On today's show, Jack mentioned the possibility of a rebasing of the currency in the 2012+ time frame. I'm trying to figure out what exactly this would mean for my own finances. Now, hyperinflation I think I understand well... my cash would buy less but I'd also have less debt, and any PM's would go up in value (at least relative to the money if nothing else). But, I had not ever pondered a "rebasing" before.
So, what does it really mean? If I have a few 10's of thousands in my checking account as a buffer in case I'm unemployed, does that cash become worth less? I'm guessing it does, but how exactly and is the reduction in value instantaneous (i.e. can I see it coming and react somehow)? What about my debt (which is a mortgage that now approximately equals my home value, plus an auto loan) -- does that also effectively reduce how much is owed, or are they going to screw with us somehow so that the banks get bailed out again at our expense by somehow keeping up the value of the debt? And, PMs would still be worth more, right?
Even though I could pay off my auto loan now in full, I'd then have no checking balance left, and I'm nervous about being without a job, so I rather like having some cash. So, my plan is to build up to around $40,000 buffer of deposits in checking account before I try to fully pay off the auto loan. And, hopefully I'll have that $40,000 plus the loan paid off before any rebasing happens... but if it happens, where is it best for my money to be? In checking, or paid off an auto loan? (Please don't say PMs... I have enough of a percentage of those relative to everything else that I should not buy any more.)
And then of course there's my slightly underwater mortgage, which I expect will be even more underwater... I'm keeping the option open of halting any mortgage payments the instant I learn of unemployment. I'd rather eat food than make mortgage payments for a house I'll eventually lose anyway.