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Author Topic: Economic predictions and advice  (Read 2994 times)
randallstevens
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« on: August 27, 2010, 06:28:22 PM »

I'm just wondering what everyone thinks may happen in regard to mortgages when the dollar eventually collapses and we have hyperinflation. I have a 30 year fixed mortgage at a decent rate that my wife and I easily make the payments on each month. After her car is payed off (hopefully within the next few months) it will be the only debt that we have. I'm hesitant to pay anything extra on the mortgage simply because I don't know what the government will do when the dollar collapses. Our mortgage payment is in line with rents in the area and we have very little equity since we put nothing down. I'm not afraid to mail the keys to the bank and walk away from the house if local government decides to triple my property taxes when the dollar becomes worthless. My own prediction is that the feds will pass more bailout legislation in the event of hyperinflation to protect the banks and keep their loans from being paid back with worthless currency. How about everyone else?
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Sima Qian
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« Reply #1 on: August 29, 2010, 07:07:20 AM »

I think the collapse of the dollar could be further away than many people expect.  This is principally because I'm a contrarian and a lot of people expect the dollar to collapse. XD  There's also the fact, however, that capital has to go somewhere.  European governments are, for now, trying to steal more than they spend, which means governments are cutting debt at the same time that house holds are cutting debt.  This will make Europe's GDP to fall in the SR, which will persuade many people that Europe is not safe. 

Then there's the baby boomers/masses of Americans.  Total investment in the stock market and mutual funds is declining, and that money has to go somewhere.  The public has a tendency to put their money is the worst possible place at the worst possible time, which right now is bonds, especially US treasuries, so I bet that's where they'll put it.  Treasuries will go up and up and then when people are declaring that it's a "New Normal" where the US govt can borrow however much it wants, the poo will hit the fan.

The govt response will vary depending on how well the "real goods" sector of the counter-economy has developed. (Like home gardens http://www.youtube.com/watch?v=QIFPFpxBFVE)  If it's thriving the crisis won't be so bad, and if it's not we're more likely to see martial law.  I expect that this will tend to be a region-by region phenomenon.  In places where people have food/medicine/etc. stored already it won't be so bad, in places without, it'll be more Katrina-like.

The actual event will probably happen faster than any previous hyper inflation simply because of the rapidity of communication and trade.  I thought this was a reasonable theory on how the event could happen, though I disagree with how soon the author thinks it will:
http://www.zerohedge.com/article/guest-post-how-hyperinflation-will-happen

As for what they'll do to save the banks: I agree that there will be a bail-out, but I suspect that so many people will be saying, "Screw that, I'm paying based on what's in the contract" that enforcing the bailout (If it's done through re-abrogating contract rights) will be difficult.  I think it's also informative that many sheriffs are currently refusing to remove people who are in foreclosure.  A similar situation could happen under hyperinflation, where sheriffs refuse to take action against people paying in the inflated dollars.
« Last Edit: August 30, 2010, 05:16:04 AM by Sima Qian » Logged
helio
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« Reply #2 on: September 08, 2010, 02:16:30 PM »

I doubt anyone can really predict whats going to happen with any certainty, but it is a fun game to play so here goes.  It really depends on what the fed does with interest rates.  If we have a Volker moment in the future and the fed raises rates to astronomic levels to fight inflation like in the early 80s, all the mortgages that have adjustable rates will probably default sending the market into a tailspin.  That will probably cause even more defaults of fixed rate mortgages just because of the plummet in value.  Now certainly the Feds could step in and decree that banks can't foreclose, but thats only moving the defaults from the home owners to the taxpayer, as disallowing the banks to foreclose will put the banks in jeopardy. 

If the fed doesn't raise interest rates, and hyperinflation isn't fought directly with allowing a depression to liquidate the malinvested debts, we may have to look at what happened in Chile in the early 70's.  Asset prices plummeted during that hyper inflation because everyone was trying to sell off every equity they had to try and acquire the essentials such as food.

This article from yesterday at Lew Rockwell talks about the Chilean inflation http://www.lewrockwell.com/orig11/lira3.1.1.html

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Syock
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« Reply #3 on: December 16, 2011, 01:14:13 PM »

If you were close to finished paying the mortgage, I would suggest paying more on it per month than is due, just so you could have undisputed ownership.  

Since your near the start of the mortgage, I suggest keep making minimal payments.  As the dollar inflates, if your able to keep up your income with the inflation, the bank's liability is to your advantage.  The price on the loan remains static. Hopefully you have or will have a fixed rate before someone realizes the fed is screwing up.  As the money supply rises and you get a higher nominal dollar amount the loan will become worth less, working to your advantage.  

Since they may do something like call the loan as high inflation sets in, having little invested protects you somewhat from the loss of principal.  

There was discussion of a homeowner mortgage bailout earlier this year.  

In previous US government default situations, the government simply introduced a new currency to replace the old one, saying it was better and worth something.  Then they pass laws to force the population to use it. 
« Last Edit: December 16, 2011, 01:19:43 PM by Syock » Logged

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