Author Topic: Currency debasement, what it means to YOUR debt  (Read 2496 times)

Offline supes

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Currency debasement, what it means to YOUR debt
« on: July 02, 2011, 09:47:38 AM »
I've always wondered this and I'm not sure the answer. I've never been in debt my entire life but my wife and I had to take a loan to buy a house (baby) and now we owe almost exactly 100k. My question is what happens if our currency gets changed up and our dollar get's reset and based off a gold standard? Jack said something like our money would be worth maybe half as much, but does that mean that I will essentially have 200k in debt instead of 100k?


OldManSchmidt

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Re: Currency debasement, what it means to YOUR debt
« Reply #1 on: July 02, 2011, 10:39:15 AM »
I'm gonna' take a shot at this.  You owe $100k (approximately).  That means the bank owns $100k worth of your house.  If our currency were debased by half, you wold suddenly gain $100k equity in your house.  That is, the part the bank owns would be worth $200k at resale, but you would still only be contractually obligated to pay them $100k for it.   In a sense, you would make out like a bandit.  Your neighbor, buying the identical house next door would have to go $200k into debt to buy what you went $100k into debt to obtain.

In reality, you would be exactly where you were to begin with.  Your house would double in stated value, but gas would go to around $8 a gallon too.

Now, if our currency really were to be put back on the gold standard, the real value of our dollar would skyrocket in a short time.  This is due to the fact that if our money supply were backed 100% by gold, it would no longer be a fiat currency.  Our dollars would then be a voucher, fully guaranteed by a dollar's worth of real, touchable, honest to goodness gold.  In effect, our paper dollars would be "real money".

Offline Bubafat

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Re: Currency debasement, what it means to YOUR debt
« Reply #2 on: July 02, 2011, 11:26:22 AM »
The problem is that wages in the past 20 years have not kept up with inflation, so one shouldn't expect that you'll "make out like a bandit" if the dollar is worth 50% in 5 years.

OldManSchmidt

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Re: Currency debasement, what it means to YOUR debt
« Reply #3 on: July 02, 2011, 08:26:04 PM »
The problem is that wages in the past 20 years have not kept up with inflation, so one shouldn't expect that you'll "make out like a bandit" if the dollar is worth 50% in 5 years.

Well, I said it, but no you really wouldn't.  What I was trying to get at is that the price you pay would be locked in and considerably less than someone who bought an identical house after the devaluation.  That is, they would be shelling out $200k (in current, not real, dollars) while you would be paying $100k for an identical house.

Of course, your wages wouldn't increase by one cent and the prices for everything else you must have or want to live would go through the roof.  Keeping up with any mortgage in such an environment would be dicey at best.

Offline rustyknife

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Re: Currency debasement, what it means to YOUR debt
« Reply #4 on: July 02, 2011, 09:29:34 PM »
I agree with OldManSchmidt. You would owe 100K on your house. An identical one would be 200K. The fly in the ointment is that most likely your wages would stay near the same however most consumer goods would double in price. :o Either way it's not healthy.