A question for all ECONOMIC BUFFS

1) What actually happens when a country DEFAULTS?
Don't confuse a country with a government. It is the government that borrows and spends, not the country.
A government can default for several reasons. It may be it disappears when it is overthrown. The new government does not recognize the debt of the old one. Those who lend to governments are generally given bonds in return. Bonds issued by governments that cease to exist, like Czarist Russia or the Confederate States of America, where the government that replaces it repudiates the debt, are not repaid and the lender or holder of the bond is not repaid.
Governments that cannot repay bonds, but remain in power, and have control of money printing authority, will print it, such as Zimbabwe, causing rampant inflation. The bonds may be nominally obligated, but the currency becomes worthless as lending to the government stops and is replaced by money printing. Weimar Germany, under the burden of Versailles Treaty obligations inflated until the obligations were ultimately repudiated. The hyper-inflation causes the economy to collapse as division of labor, is destroyed along with the ability to contract and plan.
If the country doesn't have the power to print, such as Greece under the euro doesn't have the ability to hyper-inflate its way out. In this case the politically connect will probably get paid back while everyone else will take a loss.
Default means the debt is not repaid - either partially or entirely.

2) How would the repaying of the debt happen? Hold on to your Confederate money. The South shall rise again. Repayment doesn't happen. Those holding the bonds will not get their money back.

3) To 'liquidate' means? To dispose of the debt. It can be
liquidated by either being paid off or written off. In the case of default, the obligations are written off and removed from the balance sheets. Nobody is repaid and they no longer expect to be.

4) Competitive devaluation: how does this happen and what is the effects on prices?
When a currency is devalued, what often happens is a "bank holiday" is declared. The government closes the banks so people cannot withdraw their savings to spend it before the currency is devalued. When the currency is devalued, prices go up. Debtors win. Creditors, and savers lose. When the banks re-open any savings on deposit is now worth much less than when the banks closed for the "holiday." So is any debt owed.

5) Would there be huge inflation or deflation as the economy contracts?
Inflation and deflation are independent of the contraction of an economy. In the case of fiat currency, if money is being created as the real economy shrinks there will be inflation. If the money supply shrinks because debt is being written off and destroyed through bankruptcy fast than the economy shrinks, then there will be deflation.
The money supply is not static prices will change with the amount of money in circulation relative to the goods and services concurrently on the market.

6) How could GOLD help? How could it help what? The government has no control over the value of gold. Holding gold prevents the government from stealing the purchasing power of personal savings through revaluing the local fiat currency in held in private bank accounts. If an individual owns an ounce of gold that can be traded for 8 months worth of electrical power use before the bank holiday, he can probably trade it for about 8 months of electrical service after it - that is, if power remains available. An equivalent bank account in the local currency's value may only be able to buy one month of service after the revaluation

7) In terms of fiscal policy, what happens with taxes and the budget?
The question is too vague. When a government defaults on its debt, people who want to not throw their money away will stop lending to the government. The government will not be able to borrow except from a central bank it controls, if it controls one. Being unable to borrow means it will either have to steal more - starving the private economy from which it gets its revenue through higher taxation, if it can do that without capital fleeing from its grasp, or else it must stop spending more than the revenue currently available.

8) When the Banks fail, what happens to our savings?
Banks borrow short and lend long. If a bank fails, it means it cannot meet its short-term obligations. People want their money and the bank doesn't have it. It has been loaned out. If the borrowers default, the bank loses money and cannot repay depositors.
In a fractional reserve system, more is loaned out than is on deposit. The whole system is based on fraud. In order to protect the fraud, the government has insured the bank accounts. That too is a fraud, but it has worked to prevent bank runs, as it was designed to do.

9) Would the banks go bankrupt after they reimburse everyone?
What generally happens is the assets of the bank are sold to another bank. Insured deposits can be claimed by their depositors.

10) Is that even possible? Under a fiat money system, all money is a promise. It is "faith and credit." It is as big or as small as your trust in the system.

What happens to my mortgage if banks default??? I'm in the early stages of building a home on 5 acres and we've been going back and forth on proceeding.

Part of me says, buy a smaller home for cash and not worry monetarilly BUT smaller homes don't have acreage here so I'd be in a community with lots of people. The other part of me says, put all my money in my house because it's not gonna be worth squat if I keep it in currency. And, if inflation hits HARD, my mortgage would be really cheap. Plus, on my 5 acres I can have crops, chickens, and some goats. But, if the bank defaults, what happens to the mortgage?

Some of your questions aren't really specific enough to answer, and others would take more time than I have, but here are a few things to think about.

England defaulted in the '70s. You might want to look at what happened there for an example.

The debt will never be payed, either in this country or any other. It is literally impossible. In fact, there aren't enough dollars in existence to pay all the debts owed in dollars when you count the interest. We have a debt based currency and defaulting is an inevitability built into the system. No country will ever pay off all its debts nor are they really expected to. It's how the system is set up.

To liquidate basically means going bankrupt, or writing debts off the books after you've collected as much as you can. The rest is literally erased and counted as lost.

Inflation and deflation aren't really determined by whether or not an economy is contracting. Under our current system, a lot of it would depend on what the Fed decided to do, how confident people felt about the currency, the velocity of money, etc.

Under our current system, if banks fail you are reimbursed by the FDIC. However, the FDIC doesn't actually have that much money, so ultimately if enough banks failed all at once, we would rely on either the Fed as the lender of last resort, or the Treasury could directly pay if the Congress chose to do so. If the Fed stepped in the money would be created, which means the money you got back would be worth a lot less. If Congress stepped in, they would have to borrow the bailout money from somebody else (possibly the Fed)since we run perpetual deficits as it is.

And when a bank fails, that means the bank is bankrupt. That's the definition of a failed bank.

...depends on the economic situation of that nation.

In general, though: 1) the creditors get wiped out and this has some effect on the economy (depending on who the creditors are: e.g. domestic banks, foreign government, etc), 2) the defaulting government loses its access to capital markets for some period of time until trust is regained (just like a personal bankruptcy), and 3) the defaulting government is freed of the burden of repayment and is forced to balance its budget.

There's another consequence for a nation like the U.S. whose currency is widely used abroad. We have a massive trade deficit, and have for decades. This means that foreigners (government and individuals) have accumulated a lot of dollars. What do they do with them? So far, they have invested most of them in U.S. government bonds. If the U.S. defaulted, they wouldn't be investing in those bonds, but they're not going to just sit on the cash either. They would use it to buy things in the U.S. - stocks, corporate bonds, real estate, commodities, etc. This flow of dollars back to the U.S. ("repatriation") will cause inflation.

Now, back to point #1 above (creditors getting wiped out). Banks are major creditors of all nations: i.e. they own government bonds. If a nation defaults, then those bonds held by the banks become worthless. These are fractional reserve banks. They lend in proportion to their capital reserves: the more reserves the more they lend, the less reserves the less they lend. If suddenly a large portion of their capital reserves (some government bonds) become worthless, then they have to lend less. They may actually have to sell assets to raise capital...just like when mortgage-backed securities suddenly became worthless in 2008. All this has a deflationairy effect. The U.S. is a special case. The U.S. bond market is the bedrock of the international financial system. All banks hold treasuries, the capital reserves of many banks consists largely of treasuries. A default on all these bonds leaves a gaping hole in the balance sheets of the banks; they would have to drastically cut credit expansion and sell other assets to raise capital. Most of the major banks would be unable to survive a U.S. government default; they would go bankrupt, and their assets would be bought by new banks with sounder balance sheets.

All things considered, a default is MUCH better than continuing to service the debt by inflating. The reason default is a bad word is because it harms the banks the most, whereas the banks are the major beneficiaries of inflation - and the banks run this circus. But default would be best for the people.

When a country defaults the creditors lose their money like with any default.

The repayment of debt would not happen. This is what "liquidate the debt" means.

Devaluation of a currency simply means that it falls in value, which means that import prices will go up. But it also helps exports as foreigners can buy the country's products cheaper and the increased export then helps the economy recover. This is self regulating if left to the market.

Gold helps prevent a default as it is impossible to just print money if money is fixed to Gold.

In a free society you would lose your savings if a bank fails. Knowing this people will be more careful and they will choose their banks carefully. In Iceland the Government refused to bail out the banks, so foreign banks lost the money they had lent to the Icelandic banks. These loans were "liquidated" and the lenders lost their money but the economy could then recover quickly because the loans no longer had to be repaid.

To answer your question you have to first specify which country?

Greece would be different than the US, for example, because the US can (and would) simply print more of their currency to avoid defaulting. That would have the effect of depreciating the currency and (hyper)inflation, but the country wouldn't technically default. The currency simply ends up worthless.

On the other hand is a country like Greece, which can't simply print more euros. In that case, you have a mess, which we are likely to see the result of quite soon, because not only can the currency itself be threatened but also the member states still using it. (this doesn't even get into the domino affect threatening other economies) The best they can hope for is trying to control the damage sustained as a result of kicking Greece out of the euro.