Posted: 8/24/2009 2:07:26 PM EDT
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Finacial collapses have happened before, so without getting into a debate on whether it will or will not happen in the U.S., could someone explain to me how it happened in other countries?
When currency is printed to excess, it becomes worthless (i.e. Wiemar Republic). Hyper-inflation ensues. The government will often issue "new" currency, with a "new" value. For example, a "new" dollar may be worth $10 "old" dollars. One way to envision this is to simply knock off a few zeros to the demonination. I think this has happened in several African nations. The question then becomes: What happens to the old debt? Does a $200k mortgage become a $20k mortgage, or a $2M dollar debt? 
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| The problem we are in is banks lent 10-40 times as much money as they had, and since the stock and realestate crash there assets dount even reflect that amount, noone knows how leveraged they are now because of the decrease in the value of colateral ,80:1?, 100:1?, 150:1? |
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So should one pay down their mortgage as fast as they can? Will a $200k mortgage become effectively a $2M mortgage? Or will a $200k mortgage become effectively a $20k mortgage (i.e. sell a nice car and pay off your house)? If inflation causes your salary to suddenly jump to 300k a year then pay it off. Your car would become a 200k car if your house becomes a 2M house. ETA: What I mean to say is, how many people are going to have 200k to buy your car, so that you can pay your mortgage off? It will depend on how fast salaries increase. |
| I think the answer that your looking for is YES, you will still only owe $200,000 hyper inflated dollars on your current $200,000 mortgage. However, common consumable items (food, gas, etc.) will also hyperinflate in price while your salary remains the same, so you'd end up with less buying power. |
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The federal reserve and the banks are trying to keep inflation/deflation to an unremarkable level so the people won't wake up to the shell game.
The housing bubble has stretched most investors to the point of selling asets to cover debets, thus deflation, while demand for raw materials on the world market vs dollars keeps going down, the world banks have manipulated gold to the breaking point, the dollar will colapse soon, sorry. |
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I think the answer that your looking for is YES, you will still only owe $200,000 hyper inflated dollars on your current $200,000 mortgage. However, common consumable items (food, gas, etc.) will also hyperinflate in price while your salary remains the same, so you'd end up with less buying power. This would happen simply due to the effects of inflation, but what would be the effect of the government issuing "new" currency? Would the banks get to transform their $200k mortgages into $200k "new dollar" mortgages? This would be different than mere inflation. |
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Fixed loans are fixed. Inflation is bad for creditors and good for debtors. Deflation is good for creditors and bad for debtors. A slight inflation rate makes borrowing money seem advantageous and keeps people spending long term. Even if the government issues new currency? How has this worked before? |
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Quoted:
I think the answer that your looking for is YES, you will still only owe $200,000 hyper inflated dollars on your current $200,000 mortgage. However, common consumable items (food, gas, etc.) will also hyperinflate in price while your salary remains the same, so you'd end up with less buying power. This would happen simply due to the effects of inflation, but what would be the effect of the government issuing "new" currency? Would the banks get to transform their $200k mortgages into $200k "new dollar" mortgages? This would be different than mere inflation. Its generally pretty impossible to speculate the effects of new laws before they are passed - predicting the affects of new currency is no different then predicting new gun laws. However, its rather unlikely that the terms of a fixed loan would change. If you owe $200k on a fixed loan, and one newly issued unit of currency = say $100, you would be able to pay your mortgage off with 2000 units of new currency (much like you right now if you had $200,000 in Euros/Yen/etc.) She might be able to help |
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Quoted: Fixed loans are fixed. Inflation is bad for creditors and good for debtors. Deflation is good for creditors and bad for debtors. A slight inflation rate makes borrowing money seem advantageous and keeps people spending long term. This is why the fed.gov LOVES inflation. Da gubmint can borrow money from Joe Blow in today's nominal dollars ... and gubmint can pay it back with inflated currency down the road. The most evil of wealth transfer! |
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Quoted:
Quoted:
Quoted:
I think the answer that your looking for is YES, you will still only owe $200,000 hyper inflated dollars on your current $200,000 mortgage. However, common consumable items (food, gas, etc.) will also hyperinflate in price while your salary remains the same, so you'd end up with less buying power. This would happen simply due to the effects of inflation, but what would be the effect of the government issuing "new" currency? Would the banks get to transform their $200k mortgages into $200k "new dollar" mortgages? This would be different than mere inflation. Its generally pretty impossible to speculate the effects of new laws before they are passed - predicting the affects of new currency is no different then predicting new gun laws. However, its rather unlikely that the terms of a fixed loan would change. If you owe $200k on a fixed loan, and one newly issued unit of currency = say $100, you would be able to pay your mortgage off with 2000 units of new currency (much like you right now if you had $200,000 in Euros/Yen/etc.) She might be able to help Thanks. The reason I am asking all of this is that I am trying to plan ahead financially for the worst. Every financial planner I talk to does not think the dollar will ever collapse and new currency issued despite the fact that it has happened before throuout history. I am trying to figure out how much cash to keep liquid in case of calamity so we can buy necessities, how much to spend on necessities now in case they are not available in the future and how much of the mortgage to pay off because I do not want it to suddenly be impossible to pay off (new currency issue). If the dollar collapsing and new currancy is issued it may be preferable to forgo cash reserves and payoff the mortgage more quickly. Of course, I know I should always Buy More Ammo 
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