay one of them automatically terminates all others, even if payments are made regularly. This has a very serious impact on the company’s credit rating; in the future, it may be deprived of access to borrowed money. In cases of government default, this happens when the government debt is formed from several tranches from the same source.

Technical default

This is the inability to pay a particular obligation due to any temporary economic difficulties. For example, you expected to receive payment under a contract, but your counterparty delayed payment. And you have nothing to pay the loan right now. But after a few days/weeks/months the situation will return to normal. If the issue with the loan can be somehow resolved (agree with creditors on a deferment, for example), then when the bonds mature, either pay or declare a technical default. Which can turn into a simple default if in the foreseeable future you will not be able to pay your debts, and your process will be initiated.

A classic example of a technical default is AFK Sistema, which in 2017 had to announce a temporary refusal to repay loan obligations of almost 4 billion rubles due to the seizure of part of its assets following a claim by Rosneft. At the same time, in reality, Sistema continued to repay most of its loans, and after the seizure of assets was lifted and the issue with Rosneft was resolved, in April 2018 the company emerged from a state of technical default.

For states, technical default is a much more common occurrence than sovereign default. For example, in 1998, Russia did not completely abandon the redemption of GKOs, but proposed the following conditions:

Individuals and some legal entities (who were legally required to invest part of their assets in bonds) received payments without changes.
For other legal entities, 70% of the debt was converted from one-year to 4- and 5-year bonds with a reduction in interest income.
20% of the debt was paid off with zero-yield bonds.
10% of the debt was returned in cash within 9 months.

That is, they did not return it in full on time (technical default), but paid it in installments and with a slightly smaller profit. This made it possible to keep the economy from completely collapsing and restore it in a short time.

Consequences of default

The default of a commercial organization usually has negative consequences. Refusal to fulfill obligations, even temporarily, indicates the instability of the organization’s economic situation. It is becoming more difficult to get a loan; banks are required to require collateral. Counterparties are beginning to check your balance sheet more carefully and are afraid to enter into long-term contracts with you.

If the default goes beyond a technical one, the company's bankruptcy procedure is initiated. At best, this ends in business restructuring, at worst - termination of the company. Moreover, if in the USA every third bankruptcy ends in the restoration of the company’s work, then in Russia only less than 5% of bankrupts remain afloat.

As for the state's default, there are two scenarios.

1 Negative consequences.

The most important thing is the decline in the standard of living of the population as a result of negative processes in the economy. The state is unable to fully fulfill its social obligations for some time. As a rule, there is a decline in the national currency (in Russia in 1998, the ruble fell 4 times against the dollar), this is accompanied by a sharp decline in the real incomes of citizens.

The collapse of the national currency could result in the shutdown of a large number of enterprises, especially if they rely on imports. The banking system is bleeding, foreign investors are withdrawing their capital from the country. Political problems are growing, destroying stability and economic processes. However, unlike a commercial organization for which a default can lead to collapse and complete disappearance, the state will not completely disappear because of this.

2 Positive consequences.

Oddly enough, state default also has positive consequences. Refusal of debt payments allows you to direct the freed-up funds to areas that were previously underfunded - for example, in production. As a result of the crisis, the “sick” part of the economy is dying off: financial bubbles are bursting, and fly-by-night companies are leaving the market.

The devaluation of the national currency gives greater advantages to exporting companies, and they, with proper control by the state, begin to pull other sectors of the economy with them. Domestic firms are entering the niches vacated by the departure of foreign companies, competition is growing, and, as a result, the quality of goods and services is increasing. Since creditors, worried about default, want to repay at least some debts, there is an opportunity for negotiations to improve the terms of repayment of external debt, lower interest rates, and so on.

How to determine the approach of default

For both the company and the state, the main harbinger of default is the same: emerging difficulties in paying debt obligations.

Business organizations are experiencing falling profits in client sectors that were previously considered stable. Problems can also begin suddenly if a large client goes bankrupt, resulting in critical accounts receivable that are almost impossible to collect.

For states, crises are usually associated with the inability to pay obligations on public debt securities. Moreover, public debt is understood not only as sovereign debt itself (in the Russian Federation as of August 1, 2018, it is $47 billion), but also corporate debt, since most of it is the debt of companies with state participation (in Russia it is now $485 billion, the figure is in the last 2 year varies from 350 to 540 billion). Therefore, the failure of one or more large companies to pay their international debts may indicate an impending default of the entire financial system.

Another sign of an impending default may be sharp jumps in exchange rates that cannot be stopped for a long time, as well as aggravation of international relations.

How to protect yourself from government default

Since the main consequences of default for the population are the depreciation of the national currency (and therefore savings) and difficulties in fulfilling social obligations by the state, it is important to preserve your income as much as possible during this period and not lose what you have accumulated. There may be several options:

1 Purchasing currency. Relevant immediately before a crisis, when the national currency is just beginning to decline in value. It is extremely difficult to catch this moment; you either need to have insider sources in the banks, or just guess. After the crisis begins, banks, as a rule, sharply inflate the exchange rate, restraining sales of the dollar and euro. In moments of political instability, such as in the period from 2014 to 2018, it is recommended to divide your savings into 3 parts: ⅓ in dollars, ⅓ in euros and the rest in rubles.

2 Investing in real estate. As soon as economic instability begins and rumors of default appear, you can have time to purchase a home or commercial property at the “regular” price. In the future, prices will first jump, and after a default they will fall sharply due to a decrease in consumer demand. And it may take a long time before they start to rise again. Therefore, purchasing real estate is a long-term investment, it is not suitable if you are going to use the money soon. But housing will always be appreciated, so you will get your investment back one way or another.

3 Multi-currency bank account. This is not 1998, deposits up to 1.4 million rubles are guaranteed by the state, and multicurrency will allow, if necessary, to quickly transfer all assets from ruble denominated to dollars or euros. However, not all credit institutions offer this service. For individuals, Tinkoff Bank has a “Multicurrency” deposit. Sberbank abandoned a similar product in 2016; VTB offers it only for corporate clients.

4 Investing in precious metals. Gold has always been considered a “safe haven” during a storm in the financial markets. In the event of a global financial crisis, experienced investors withdraw most of their funds and redirect them into gold and other precious metals. The following methods of investing money in precious metals are available to ordinary citizens: measured bars, investment coins or impersonal metal accounts. But buying precious items (chains, earrings, rings) is not the best option. Read more about this in our materials:

Conclusion

Any default, that is, refusal to pay loans or repay bonds, is a serious shock. For a company, this is a big risk of eventually becoming bankrupt and ceasing to exist. For the state, there is a danger that millions of people will lose their savings, and economic activity will be disrupted for a long time from normal.

Default can be simple, when the refusal to pay debts is absolute, or technical, when payment is impossible only at the moment specified in the contract. In the case of states, technical default mainly occurs, and for enterprises, especially small ones, debt default almost always ends in bankruptcy, in which creditors lose most of their money.

Among the consequences of default, along with the obvious negative ones (devaluation, decline in the standard of living of the population, massive bankruptcies of companies), there may also be positive ones: increasing the competitiveness of one’s own producer, increasing investment in the real sector of the economy, cutting off financial bubbles, and so on.

Video for dessert: Dog tries to protect his little mistress

Default is failure to fulfill obligations.

One of the most unpleasant words you can hear is the word default. And nowadays people, unfortunately, use this word more and more often in critical situations. But what kind of critical situations could there be? And why exactly in such situations they use such a term as default.

The word default is a word of foreign origin, namely English. Translated from English, default is translated as failure to fulfill obligations. But obligations can also be different, so default can be of different types. There are three types of default: technical, bankruptcy and sovereign default.

The essence of technical default

For example, you took out a loan from a bank and entered into a corresponding agreement with the bank. This agreement specifies lines, percentages, etc. for payment of borrowed funds. At first you paid, but then suddenly, by coincidence, there was no money and you physically cannot pay the interest on the loan or the principal amount on time. It is in this situation that the borrower’s technical default occurs. Those. in other words, this is a failure to fulfill obligations to repay loan amounts to a banking institution.

A conventional default is similar to a technical default, but in a conventional default, a person (borrower) or company completely defaults on its loan obligations.

Country default

This type of default is probably the worst. After all, when a country defaults (sovereign default), it is not one or several individuals who suffer, but the population of the entire country. And if the country defaults, the state refuses to pay the population for a number of obligations. A striking example was default in Russia when the Government refused to make payments on a number of obligations (example: Government short-term bonds and Federal Loan Bonds). Moreover, this example can also be attributed to the technical default that occurred in Russia on August 17, 1998.

A country's default can also occur when obligations are not fulfilled not only within the country, but also when the state's external debt arises.
From this we can conclude that default in simple words This is a failure to fulfill obligations related to any financial payments.

Default can be declared by companies, individuals, or states (“sovereign default”), unable to service all or part of their obligations.

Corporate default is an important concept of corporate law, being, on the one hand, a protective mechanism for a company experiencing temporary financial difficulties (protection from a hostile takeover, protection from a raider takeover, etc.), and on the other hand, it protects creditors from the company’s failure to fulfill its obligations on loans.

Types of defaults

There are two fundamentally different types of defaults: simple default (bankruptcy) and technical default.

Default (bankruptcy)

Ordinary default refers to the inability of the borrower to fulfill its obligations. This means bankruptcy of the borrower. If this is a company, then an arbitration manager is appointed who determines further steps (sale of the company as a whole, sale of the company in parts, etc.). If an individual defaults, actions towards such a borrower after the default are regulated by national law, but more often than not ordinary people are protected by law. If a state defaults, then debts and disputes are subject to settlement at the international level.

Technical default

A technical default occurs against the will of the issuer (borrower) due to the lack of payment options; in the future, the precedent is subject to settlement in accordance with the agreement of the parties. A technical default is a situation when the borrower does not fulfill the terms of the loan agreement, but physically he can fulfill this agreement in the future. Failure to comply with the terms of the agreement may imply either a refusal to pay interest or principal, or a refusal to provide necessary documents (for example, an annual report) or any other violation of a clause in the loan agreement. Then the borrower can declare a technical default on the lender. The further fate of the borrower and lender depends on the reasons for the default and the possibilities of debt settlement in the future based on the legislation in the country. Quite often, a technical default does not lead to bankruptcy of the borrower.

Corporate defaults have occurred quite frequently in history, and many governments and global business leaders have been in technical default at one time or another.

Examples

A notable example of a sovereign default is the 1998 default. On August 17, the Russian Government announced the cessation of payments on a number of obligations, including GKOs and OFZs. Default occurred in Argentina in 2001, Mexico in 1994, Uruguay in 2003, and North Korea in 1987.

Notes

Links

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Synonyms

See what “Default” is in other dictionaries: - (English default) failure to comply with any requirements established by law. Sovereign default (state bankruptcy) is a complete or partial refusal of the state to make payments on external and internal debts; form of public finance crisis... ...

Political science. Dictionary. default - DEFAULT, a, m. or in sign. intl. That's it, the end, failure. Complete default: deuce! My family is in default: we are getting a divorce. That's a default, motherfucker! From special “default” (English defolt), which became one of the common words in the press in the late 90s...

Dictionary of Russian argot Default - – refusal to pay a debt or interest on it. It is customary to distinguish between the default of a state, a company or an individual. Failure by a government to fulfill its obligations is called state, or sovereign, default. Refusal to pay a company's debts may...

Banking Encyclopedia Failure to fulfill the terms of a futures contract according to the rules of the exchange. In English: Default Synonyms: Default See also: Defaults Deliveries under futures contracts Financial Dictionary Finam. Default Default failure… …

Bankruptcy, insolvency, refusal Dictionary of Russian synonyms. default noun, number of synonyms: 4 bankruptcy (9) ... Synonym dictionary

DEFAULT- (English default) violation of the borrower’s payment obligations to the lender, failure to make timely payments on debt obligations or fulfill other terms of the loan agreement. In a broad sense, this term means... ... Legal encyclopedia

From English default termination of payment of interest on securities, loans, interest on bonds, as well as termination of servicing and payments on debts. Dictionary of business terms. Akademik.ru. 2001 ... Dictionary of business terms

- [English] default] fin. failure to fulfill monetary obligations. Dictionary of foreign words. Komlev N.G., 2006 ... Dictionary of foreign words of the Russian language

Dictionary of Russian argot- (default) failure to fulfill obligations, refusal to pay a debt. In particular, sovereign debt is a state’s refusal to fulfill its debt obligations to other states, international financial organizations and private... ... Economic and mathematical dictionary

Political science. Dictionary.- default. Pronounced [default]… Dictionary of difficulties of pronunciation and stress in modern Russian language

Political science. Dictionary.- Failure to fulfill obligations, refusal to pay debt. In particular, "sovereign D." this is the refusal of the state to fulfill its debt obligations to other states, international financial organizations and private... ... Technical Translator's Guide

Books

The default that might not have happened, Martin Gilman, This book about the default that shook the country in 1998 has been awaited in Russia (and not only in Russia) for exactly ten years. Martin Gilman is the head of the International Monetary Fund office in Moscow... Publisher:

In the section on the question what is Default and why does it happen? given by the author Shoot yourself the best answer is Literally the word default is translated as “default”, by default - “by default”. Computer slang.

Answer from Neurologist[guru]
Default (English default - failure to fulfill obligations) - failure to fulfill a loan agreement, that is, failure to timely pay interest or principal on debt obligations or under the terms of an agreement to issue a bond loan.
Default can be declared by companies, individuals, or states (“sovereign default”), unable to service all or part of their obligations.
Corporate default is an important concept of corporate law, being, on the one hand, a protective mechanism for a company experiencing temporary financial difficulties (protection from a hostile takeover, protection from a raider takeover, etc.), and on the other hand, it protects creditors from the company’s failure to fulfill its obligations on loans.
There are two fundamentally different types of defaults: simple default (bankruptcy) and technical default.
Default (bankruptcy)
Ordinary default refers to the inability of the borrower to fulfill its obligations. This means bankruptcy of the borrower. If this is a company, then an external manager is appointed who determines further steps (sale of the company as a whole, sale of the company in parts, etc.). If an individual defaults, actions towards such a borrower after the default are regulated by national law, but more often than not ordinary people are protected by law. If a state defaults, then debts and disputes are subject to settlement at the international level.
Technical default
A technical default is a situation when the borrower has violated the loan agreement, but physically he can fulfill this agreement. A violation of the contract may imply either a refusal to pay interest or principal, a refusal to provide necessary documents (for example, an annual report) or any other violation of a clause in the loan agreement. Then the lender can declare a technical default on the borrower. The further fate of the borrower and lender depends on the reasons for the default and corporate legislation in the country. Quite often, a technical default does not end with the bankruptcy of the borrower.
In history, corporate defaults have happened quite often, and many of the world's business giants were once in a state of technical default.

Answer from Bulgarin[guru]
Default is a refusal or inability to service a debt!
It comes from the fact that some people take on too much debt and can’t pay it off!

Answer from Vyacheslav Dolgonosov[newbie]
See Cash is an obligation of the state, and a default is a complete or partial failure to fulfill obligations by the state, or in other words, a default is when your money has depreciated greatly and very sharply...
Now the beginnings of a default are occurring in Ukraine,

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