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So, what happens to debt if the dollar collapses???

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  • So, what happens to debt if the dollar collapses???

    Okay, say the US dollar collapses. Hyperinflation, deflation, etc. What happens to all the credit card debt, mortgages, car loans, etc?

    I have read that when currency is devalued historically, such as in Weimar, or Zimbabwe, they had to pay people with wheel barrows full of money. You needed thousands of Deutchmarks to buy a gallon of milk.

    Let's say that the dollar collapses and becomes nearly worthless, dropping ninety nine percent in value. Say one US dollar is now worth .01 cent. Would that mean ten thousand dollars in debt becomes ten cents in debt?

    Pay would have to increase so workers would be able to buy necessities, right? Would I be able to pay off my house, car, and credit card in one pay period? Sounds too good to be true. I wonder if a situation like that has happened?

    Seems like the real problem would be retired people, living on fixed incomes.

    Ineresting angle, huh?
    Bruce
    Death is whimsical today. - Gary Oldman

    Zombies man...they creep me out. - Dennis Hopper

  • #2
    Re: So, what happens to debt if the dollar collapses???

    I don't believe your debt will devalue like a currency would.

    If you owed 100 Deutschmark debt before hyper inflation and devaluation, the debt would still be 100 Deutschmarks after hyper inflation and devaluation.

    It would just take you 100 times longer to pay it off. I doubt your wage would go up either. Millions were starving in Germany during the Weimar period even if they were working.
    Peace Through Strength, Victory Through Devastation...Strategic Air Command

    American by birth, made from German parts from Emmingen, Baden-Württemberg

    An unhappy German is a Sour Kraut!

    Das Leben ist zu kurz, um billiges Bier zu trinken!

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    • #3
      Re: So, what happens to debt if the dollar collapses???

      I'm afraid you have this a bit backwards...

      "Would that mean ten thousand dollars in debt becomes ten cents in debt?"

      It should read; Ten cents of debt would become ten thousand dollars worth to pay. (The Debt Value remains the same, but the Dollar Value figure becomes huge due to devaluing and hyperinflation).

      The problem with hyperinflation/delafation is that to cost of things goes out of sight with a hyper-deflated dollar, causing the seemingly hyper-inflation of anything that you would need to buy. What makes this such a problem actually is that wages never catch up to the hyper-deflation/hyperinflation and the working monitary dollar/FRN system that we now know,(especially according to actual 'world values'), crashes.

      One Once of Gold buys the very same thing/value it bought one hundred years ago,(for the most part), but the U.S. Dollar that was once based on the 'Gold Standard', now buys 1/150th of what it used to one hundred years ago.

      Has your wage risen 150 times in value lately?



      Michael
      Last edited by C. M. Wolf; May 8th, 2011, 21:00.

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      • #4
        Re: So, what happens to debt if the dollar collapses???

        The only real effect you will feel as pertains to debt, is if that debt is in a foreign currency. If you owed a hundred dollars you will still owe a hundred dollars. Now purchasing power is a whole nuther thing. But any debt contracted for in "American dollars" is till the same, because a dollar is a dollar within the confines of the country.
        Guido

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        • #5
          Re: So, what happens to debt if the dollar collapses???

          Debt based in or initiated in dollars is paid in dollars or any other currency. If the dollar collapses that means the dollar or any currency is worthless. The currency becomes just plain paper, nothing more nothing less. It has no foundational backing other than the word of a defunct Fed. Debt is wipe out as well as assets at that point. ( The primary reason some now are stockpiling physical Gold or Silver etc... to preserve a portion of thier wealth, buying power ) Until such time as a suitable replacement is agreed upon its going to be a mess. Thats where trading and bartering with precious metals or other consumable goods becomes order of the day.

          Tread

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          • #6
            Re: So, what happens to debt if the dollar collapses???

            You guys don't remember back in the '70's when the first round of inflation hit, do you?



            There were articles in the paper about people who were paying $31.99 a month for their mortagage, and their home was then worth $30k. 1950's era mortgages after inflation.

            Yes. Inflation screws your creditors over that way. You can pay your mortgage off with pocket change, if hyperinflation hits. Of course, you first have to have a job or something to sell to get that wheelbarrow full of "pocket change". But that is the way of it.

            If I owe someone $1 Million, and the inflation rate goes to the point that $1 million is equal to one cent, I just have to present a shiny new $1 Million bill to pay the debt off.
            Alle Kunst ist umsunst Wenn ein Engel auf das Zundloch brunzet (All skill is in vain if an angel pisses down the touch-hole of your musket.) Old German Folk Wisdom.

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            • #7
              Re: So, what happens to debt if the dollar collapses???

              Originally posted by Cuznguido View Post
              The only real effect you will feel as pertains to debt, is if that debt is in a foreign currency. If you owed a hundred dollars you will still owe a hundred dollars. Now purchasing power is a whole nuther thing. But any debt contracted for in "American dollars" is till the same, because a dollar is a dollar within the confines of the country.
              I'm afraid that this simply does not pertain either, especially since the U.S. relies on far more than half of it's markets, and goods, and even labors from foriegn countries/markets. It more creates a far worse "Hyper-inflation" problem instead of leveling it in this country.

              ...When 5 Yaun buys an once of gold at the same time it takes 5 million dollars to buy the same once of gold and you are being paid less than 50,000 dollars per year and Mr. Chinaman is being paid 1,000 Yuan per year... well you get the picture.



              Michael
              Last edited by C. M. Wolf; May 8th, 2011, 21:20.

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              • #8
                Re: So, what happens to debt if the dollar collapses???

                Okay, I phrased that poorly.

                What I am saying, is that if the US dollar dropped in value by 99 percent, employers would have to increase pay in newly devalued dollars to make it worthwhile to go to work. If it cost you ten thousand dollars to fill up your gas tank and go to work, and another ten thousand dollars to buy a weeks groceries, there would be no point in working 40 hours a week for $450. You could not even put gas in your car to go to work. Pay would have to increase. But your debt on credit cards and fixed rate loans would not increase. The interest rates on variable rate loans would skyrocket. But fixed rate mortgages would not. What would stop you from taking post crash newly devalued dollars into a bank, and paying off all your debt? Or even scooping up handfuls of worthless dollars off of the street and paying off your debt?
                Death is whimsical today. - Gary Oldman

                Zombies man...they creep me out. - Dennis Hopper

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                • #9
                  Re: So, what happens to debt if the dollar collapses???

                  The question was not about purchasing power but about "debt". I stand by my remarks. If you are contractually indebted for X dollars then must pay X dollars, not "X dollars adjusted for inflation.
                  Guido

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                  • #10
                    Re: So, what happens to debt if the dollar collapses???

                    Originally posted by jefferson101 View Post
                    You guys don't remember back in the '70's when the first round of inflation hit, do you?



                    There were articles in the paper about people who were paying $31.99 a month for their mortagage, and their home was then worth $30k. 1950's era mortgages after inflation.

                    Yes. Inflation screws your creditors over that way. You can pay your mortgage off with pocket change, if hyperinflation hits. Of course, you first have to have a job or something to sell to get that wheelbarrow full of "pocket change". But that is the way of it.

                    If I owe someone $1 Million, and the inflation rate goes to the point that $1 million is equal to one cent, I just have to present a shiny new $1 Million bill to pay the debt off.
                    Ha ha! I remember it. I was just too small to remember stuff about mortgages. I remember it took me longer to save up enough allowance to buy GI Joe toys and cap guns.

                    So there is historic precedence to what I am saying.
                    Death is whimsical today. - Gary Oldman

                    Zombies man...they creep me out. - Dennis Hopper

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                    • #11
                      Re: So, what happens to debt if the dollar collapses???

                      Originally posted by Cuznguido View Post
                      The question was not about purchasing power but about "debt". I stand by my remarks. If you are contractually indebted for X dollars then must pay X dollars, not "X dollars adjusted for inflation.
                      Okay, I understand. So help me out here. Post hypothetical dollar crash; would that be a historic opportunity to pay debt off, due to the reasons I already mentioned?
                      Death is whimsical today. - Gary Oldman

                      Zombies man...they creep me out. - Dennis Hopper

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                      • #12
                        Re: So, what happens to debt if the dollar collapses???

                        Look at the end of the USSR.
                        The ruble was worthless and the people starving.
                        Anything of value..for example ammo or rifles were sold cheap to anyone who had the foreign exchange to buy them.

                        Recall the price of 7.62/39 or an sks in the 90's? $ 60 to 120.

                        If you had..in your hand..gold ..silver..usd you were ok comrade...most did not.

                        Still, the "nomenklatura" their version of our "elite" came out OK...lots of new billionaires.
                        The Ivan in the street? His women, the good looking ones, became mail order brides, and he had stand by and watch a long time ally, Serbia get bombed...things are better now but times were hard

                        Same thing in Weimar ..pay off the French with devalued Marks..if you had gold in a Swiss bank..or family in America who could send you a few bucks no problem..the avg German how ever was in deep trouble.
                        The reason they voted Hitler into power in 33, was not that he promised to conquer Europe or kill Jews, but because he offered bread and work.

                        Any way ..short answer..
                        The USD is devalued and China and anyone else holding USDs is SOL.

                        I am sure that most of our "nomenklatura" has stocks of Euros or Yen or gold..so they are not worried.



                        Karl
                        Last edited by kARL; May 8th, 2011, 21:53.
                        Karl

                        http://grrrscave.blogspot.com/

                        Keep those e-mails and calls to your Congress people coming.

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                        • #13
                          Re: So, what happens to debt if the dollar collapses???

                          Originally posted by kARL View Post
                          Look at the end of the USSR.
                          The ruble was worthless and the people starving.
                          Anything of value..for example ammo or rifles were sold cheap to anyone who had the foreign exchange to buy them.

                          Recall the price of 7.62/39 or an sks in the 90's? $ 60 to 120.

                          If you had..in your hand..gold ..silver..usd you were ok comrade...most did not.

                          Still, the "nomenklatura" their version of our "elite" came out OK...lots of new billionaires.
                          The Ivan in the street? His women, the good looking ones, became mail order brides, and he had stand by and watch a long time ally, Serbia get bombed...things are better now but times were hard

                          Same thing in Weimar ..pay off the French with devalued Marks..if you had gold in a Swiss bank..or family in America who could send you a few bucks no problem..the avg German how ever was in deep trouble.
                          The reason they voted Hitler into power in 33, was not that he promised to conquer Europe or kill Jews, but because he offered bread and work.

                          Any way ..short answer..
                          The USD is devalued and China and anyone else holding USDs is SOL.

                          I am sure that most of our "nomenklatura" has stocks of Euros or Yen or gold..so they are not worried.



                          Karl

                          So, post crash, I can cash in a hundred ounce silver bar for 1 million near worthless USD's and take the money into the bank and pay off my mortgage, wife's car, and credit card, and buy a vacation home in Florida with the change?
                          Death is whimsical today. - Gary Oldman

                          Zombies man...they creep me out. - Dennis Hopper

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                          • #14
                            Re: So, what happens to debt if the dollar collapses???

                            In 1979 the interest on housing loans in Colorado was about 19 or 20%. Couldn't buy a house on Capt. pay.
                            Peter 5:8
                            "Be sober, be vigilant; Because your adversary the Devil walks about like a roaring lion, seeking who he may devour."

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                            • #15
                              Re: So, what happens to debt if the dollar collapses???

                              Originally posted by BruceNRALife View Post
                              So, post crash, I can cash in a hundred ounce silver bar for 1 million near worthless USD's and take the money into the bank and pay off my mortgage, wife's car, and credit card, and buy a vacation home in Florida with the change?
                              Regarding the payoffs, yes. As far as buying anything goes, not so much. Actually, you'll probably be able to get you and your wife's lunch at Mickey D's with the change.
                              Alle Kunst ist umsunst Wenn ein Engel auf das Zundloch brunzet (All skill is in vain if an angel pisses down the touch-hole of your musket.) Old German Folk Wisdom.

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