# To be in debt or not to be in debt



## preponomics (Nov 18, 2012)

I have a friend, "prepper" that has a peculiar strategy for the economic coming woes. He believes, like I do that the dollar is in serious trouble and that a serious recession/depression in imminent in the next 10 years or so. He decided that he would liquidate all his debt "except" his house. His strategy is based on the idea that since he purchased an extremely nice home that will take his life to pay for it, that the coming inflation extremes will liquidate his note into an affordable purchase. For example if he is intrinsically invested with gold, recession proof holdings, food, etc... that inflation will cause his intrinsic assets to soar, positioning himself to pay his house off at a fraction of what it costs him to pay with these promissory note thingys we have now called dollars.
I on the other hand, am on the edge of being totally debt free thinking this is my best strategy.

Now of course we both agree that to have a high debt on your house and then have no intrinsic investment would simply cause one to lose all momentum and will result in simply losing all your capital that is invested in the home.

thoughts?


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## Padre (Oct 7, 2011)

preponomics said:


> I have a friend, "prepper" that has a peculiar strategy for the economic coming woes. He believes, like I do that the dollar is in serious trouble and that a serious recession/depression in imminent in the next 10 years or so. He decided that he would liquidate all his debt "except" his house. His strategy is based on the idea that since he purchased an extremely nice home that will take his life to pay for it, that the coming inflation extremes will liquidate his note into an affordable purchase. For example if he is intrinsically invested with gold, recession proof holdings, food, etc... that inflation will cause his intrinsic assets to soar, positioning himself to pay his house off at a fraction of what it costs him to pay with these promissory note thingys we have now called dollars.
> I on the other hand, am on the edge of being totally debt free thinking this is my best strategy.
> 
> Now of course we both agree that to have a high debt on your house and then have no intrinsic investment would simply cause one to lose all momentum and will result in simply losing all your capital that is invested in the home.
> ...


Yep, pretty much a TEOTWAWKI will result in the death of most of your creditors and/or the debasement of the dollar.

Read your mortgage, most of them are pegged to the US dollar.

*A mortgage is a* loan and a loan is *a gamble* that a) you will be able to pay off your note or your house will be worth more intrinsically than your note, b) that the rate of return from interest will be greater than the rate of inflation, c) that the financial unit, in this case dollars, will be viable once paid off, i.e. there will be desirable things to buy in 30 years when you collect 220% return on your initial investment (the loan), etc.

In the US, historically, B and C were a given, and so it was only A that need to be carefully considered in giving a loan (sometimes unsuccessfully!). Because of the relative certainty of the variables mortgages where often considered a hedge, a safe bet. Note in countries where B and C are in doubt it is almost impossible to get a loan.

However, a loan can also be a hedge from a buyers prospective, like a short sale of a stock, you can take out credit BETTING that the dollars you repay will be less valuable than the dollars you borrowed. Historically in the US it would be a bad bet, BUT, that's not to say a black swan could make it the wager of a century. If you are relatively certain of a SHTF, or if you just like the stuff that you are buying and are willing to potentially pay the interest, then debt can be a wise financial strategy.

The downside that needs to be considered is the distinction between a secured and unsecured debt. If the dollar tanks it is likely that you might be without a job and without the means of repaying the loan even with wonderfully devalued inflated dollars. As a result, depending on the status of the rule of law, particularly the civil law system, you may find yourself without shelter at the onset of a SHTF.... or soon after a recovery.

I have always been a firm believer in unsecured debt because the only thing you wager to loose is your reputation as a credit worthy borrower. Now, I personally would considered it immoral to take a loan that I expected not to be able to pay, BUT, if the unexpected happened I would much rather loose my perfect credit score than loose my houses, or cars.


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## Immolatus (Feb 20, 2011)

I would think being debt free is the better strategy, but I am a little unclear on what you mean by 'liquidating' the debt.
If we assume massive devaluation, nothing would prevent the FED from just adding a zero to every denomination.
I would also be careful assuming that if SHTF, your mortgage would just be 'lost'. Someone would end up with it. Even if it took a while to iron it all out, eventually they would come a calling for their money or their house. That would sure work out for the ptb wouldnt it? The economy implodes and noone can pay their mortgage. They end up with all of the real assets. 
Eh, no worries, the big banks dont have any power in the world and couldnt pull that off.
The last thing you want taken from you is your home.


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## Attila (Jan 30, 2011)

Debt is something to avoid like the plague. I understand that having to pay long term on a home is one thing. Americans have a really bad habit of credit purchasing.

You need to take into consider that when the SHTF, and the dollar is devalued, and creditors are no longer a problem there will still be a span of time while the dollar is being devalued and the time before the total collapse occurs. As inflation increases, and it probably will, more and more money will be required to pay debt. It will get to the point that debtors will be faced with the choice of buying food or paying their financial obligations.

My personal philosophy is you pay what you owe, however it is my best interest to NOT incur any more debt than necessary. Very few people have the money to pay cash for a house. A home mortgage is a fact of life. That doesn't mean you have to have a McMansion. This kind of purchase needs to be well thought out. The housing meltdown and financial crisis to follow was because people purchased houses that they should not have ever been given loans for. That is water under the bridge, and nothing really can be done about it any. 

I think it's morally and ethically wrong to incur debt and then not pay it. If people don't want to pay their bills they shouldn't buy stuff they can't or won't pay for. Americans have a problem with buying useless crap that they don't need. 

The best advice in the world is to never be in debt. Debt is hell.


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## partdeux (Aug 3, 2011)

Deflation combined with inflation is absolutely the worst possible situation we could be in... and here we are.

Pure inflation, your friends direction has some positive possibilities.

Deflation, it's a really bad idea

the combo is potentially devastating.


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## cnsper (Sep 20, 2012)

You need to plan as if SHTF and you also need to plan for if S does not HTF. That means debt free to me.


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## zombieresponder (Aug 20, 2012)

I didn't read all the posts, but if we enter hyperinflation(and we probably will), wages will not rise nearly as quickly as the price of goods/services. Your friend will still be stuck with a choice of buying necessities or making the house payment. I suggest that your friend spend a half hour or so playing with a good amortization calculator to determine how quickly the house can be paid off while still saving and buying tangible assets(food, medical supplies, etc.).


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## northfarmer (Oct 18, 2012)

Apply some logic.

The debt is always/mostly tied to an asset.

Chart out the growth/decline rate over a reasonable timeline and make a decision.


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## Padre (Oct 7, 2011)

Immolatus said:


> If we assume massive devaluation, nothing would prevent the FED from just adding a zero to every denomination.


The Fed can do whatever it wants with the money supply but as the fed is not a party to your contract with a private lender and doesn't lend money to individuals, unless there is a hyper-inflation provision (I've never seen one, have you? We can't admit, even to ourselves, that's a possibility.) your bank contracts with you to repay them $x dollars in USD. If the Fed adds a zero, they will be stealing from the bank if you owe a debt.

Here is a way to look at it, who is the biggest debtor in the world? Jointly the US gov and the FED, so who do you think the system is going to be biased toward coming out on top in an economic collapse? Debtors or Creditors?

As I noted, you do have to be careful, as the OP suggested, to have liquid assets to repay any SECURED debt after the collapse, otherwise it is likely that your creditor will eventually come for his wealth in the form of your assets, put up as collateral.


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## Padre (Oct 7, 2011)

Attila said:


> As inflation increases, and it probably will, more and more money will be required to pay debt. It will get to the point that debtors will be faced with the choice of buying food or paying their financial obligations.


You've got that wrong:

As inflation increase more and more money will be required to buy FOOD, debt is governed by contract and most contracts do not provided (AT PRESENT) for inflation adjustments, because it is assumed that the INTEREST will outpace INFLATION.

Eventually, food could become unafforable at any price, and so if you still have a job (your pay will actually go up but be outpaced by inflation) or cash savings you might still find yourself unable to PURCHASE food, but EASILY able to pay debt in devalued dollars.

This is why the OP suggests storing REAL assets, like food or silver, rather than paying debt down quickly.

Again, this too is a WAGER, just like lending money, but if you hedge in the right ways and you really think that a collapse is coming it might be a smart wager.



zombieresponder said:


> I didn't read all the posts, but if we enter hyperinflation(and we probably will), wages will not rise nearly as quickly as the price of goods/services. Your friend will still be stuck with a choice of buying necessities or making the house payment. I suggest that your friend spend a half hour or so playing with a good amortization calculator to determine how quickly the house can be paid off while still saving and buying tangible assets(food, medical supplies, etc.).


Listen to yourself, your wages will rise, but will not be enough to buy food, but it will be MORE than enough to pay your debt and pay it quickly. So buy food cheap now, pay debt cheap latter is the thought. No need to buy food if you have it.



> The debt is always/mostly tied to an asset.


Credit card debt is not tied to an asset, usually. Most mortgages and significant loans are tough.



cnsper said:


> You need to plan as if SHTF and you also need to plan for if S does not HTF. That means debt free to me.


If the SHTF you had EXTRA money to spend on preps before the SHTF, if it doesn't you simply pay your mortgage with compounding interest, at a low fixed rate, over 15 or 30 years and PAY FOR being prepared for 30 years by paying interest.


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## Padre (Oct 7, 2011)

partdeux said:


> Deflation combined with inflation is absolutely the worst possible situation we could be in... and here we are.
> 
> Pure inflation, your friends direction has some positive possibilities.
> 
> ...


Not, following, they are opposite trends. How can the money both go up and down in value at the same time?

It would be bad to have DEPRESSION and DEFLATION, which is the historical norm: As economic activity slows, money becomes scarcer, and thus MORE VALUABLE and HARDER TO GET, and therefore lots of people lose their homes. However, if money becomes too cheap, its the money (and your debt) that goes down in value, this instability can depress the economy because of the financial uncertainty. The danger here is that depression cuts you off from a job and income, but if you have a hedge in a real asset then you could even prosper during a depressed inflationary cycle.

If today $1 = 1oz Silver and I owe $10
and tomorrow $10=1oz and I still owe $10 
I am in a good place.

Deflation would be the opposite trend
$1=1oz today
$1=10oz tomorrow

The CONSTANT is your debt, if you have a contract to pay $10, then normally that is true no matter what $10 buys.

In both cases its an educated gamble, which will be worth more tomorrow $1 USD or 1 oz Silver (or whatever hard asset you want to compare, INCLUDING food)?


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## preponomics (Nov 18, 2012)

Padre said:


> However, a loan can also be a hedge from a buyers prospective, like a short sale of a stock, you can take out credit BETTING that the dollars you repay will be less valuable than the dollars you borrowed. Historically in the US it would be a bad bet, BUT, that's not to say a black swan could make it the wager of a century. If you are relatively certain of a SHTF, or if you just like the stuff that you are buying and are willing to potentially pay the interest, then debt can be a wise financial strategy.


Padre this is exactly my friends argument, even though I disagreed with him at first, and recently have started to agree. Its is a poor bet unless your sure that the s will indeed htf (monetarily), and that you are leveraged intrinsically first with real assets, with many assets that provide a higher leverage to weather the storm till the dollar was to collapse.


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## preponomics (Nov 18, 2012)

Immolatus said:


> I would think being debt free is the better strategy, but I am a little unclear on what you mean by 'liquidating' the debt.


Simply paying it off or reducing it.



Immolatus said:


> I would also be careful assuming that if SHTF, your mortgage would just be 'lost'. Someone would end up with it.


Sorry Immolatus, didnt mean to suggest it would be lost, but instead was suggesting that the loan would be a fixed agreement between the purchaser and the loan provider, and that the dollars "owed" would now be extremely easy to obtain, with prepped gold or recession proof assets that gains incredible value with hyper-inflation. The key though is to be invested with "real" assets and not propped up stocks or funny money. Also you would have to be out of debt for the most part besides your home or a car for this to work. Also the loan would need to be FIXED, as some loans are creative to flex with interest rates which could maybe be manipulated. Dont really know if they could do that.


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## preponomics (Nov 18, 2012)

Attila said:


> Debt is something to avoid like the plague. I understand that having to pay long term on a home is one thing. Americans have a really bad habit of credit purchasing.
> 
> You need to take into consider that when the SHTF, and the dollar is devalued, and creditors are no longer a problem there will still be a span of time while the dollar is being devalued and the time before the total collapse occurs. As inflation increases, and it probably will, more and more money will be required to pay debt. It will get to the point that debtors will be faced with the choice of buying food or paying their financial obligations.
> 
> ...


I agree - personal debt is hell - its a game for the lender upon heavy favor, and I also believe that its immoral to not pay contractual debt. I am trying to question the investment opportunity of a house loan upon encountering hyper inflation, providing that one could be heavily invested intrinsically (gold/silver) during the collapsing process which typically is 3 months to a year for heavy to hyper inflationary history. However we are not a normal situation so the weathering cycle for inflation with an international fed, like we have could be much longer.


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## preponomics (Nov 18, 2012)

partdeux said:


> Deflation combined with inflation is absolutely the worst possible situation we could be in... and here we are.
> 
> Pure inflation, your friends direction has some positive possibilities.
> 
> ...


When you say both, do mean like stagflation? Like in the U.S. 70's? but worse?
or
Inflation on top of propped up mal investment?

I do agree with Padre about deflation is the counter opposite to inflation. I would think either you have too much of the money supply or not enough?


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## preponomics (Nov 18, 2012)

cnsper said:


> You need to plan as if SHTF and you also need to plan for if S does not HTF. That means debt free to me.


cnsper I am in total agreement - My friend I think has a good strategy but its not mine. I take risk assessment to an extreme I think.

I have a family member who has been richer than me three times but also has been more poor than me just as much. He's good at making money but also good at losing it, I am just a steady eddie I guess


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## preponomics (Nov 18, 2012)

zombieresponder said:


> I didn't read all the posts, but if we enter hyperinflation(and we probably will), wages will not rise nearly as quickly as the price of goods/services. Your friend will still be stuck with a choice of buying necessities or making the house payment. I suggest that your friend spend a half hour or so playing with a good amortization calculator to determine how quickly the house can be paid off while still saving and buying tangible assets(food, medical supplies, etc.).


zombie my friend is ten times more prepared than I am, I think he could buy his house outright right now, but he is actually doing this as a strategy. He found an amazing price on a "very" nice home and chose to get a long term note on it with an extremely low interest rate. He is betting on the s hitting tf. He thinks he will literally in ten years get his house for 20 cents on a dollar. I have sat down and done the math and it doesn't look that sweet to me but I can see him winning out pretty good, if the inflationary problem continues to rise at the demonstrated accelerated rate.


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## Marcus (May 13, 2012)

Let me relate this story.
My uncle and his father owned a local bank in a small town out in the middle of nowhere. During the Great Depression, they ended up owning *10s of thousands of acres* from ranchers who could no longer pay their mortgages and lost their land- land that had been passed down from their fathers. Additionally, those who lost their land had to leave the area since there were no jobs for anyone other than ranchers.

The question is, do you want to play roulette with your financial future?


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## preponomics (Nov 18, 2012)

northfarmer said:


> Apply some logic.
> 
> The debt is always/mostly tied to an asset.
> 
> Chart out the growth/decline rate over a reasonable timeline and make a decision.


Actually he did - he chose to buy it intentionally to be in debt, betting it will be a big payoff. If the s does not hit the fan, then its a long term debt for him, but he feels the price he paid (really cheap) will outweigh the interests he will pay. Plus he is living in a really nice space


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## preponomics (Nov 18, 2012)

Marcus said:


> Let me relate this story.
> My uncle and his father owned a local bank in a small town out in the middle of nowhere. During the Great Depression, they ended up owning *10s of thousands of acres* from ranchers who could no longer pay their mortgages and lost their land- land that had been passed down from their fathers. Additionally, those who lost their land had to leave the area since there were no jobs for anyone other than ranchers.
> 
> The question is, do you want to play roulette with your financial future?


Hey Marcus I totally get that but my point here is what if a rancher there experienced "hyper inflation instead of deflation" which is what we had in the great depression? Imagine that the land that a rancher owned became 25 times more valuable than what they owed, due to a worthless dollar? But because there were not any buyers during the crunch, they had "also" other intrinsic assets like gold that they could liquidate at "high high" prices and easily pay off their land for a fraction of the "fixed" contractual debt. (disclaimer - FDR stole Americans gold in the great depression, but you get the point)


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## Padre (Oct 7, 2011)

preponomics said:


> Padre this is exactly my friends argument, even though I disagreed with him at first, and recently have started to agree. Its is a poor bet unless your sure that the s will indeed htf (monetarily), and that you are leveraged intrinsically first with real assets, with many assets that provide a higher leverage to weather the storm till the dollar was to collapse.


I wouldn't say its a poor bet, its what lots of American's do, and with interest so low its about the best deal you can get on a long term loan.

The trade off is paying off your loans more slowly to buy more preps (i.e. physical assets). If you don't have the preps I personally feel having preps is more important than having a debt free house. I mean what good is it to have a debt free house if you can't defend it, heat it, feed your family in it, and enjoy it.

Of course you do still need to plan to have the money to pay your monthly bills of course...


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## preponomics (Nov 18, 2012)

Padre said:


> The trade off is paying off your loans more slowly to buy more preps (i.e. physical assets). If you don't have the preps I personally feel having preps is more important than having a debt free house. I mean what good is it to have a debt free house if you can't defend it, heat it, feed your family in it, and enjoy it.


This is why my friend and I were in debate - I have been crazy radical killing off all debt and he suggested that I leverage my house debt. I just cant live with the debt so its my decision to pay all of it off.

I do agree with his and your principle though that prepping is a wise decision during a longterm debt instead of taking all of your resources to pay off the note. what if the tshtf during the payoff process and the prepper who is properly invested is ready for it, then they get a nice reward "a house really cheap". Even better my friend did this on purpose using this as a strategy.

The person who prioritizes the debt reduction first on a large debt and is not properly invested could lose everything.


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## techrun (Nov 7, 2012)

If the economy collaspes or even goes into a deep recession it won't hurt you if you have debt. People will just stop paying their bills. 

Deflation will occur, someone with cash will buy your house from the bank for 50 cents on the dollar and turn around it and rent it right back to you or someone else. In that case, you're rent will be about half of your mortgage payment. 

Right now people are signing over their homes to Bank of America, like a Deed in Lieu of Foreclosure. The settlement guarantees the homeownver has a lease on their home for 2 years. At that point, they have an option to buy the home back from Bank of America. 

It works for both parties right now. The bank somewhat protects it's asset because the homeowner doesn't want to really lose it in most cases. They will take better care of the home than anyone would that rents it. 
Also, the bank gets to hold the asset at whatever cost the note was valued at. 

It's all part of the deleveraging we are in.


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## techrun (Nov 7, 2012)

I guess my point, is the we're going through a 'deleveraging' period. If you have that knowledge, then you can make appropiate decisions on your personal finances.


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## partdeux (Aug 3, 2011)

Padre,

We are living with wage deflation, and core cost inflation.


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## Padre (Oct 7, 2011)

partdeux said:


> Padre,
> We are living with wage deflation, and core cost inflation.


If you mean that people are getting paid less, that might be true, for some, not for others, but that is not deflation its getting paid less. BTW DEFLATION would mean your wages were MORE valuable, not less, which is what I believe you mean. Inflation means that your wages, which might be going down, but not as a function of deflation, are also intrinsically worth less.



Marcus said:


> Let me relate this story....During the Great Depression, they ended up owning *10s of thousands of acres* from ranchers who could no longer pay their mortgages and lost their land-
> 
> The question is, do you want to play roulette with your financial future?


Interesting story and it demonstrates the difference between the great depression and great recession, AND ALSO the importance of a HEDGE.

The benefit of a pegged currency, like all currencies in history, is that money equals a fix unit of an intrinsically valuable asset. Thus inflation could only happen if people stopped wanting that asset, a huge amount of the asset was found in nature, or the government started adulterating the metal content of coins and bars. However, this benefit also meant that there could only be a certain amount of currency because there was only a certain amount of the metal that backed it, and that a currency was vulnerable to DEFLATION, due to the wealthy choosing not to invest their money. Sitting on money means that the liquidity of the market could be threatened, particularly in a depression, when people become worried about the risks. Traditionally,when economic activity slowed (DEPRESSED) the value of currency increased because there was less liquidity. With fewer dollars available wages drop, people default on loans, people loose their houses, ergo your uncle and grandfathers experience.

In STARK and INTENTIONAL contrast the Fed, since the dollar was decoupled from Gold, has reacted to recessionary trends by increasing the money supply so as to stimulate economic growth, which it does, while redistributing money away from those who save toward those who invest. The result has been that recessions, while they still meant losses in JOBS also meant that their was more money available. Thus with plenty of money available, wages still drop, but they drop as a function of inflation not deflation, in quality not quantity if you will, meaning you get the same (or even more) dollars but still have less purchasing power. This is by definition bad for those who save or invest in SAFE investments, because your rate of return for savings or safe investments may not be more than the VALUE lost through inflation.

Unlike a DEFLATIONARY cycle like the Great Depression, most people today are worried about an inflationary cycle, called hyper inflation, which, if it happens *AND you keep your job* or source of income, will have the opposite effect for liens.

Is it a gamble, sure, any investment is.


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## Immolatus (Feb 20, 2011)

Padre, I thought that my example of 'adding zeroes' had actually happened, like in Zimbabwe? IF that happened, wouldnt it apply to your debt also? Maybe this is a question for an attorney?
If you owed $100, and they changed the system so that a $100 bill was now 'worth' a $1000. Hm. That wouldnt work. Now I am confused. I guess they would have to say that every denomination and monetary asset/liability added a zero, which would affect the debt.
Hm, I guess youre right, maybe the 'adding zeroes' is a metaphor for hyperinflation, and not an actual scenario. Boy, what would it take for that to happen? I'll have to look that up.

I guess if your bud has tons of extra 'money' laying around maybe he has a point, but there are too many intangibles for me to take that chance.
Also, if we had hyperinflation, wouldnt housing prices necessarily plummet (relatively)? Presumably hyperinflation would be accompanying an economic calamity which would drive housing prices into the ground, no?


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## Padre (Oct 7, 2011)

Immolatus said:


> Padre, I thought that my example of 'adding zeroes' had actually happened, like in Zimbabwe? IF that happened, wouldnt it apply to your debt also? Maybe this is a question for an attorney?
> If you owed $100, and they changed the system so that a $100 bill was now 'worth' a $1000. Hm. That wouldnt work. Now I am confused. I guess they would have to say that every denomination and monetary asset/liability added a zero, which would affect the debt.
> 
> 
> ...


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## Marcus (May 13, 2012)

Immolatus said:


> Also, if we had hyperinflation, wouldnt housing prices necessarily plummet (relatively)? Presumably hyperinflation would be accompanying an economic calamity which would drive housing prices into the ground, no?


Housing prices are a function of interest rates. Let me give you an example.

A low end house costs 100K right now and with 10% down, 90K is financed. 
A self-amortizing loan of 90K @ 4% has a payment of $429.67/month.
Source: http://www.bankrate.com/calculators/home-equity/home-amortization-calculator.aspx
Now let's move the interest rate up to 6%. The monthly payment goes up to $539.60.
At 8% interest, the monthly payment is $660.39.
At 10% interest, the monthly payment is $789.81.
At 15% interest, the monthly payment is $1138.00.

So what was very affordable in a 4% interest rate environment costs nearly twice as much to service the debt in a 10% interest rate environment. 
This also illustrates the dangers of adjustable rate mortgages (ARMs.)

So what happens?

*Fewer* people will be able to afford the monthly payment, so *demand will fall* at a given price. In classic microeconomics, the price will then adjust downward until an equilibrium is again achieved.

How much will home prices fall?

Holding at a constant $429.67 monthly payment, a consumer can afford a loan of $71,665 at 6%, a loan of $58,557 at 8%, a loan of $48,961 at 10%, and a loan of $33,981 at 15%. 
This implies a house worth 100K @ 4% interest is worth $78,831 @ 6%, $64,413 @ 8%, $53,857 @ 10%, and $37,379 @ 15%.

But you'll argue that your wages will also increase during a higher inflationary period. That's true, it will; *but* wage increases tend to lag actual inflation by several months to a year. In the case of those on Social Security, the increases for inflation can lag the actual inflation by a year since it's only figured in once a year. Meanwhile you've already lost a significant amount of purchasing power throughout the year before any adjustments are made.

If you have a fixed rate mortgage right now at a reasonable rate (4%), it makes sense to use your financial resources ($$$) in other places besides paying off your long term debt as long as you're relatively sure that whatever you invest in will appreciate faster than inflation, you have a secure government-type job (LE, FD, etc), or you're buying future costs today (ie food.) Just realize that your home will literally be your castle since you won't be able to break even on it in a high interest rate world.


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## Padre (Oct 7, 2011)

The point is if the currency comes unhinged its in general not a good time to sell any hard asset (except maybe normalcy bias items like TVs) except in case of necessity, and then for another different hard asset.

The thing you will want to quickly get rid of is dollars.


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## sailaway (Mar 12, 2009)

Personally, I'm not of the house holder mentality, but I do like realestate. I have two apartment buildings. One is paid off the other isn't. Unfortunately the one that is paid off is in the process of being refinanced to cash out the X. I like the idea of spreading the risk over several people.

I am getting a fixed rate commercial loan for 7 years with a balloon on the end. I am hoping to keep paying them off with cheap $s as time goes by and the $ becomes worth less and less. 

I have a 30 year 4% fixed rate FEMA note that I got after Hurricane Andrew, I have been paying on it for 21 years now and I can tell the same $49.00 I have been paying every month all this time is worth less.

I think having a manageable ammount of Investment debt is a good thing and you will grow. The other debt is comsumer debt, usually run up because we have to feed our EGOs (easing God out). This debt will get you no where. 

I had thought about buying a house, but I understand the new health care bill will relieve you of 3 1/2% of your money upon sale of it, and I don't want to participate in that. Living on my sailboat remains appealing.

As for gold and silver I think having some is a good idea, but what are you going to do with it when it goes up in value? You better spend it before it goes back down again.

Just a few thoughts, Sail


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## Dakine (Sep 4, 2012)

There's a lot of really good dialogue here about economics, but if SHTF... ammo is the new currency, and food is something you better already have, because the grocery stores are empty or burned and the starving masses are looking for something that is food and water, and they are looking for it RTFN.

And regardless of what is worth a "LOT"... silver, gold, food, gasoline, ammo, guns, animals, etc... there's something that will be dirt cheap.

life.


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## Marcus (May 13, 2012)

sailaway said:


> I had thought about buying a house, but I understand the new health care bill will relieve you of 3 1/2% of your money upon sale of it, and I don't want to participate in that. Living on my sailboat remains appealing.


If you create a trust with the house as its only asset, you can sell/transfer the trust without actually selling the house. In other words, you miss out on the tax. I suspect that's the future of the housing market.


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## BillM (Dec 29, 2010)

People who are in debt now and have a hard time paying thier loan payments will be suprised how easy it is to buy what you want at reduced prices when you have cash to spend.

Pay those debts off as quick as you can and then start pileing up the extra money.


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## Dakine (Sep 4, 2012)

BillM said:


> People who are in debt now and have a hard time paying thier loan payments will be suprised how easy it is to buy what you want at reduced prices when you have cash to spend.
> 
> Pay those debts off as quick as you can and then start pileing up the extra money.


Going back to what a lot of people were talking about, i think it really matters what the debt is derived from...

If I accumulate $10,000 of debt, but I do it in 2 different scenarios, they have massively different consequences

#1. I buy clothes, iTunes cards for music downloads, I have a self refilling Starbucks card, and I personally put a check in the mail every month to the "save a red squirrel foundation" and I pay extra for the non animal tested glue strips on the envelope!

#2. I use my credit to buy precious materials... like things made of "unobtanium" if it's 1 minute after the collapse, empty canning jars and extra lids and bands, and all of the best wishes and intentions in the world are all now instantly worth exactly as much as if you squat down and shit into your hand. Good intentions that you dont act on, and the place you are now have merged! YAY!!! 

now before anyone goes apeshit and goes to spend all their credit on some online store or whatever... thats not a fantastic idea either!!! You still have to pay that debt or else you will lose your credit line, and, they dont want to hear about phobias on rising food costs or if the CIC is constitutionally qualified... they just want their money... so dont spend it if you cant pay it..okay??? Ok!


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## preponomics (Nov 18, 2012)

techrun said:


> If the economy collaspes or even goes into a deep recession it won't hurt you if you have debt. People will just stop paying their bills.
> 
> Deflation will occur, someone with cash will buy your house from the bank for 50 cents on the dollar and turn around it and rent it right back to you or someone else. In that case, you're rent will be about half of your mortgage payment.


techrun - I agree with you that there will be deflation with a collapse as you very eloquently explained, but in addition, I believe that deflation will be the second part of the "grind it out part" of a depression that champions a deflationary status. I believe heavy or hyper-inflation will happen "first". If indeed our monetary policy stays the same then hyper inflation will most likely be the end result. This of course will risk in a possible collapse of the dollar. Then upon the collapse this is where deflation starts to dig in its claws.

However, I believe that there are many synonymous symptoms of both deflation and inflation, such as joblessness, foreclosures, Mal-investment, and corporate welfare.


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## preponomics (Nov 18, 2012)

partdeux said:


> Padre,
> We are living with wage deflation, and core cost inflation.





Padre said:


> If you mean that people are getting paid less, that might be true, for some, not for others, but that is not deflation its getting paid less. BTW DEFLATION would mean your wages were MORE valuable, not less, which is what I believe you mean. Inflation means that your wages, which might be going down, but not as a function of deflation, are also intrinsically worth less.


I agree - wage deflation in a contradiction to the terms "economic deflation" - as in a deflationary period, your money is in higher demand. If people simply get paid less, that is usually a symptom of inflationary, and deflationary periods, due to monetary manipulation.

There are natural inflationary and deflationary periods in history though, due to mineral discovery, innovation or invention which rule out entire market performance, but if left alone they self correct usually in under a year or two.


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## preponomics (Nov 18, 2012)

Padre said:


> The benefit of a pegged currency, like all currencies in history, is that money equals a fix unit of an intrinsically valuable asset. Thus inflation could only happen if people stopped wanting that asset, a huge amount of the asset was found in nature, or the government started adulterating the metal content of coins and bars. However, this benefit also meant that there could only be a certain amount of currency because there was only a certain amount of the metal that backed it, and that a currency was vulnerable to DEFLATION, due to the wealthy choosing not to invest their money. Sitting on money means that the liquidity of the market could be threatened, particularly in a depression, when people become worried about the risks. Traditionally,when economic activity slowed (DEPRESSED) the value of currency increased because there was less liquidity. With fewer dollars available wages drop, people default on loans, people loose their houses, ergo your uncle and grandfathers experience.
> 
> In STARK and INTENTIONAL contrast the Fed, since the dollar was decoupled from Gold, has reacted to recessionary trends by increasing the money supply so as to stimulate economic growth, which it does, while redistributing money away from those who save toward those who invest. The result has been that recessions, while they still meant losses in JOBS also meant that their was more money available. Thus with plenty of money available, wages still drop, but they drop as a function of inflation not deflation, in quality not quantity if you will, meaning you get the same (or even more) dollars but still have less purchasing power. This is by definition bad for those who save or invest in SAFE investments, because your rate of return for savings or safe investments may not be more than the VALUE lost through inflation.
> 
> ...


Padre are you an Austrian Economist?


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## preponomics (Nov 18, 2012)

sailaway said:


> As for gold and silver I think having some is a good idea, but what are you going to do with it when it goes up in value? You better spend it before it goes back down again.
> Just a few thoughts, Sail


The key is to buy it "before" dollars are unattractive upon heavy inflation and then do just what you suggested, "spend it before it goes back down". During a depressed economy is the perfect time to do this as your gold will buy a lot more than it will during an inflationary period.

So for me its a two pronged strategy - first become intrinsically invested before heavy inflation and then upon the deflationary period or depression that follows, use honest ethics and a moral approach, to invest upon restructuring.


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## preponomics (Nov 18, 2012)

Dakine said:


> There's a lot of really good dialogue here about economics, but if SHTF... ammo is the new currency, and food is something you better already have, because the grocery stores are empty or burned and the starving masses are looking for something that is food and water, and they are looking for it RTFN.
> 
> And regardless of what is worth a "LOT"... silver, gold, food, gasoline, ammo, guns, animals, etc... there's something that will be dirt cheap.
> 
> life.


I think we could all say that "usable stuff" is a priceless commodity if dollars become worthless. Lets hope they dont become worthless, but I feel that people on this forum will be ready if it does


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## Onebigelf (Sep 17, 2011)

I'm paying off the house, but not getting uptight about credit cards. Trying to keep them reasonable, but largely that's so if things start to crash I can run to WallyWorld and max them out ;-)

Paying off the house as fast as possible. As long as we have our home-base, we're good.

John


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## Padre (Oct 7, 2011)

preponomics said:


> Padre are you an Austrian Economist?


Ja mein Herr. Let just say I have had a little exposure to them. That's why working on the Federal Budget made me cry.


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## Padre (Oct 7, 2011)

BillM said:


> People who are in debt now and have a hard time paying thier loan payments will be suprised how easy it is to buy what you want at reduced prices when you have cash to spend.
> 
> Pay those debts off as quick as you can and then start pileing up the extra money.


Let me tell you, I am in debt, and as a result have great credit, I have no problem buying things when I want them or see them on sale.

A little cash is great to have (I recommend $2-4K), but too much may be a bad thing! Cuz... you may not be able to spend it all before the shelves are empty and the green backs are worth the going rate of 1gram of cotton.


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## laststanding (Mar 19, 2012)

The real currency of the future will be catridges. Either bartered for goods or services or out of the barrel of a gun..


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## preponomics (Nov 18, 2012)

Padre said:


> Ja mein Herr. Let just say I have had a little exposure to them. That's why working on the Federal Budget made me cry.


ok I had to look that up 

its really sad - I think the budget once disseminated will make everyone cry


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## Immolatus (Feb 20, 2011)

Padre said:


> Ja mein Herr. Let just say I have had a little exposure to them. That's why working on the Federal Budget made me cry.


Spoken like a true conservative (and in this instance, I mean it in a good way ). My girl is an accountant for HHS, and a liberal, and lets just say she doesnt see things the way I do. Its a joke here, that if I had my way she would be out of a job and we would be living our lives...verrrrrry differently.

EDIT- I also carry some debt but am furiously paying it off, because I hate having it regardless of the economics. Hmm, maybe I should exclude myself from this discussion then, huh? I also have access to way more credit than I would ever need (more than I earn in a year) which is truly messed up that I could even be offered it.


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## clano6 (Nov 22, 2012)

The only thing is that even if you have your job and home and your debts are essentially easily payable due to hyperinflation, the taxes you will owe on your property will represent the dollar's value (or lack thereof). So you may find yourself out of a home due to unpaid property taxes.


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## preppy (Oct 31, 2012)

Debt free is the way to go.

People lost their homes during the Great Depression despite inflation.

Reducing your need for cash is the way to prepare. Paying down debt, and being able to replace utilities if needed as well as growing some of your own food will all serve to reduce the need for cash. 

THe idea that inflation will magically make your debts disappear is not sound. At the point that inflation is that bad, employment will be difficult to find and maintain. The costs of food and energy will be incredibly high and simply eating and staying warm, will take most of the money alot of people have. Paying off credit with those inflated dollars will come only after one eats. People will at some point be forced to decide between paying the mortage or eating.

DOn't forget that local , state, and federal taxes will be raised to make up for inflation along the way.


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## Viking (Mar 16, 2009)

My wife and I got out from under $50,000 debt in 2004-2005 and it's amazing what being clear of that debt means to us, now each dollar spent is like having $10. We are able to do things now that we were not able to do when both of us were working. It's almost like magic and I think our family just can't figure out how we're able to do the things we're doing. Sometimes I wonder if they don't think we're selling drugs or something, we aren't, being debt free does wonders. If we use a credit card it's often used as a debit card and when used is paid off right away, nothing is held to the next month.


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## zombieresponder (Aug 20, 2012)

Padre said:


> Listen to yourself, your wages will rise, but will not be enough to buy food, but it will be MORE than enough to pay your debt and pay it quickly. So buy food cheap now, pay debt cheap latter is the thought. No need to buy food if you have it.


Um, no. It's not nearly that simple. I suggest listening to what someone who lived through it says on the matter. http://ferfal.blogspot.com/

That individual lived through the economic collapse of Argentina. I heard him speak about it. Even though people got paid daily, prices on items often increased in a matter of minutes, meaning between the time a person entered a store and the time they got to the checkout.


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## Padre (Oct 7, 2011)

zombieresponder said:


> Um, no. It's not nearly that simple. I suggest listening to what someone who lived through it says on the matter. http://ferfal.blogspot.com/
> 
> That individual lived through the economic collapse of Argentina. I heard him speak about it. Even though people got paid daily, prices on items often increased in a matter of minutes, meaning between the time a person entered a store and the time they got to the checkout.


Ferfal is right. Problem is *you just repeated what I said in my post.* BTW, I too lived through hyperinflation after the fall of the Warsawa Pact.



zombieresponder said:


> Even though people got paid daily, prices on items often increased in a matter of minutes, meaning between the time a person entered a store and the time they got to the checkout.


SO... Don't buy stuff later, buy it now, pay FIXED RATE DEBT latter as you will have more money.


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## Padre (Oct 7, 2011)

clano6 said:


> The only thing is that even if you have your job and home and your debts are essentially easily payable due to hyperinflation, the taxes you will owe on your property will represent the dollar's value (or lack thereof). So you may find yourself out of a home due to unpaid property taxes.


Most taxes are based on property value, and we have a 2.5% property tax increase limit, so my taxes year on year could not increase by more than 2.5% without a popular vote to override the limit. Also, its unlikely in the midst of the economic turmoil that many people will be selling/buying property, so theoretically while the value is going up demand will be plumeting, meaning perhaps lower prices.


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## preponomics (Nov 18, 2012)

clano6 said:


> The only thing is that even if you have your job and home and your debts are essentially easily payable due to hyperinflation, the taxes you will owe on your property will represent the dollar's value (or lack thereof). So you may find yourself out of a home due to unpaid property taxes.


even if your home is debt free and paid for, it isnt really debt free due to taxation that you would have to pay, whether in debt or out.


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## preponomics (Nov 18, 2012)

Immolatus said:


> EDIT- I also carry some debt but am furiously paying it off, because I hate having it regardless of the economics. Hmm, maybe I should exclude myself from this discussion then, huh? I also have access to way more credit than I would ever need (more than I earn in a year) which is truly messed up that I could even be offered it.


Yes it seems credit is getting more cheaper every year, yet another symptom of these volatile times, where there is no risk to the lender if they are backed by lawful advantage, no matter how careless the loan. You may be frugal and a very good trustworthy customer but because credit is so cheap, and without risk, they will lend anything to anyone in our country, and the people of the country are the ones that suffer any losses in a managed Frankenstein economy. Thus the sub-prime in 2008

not reflection on you Immolatus, just stating how cheap credit is becoming


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## preponomics (Nov 18, 2012)

preppy said:


> Debt free is the way to go.
> .


I have chosen the same path to be debt free but I can respect Padre and some people that I know that use debt as a positive strategy. The key is not to have stupid debt and then not be prepared.



preppy said:


> People lost their homes during the Great Depression despite inflation.


People lost their homes due to "deflation" not inflation. Although monetary inflation of the money supply in the mid 20's did contribute to the collapse along with horrific tariffs, protectionism, intervention and a real estate bubble, (hmm.. sound familiar today?), it was actually deflation that did its damage to the average American. There was "not enough money" to keep their property as the fed after the crash finally sucked all the money back in with high interest rates rapidly. Then with further lawful economic props with our market (intervention), with price fixing, crop destruction, social programs and gold being lawfully seized, the depression was prolonged.

With hyper inflation you will have too much money in the system to the point that it will cause "consumer inflation to rise". Upon this spinning out of control, hyper-inflation will cause things like gold and intrinsically invested things like a house to increase in value "intrinsically". The house market is still propped up, so on paper they could temporarily fall, until the market evens out.

Inflation will liquify debt However which side will it liquify? To you or your bank? If you have the leverage by being intrinsically invested with gold/silver, commodities, useful property for self substantiation etc.. then as Padre suggested "getting your preps now" will give you the leverage.

I am not advocating anyone get into debt but if you are leveraged property your debt will "melt away into YOUR pocket and not the banks" if you are properly invested. This of course ONLY works with the hyper inflationary shtf scenario. Also morally one should meet contractual obligations upon the greatest effort


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## preponomics (Nov 18, 2012)

preppy said:


> THe idea that inflation will magically make your debts disappear is not sound. At the point that inflation is that bad, employment will be difficult to find and maintain. The costs of food and energy will be incredibly high and simply eating and staying warm, will take most of the money alot of people have. Paying off credit with those inflated dollars will come only after one eats. People will at some point be forced to decide between paying the mortage or eating.


I agree with most of this, but to use a blanket statement that "inflation will magically make your debts disappear', is not what I am advocating. I am simply saying that a "home debt" can be a magical investment, "IF you knew hyper inflation was definitely coming" and IF you are intrinsically invested to the point that you can weather the inflationary storm. Then in this specific case you would get your home, literally penny's on the dollar in a best case scenario.


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## preponomics (Nov 18, 2012)

Viking said:


> My wife and I got out from under $50,000 debt in 2004-2005 and it's amazing what being clear of that debt means to us, now each dollar spent is like having $10. We are able to do things now that we were not able to do when both of us were working. It's almost like magic and I think our family just can't figure out how we're able to do the things we're doing. Sometimes I wonder if they don't think we're selling drugs or something, we aren't, being debt free does wonders. If we use a credit card it's often used as a debit card and when used is paid off right away, nothing is held to the next month.


Congrats viking - debt can be the worst kind of bondage in the world - to me debt is like wrestling a lion - when your controlling it, its a powerful feeling that you conquered your own freedom, but when it controls you, its a death trap in its claws


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## preponomics (Nov 18, 2012)

zombieresponder said:


> Um, no. It's not nearly that simple. I suggest listening to what someone who lived through it says on the matter. http://ferfal.blogspot.com/
> 
> That individual lived through the economic collapse of Argentina. I heard him speak about it. Even though people got paid daily, prices on items often increased in a matter of minutes, meaning between the time a person entered a store and the time they got to the checkout.


There were a lot of people in Argentina that made out like bandits, because they "controlled what was intrinsically valuable". I have listened to this guys videos and agree with everything he has said that I have read and viewed so far, but he has not said anything to me that causes me to change my position, nor does he contest what I have said.

Give me something specific that he supports that is in conflict of my argument, if you can please? Thanks for the insights from Argentina, very relevant to this discussion


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