| What Would Happen To Debt If Currency Collapsed? |
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moneyflow
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| What Would Happen To Debt If Currency Collapsed? |
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With the value of the dollar falling rapidly, I was wondering what would happen to debts both secure and unsecured in the event of a major financial collapse. From what I have read it's a good thing to carry a high debt load in periods of hyperinflation, but not stagflation because of the chance to pay off debts with cheap dollars.
What are the different scenarios of what would happen to the average person with $15,000-$25,000 credit card and loan debt in the event that the dollar totally collapsed? Would it be a good or bad thing? Is there any scenario where it could be good?
I know that if a bank fails, you may lose your money but your debt just moves elsewhere. If a new currency were introduced, would it be to the advantage of people who carry heavy debts?
Unsecure debt is never good to carry around in any economic situation, but I am thinking now is the time more then ever to get rid of your debt load and start investing in physical gold and silvers.
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Mon Oct 27, 2008 11:22 pm |
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No-Brainer
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Simple answer, it's NOT going to happen in the US.
You can't just abandon one currency and start a new one.
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Tue Oct 28, 2008 12:51 am |
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coaster
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Oh? It's happened over and over again in other countries. Why not here? I used to travel to Mexico quite a bit. I remember when they introduced the "new peso" -- it was convertible from the old peso at a rate of 1000:1. That would be quite a shock in this country if suddenly $1000 => $1.
To answer moneyflow: anyone concerned about a possible collapse of the monetary system should have been accumulating gold and silver back when it was cheap.
Side note: the US dollar has risen quite dramatically recently. Before the financial crisis the dollar index was around 78. Last I looked it was 87. That's about 11.5%, which probably doesn't sound like much, but it was over a period of about two months, so annualize that out to see what the real rate was.
~Tim~
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Tue Oct 28, 2008 1:50 am |
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No-Brainer
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I didn't say it wouldn't happen in other countries, but I sure don't believe it will ever happen here. At least not in my lifetime.
Why would they convert to a new currency instead of just deflating the one they have?
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Tue Oct 28, 2008 2:02 am |
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coaster
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Google the word "Amero" and consider that this ludicrous proposal has actually received some serious thought by the Bush administration, among others.
Why convert the currency? Because of devalued currency. I'll bet you'd rather pay $2.50 for a loaf of bread rather than $2,500. I know I would. Even though the value -- ie the loaf of bread -- is the same.
Actually, I think the whole concept of "devaluing the currency" is a whole misnomer, as the currency itself has no value. Its only value is the generally recognized perception by the public that it can be exchanged for "stuff" of value. "Legal tender" and all that. It's just psychological -- the public has more confidence in the nation's monetary policies if they perceive that the currency has more value, ie can get more for a unit of currency. When really it's immaterial what the unit is. What is material is what percent of income is spent on that loaf of bread.
~Tim~
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Tue Oct 28, 2008 4:12 am |
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No-Brainer
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Exactly my point, and at 70 years old I have seen plenty of devaluing, but not anyone throwing them away. The same dollar that filled my motorcycle tank now buys a gallon.
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Tue Oct 28, 2008 5:07 am |
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coaster
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But Warren, I think that saying "it can't happen here" because it hasn't happened in your lifetime just isn't taking a long enough look at history. There's been some rather profound changes going on in the Federal Reserve and the US Treasury lately and I think we're entering a period in which anything can happen. If it's happened elsewhere (and it has) then it could happen here, too.
I've read of a proposal to have a dual currency, like they do in China. There would be one dollar valued at a fixed exchange rate that would be used for foreign exchange, and another dollar valued at a floating rate that would be used for internal exchange. Again.....it has happened elsewhere.....it could happen here.
~Tim~
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Tue Oct 28, 2008 2:02 pm |
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No-Brainer
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Let's just agree to disagree and see what shakes out.
Either way we have the greatest country on earth and whatever problems that come up will be solved.
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Tue Oct 28, 2008 2:59 pm |
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coaster
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I agree with both those statements. 
~Tim~
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Tue Oct 28, 2008 6:23 pm |
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moneyflow
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So basically let's say the Amero becomes a reality. Instead of paying off a $10,000 debt with inflated devalued and cheaper US dollars, you'd still be paying off that same debt with a new currency which could possibly be slightly stronger costing you more in the long term with your debts.
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Tue Oct 28, 2008 7:29 pm |
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Avino
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| Re: What Would Happen To Debt If Currency Collapsed? |
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quote:
Originally posted by moneyflow
I know that if a bank fails, you may lose your money but your debt just moves elsewhere.
I think it should be law that if a bank fails and wipes out your savings (assuming there was no FDIC), then they should also wipe out all the debt you had with that bank. In that case I would be rooting for a few banks to fail i.e. the ones that hold my mortgage, student loans and credit cards.
Well just some thoughts, this was an interesting thread.
~A.
Also blogging @ avinos2cents.blogspot.com
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Thu Oct 30, 2008 6:59 pm |
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coaster
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IMO, giving up the US dollar in exchange for the Amero would be the first nail in a coffin for this country. The US dollar is legal tender guaranteed by the "full faith and credit" of the US Treasury. Giving up the dollar would say to the rest of the world that this country no longer has "full faith and credit" of its own government, much less the rest of the world. This is something we must NEVER do.
~Tim~
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Thu Oct 30, 2008 10:24 pm |
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sirmikey1
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More probable is a global ID card with global currency
(magnetic strip), and global income tax.
Citi, Chase, and HSBC are hiking credit card rates to 36%
and the lower middle class are just walking away from them.
This is what happened in Mexico years back.
SM
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Tue Mar 24, 2009 10:46 pm |
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