What Happens When Country Goes Bankrupt

Most of the time we will commonly see an individual being declared bankrupt due to not being able to pay back the loan from the bank.

But do we actually know what happens to a country when it is bankrupt?

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Here are some of the things that you might want to know when a country is considered bankrupt.

1. Unemployment 

The rate of unemployment in a country that is bankrupt will be insanely high due to the country's finance worsening. The government will not be able to pay their staff's salary aside from a lot of projects that will either be canceled or on hold causing people to lose their jobs.

To make matter worse unemployment will also result in high crime rates since a lot of people will need money to survive. This will cause a lot of social problems in the country and a lot of people will be living in poverty.

2. Inflation

Bankrupt countries will start printing out lots of money for the sake of settling their debt and this is no good. When there is a huge amount of money in circulation in the market, the price of goods will start to skyrocket. This is due to the value of money depleting.

For example, we can see from Venezuela when the inflation was so bad that the price of eating at a fast-food restaurant is equivalent to their monthly salary in 2018. According to Forbes, Venezuela's annual inflation rate is 10,398% per year which is rather insane.

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Just imagine that you have $20,000 and later when your country is struck by inflation, that could quickly be worth $200. Another country hit with bad inflation is Zimbabwe which their country was forced to use 9 different currencies since its own was of no value.

3. Taxes and Subsidies

Tax is considered one of the major income for a country and since the government is lacking in money, the government will take the initiative to increase the rate of taxes as well as remove any sort of subsidies for healthcare and education.

The poor will definitely take a great hit in this situation and a lot of people will not be able to get the help that they can get. You can expect the citizens to retaliate to this problem and a lot of other problems will arise.

4. Savings

It was just stated that the value of your money will be pretty much worthless and this can also be said regarding the savings that you currently have. Let's say you have saved over $10,000 USD and due to the inflation in your country that $10,000 could be worth pretty much nothing.

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Unless of course, you saved up your money in gold and other assets like real estate then you will be much safer. On top of that, most financial institutions will also be affected and unable to operate properly.

5. Adapt to New Norms

Aside from all that has just been said, one thing for sure is that people will need to get used to living this new life unlike before.

If you used to be someone who spends a lot of money on designer clothes and accessories then this will be the time for you to be more frugal and only spend when necessary. Your social life will dramatically change during this period.

There will be no more bonuses, healthcare, and educational subsidies, and instead, you will have to think of a way to get through all of this as it will be the perfect time to get insurance as you will need all the help you can get.

It might be to your surprise that even developed countries have once been declared bankrupt like Germany aside from Argentina and Greece. But the bright side is that a country won't stay forever bankrupt and it will take some time for the economy of a country to regain back its confidence.

Self Reflection

Now that you know what happens when a country goes bankrupt then this might be the perfect time for you to start reflecting on yourself and think about what sort of preparations have done in case things like this do happen. 

It is not wrong to spend lavishly but sometimes being frugal can help you towards a better future.

Credit: Majalah Labur

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