Debt before and during an economic collapse

[jbombelli]

Interesting notion, but a couple issues:
- anyone who could afford to buy your gold wouldn't need it
- why would you even bother to spend the whateveryougotforyourgold on your mortgage? The bank would be unlikely to foreclose, I would think.

Plus, here's something whacky, given how many times mortgages change hands and how the mortgage companies track them, in a SHTF situation with any sort of internet sabotage, they might not even be able to figure out who owes what. Anyone remember that terrible Emilio Estevez movie where he kinda plays Robin Hood in the west by ruining records of farm mortgages, then it ends up that it was all a fantasy? (Oops, spoiler alert.) It'd kinda be like that, I think.

The mortgage holders would have a really difficult time foreclosing.

Need vs. Want. People who could afford it will always want it.

It's not about fear of foreclosure... it's about paying off a hundred grand for pennies on the dollar, relatively speaking.

 

[CountryBoy19]

Plus, here's something whacky, given how many times mortgages change hands and how the mortgage companies track them, in a SHTF situation with any sort of internet sabotage, they might not even be able to figure out who owes what. Anyone remember that terrible Emilio Estevez movie where he kinda plays Robin Hood in the west by ruining records of farm mortgages, then it ends up that it was all a fantasy? (Oops, spoiler alert.) It'd kinda be like that, I think.

The mortgage holders would have a really difficult time foreclosing.

While yes, a major economic down-turn where I'm in jeopardy of losing my home would be a SHTF to me, it would not be a SHTF on the level that banks would lose records and all world order would be out the window. We're talking about economic down turn or major financial crisis like Greece. Greece isn't going to cease to exist as a country; they will still be there and maintain some semblance of governmental structure and life for their people. Throw in the fact that this is the modern world and digital record-keeping makes it insanely easy to have backups for your backups for your backups stored in numerous locations around the world, some of them more secure than Ft. Knox, yet readily available in the click of a mouse. If you think for even a minute that type of scenario is enough to confuse the banking industry or destroy enough records so prevent foreclosure I think you're in for an eye-opener.

Foreclosures continued to happen during the great depression, they happened in the '07/'08 downturn, and they will happen in the future too, even in a massive financial crisis.

I like that kind of thinking...........Not too far off base to imagine a cyber glitch and have all peoples` info lost .

If something were to happen and people couldn`t pay their mortgages, do you really think there would be people willing to be enforcers and evictors , at least in today` society ? I would say that could be the #1 Most Dangerous jobs to have .
I don`t think I would let someone get too near to my home in a crisis " Claiming " to be one of these enforcers .

See above re: foreclosures. No matter what road you decide to take, standing your ground in a home that has been properly and legally foreclosed on due to your inability to make the payments, no matter what the reasoning or cause, would be immoral IMHO.

Need vs. Want. People who could afford it will always want it.

It's not about fear of foreclosure... it's about paying off a hundred grand for pennies on the dollar, relatively speaking.

This ^^^

 

[rhino]

Could devaluing of debt owed be part of the reason for "quantitative easing" and other measures that devalue currency?

 

[Libertarian01]

Being debt free during an economic downturn is a better place to be than having debt during an economic downturn.

If you're debt free there are, simply put, less ways you can be F****D with! You have insulated yourself from the banks. Sure, property taxes, sales taxes, massive cost increase on goods, all of these things can still screw you up. Yet while others are worrying about the bank coming to take their home that is a burden you are not carrying.

To me this is a good reason to live debt free AND off grid, at least to the maximum extent that one can. The less monthly bills a person has the less they need to survive. This then allows for a greater flexibility to bend with an economic downturn.

Let us not forget that in an overall crisis the banks won't just fail. Even IF some do others will buy them (and their loans) in bankruptcy or mergers. Loans will not go be forgiven. Clauses that may exist but are not used today may be exercised with greater enthusiasm when the financial institutions back is up against the wall.

Regards,

Doug

 

[CountryBoy19]

Being debt free during an economic downturn is a better place to be than having debt during an economic downturn.

IMHO that is both true and untrue. If the economic down-turn comes with more rapid inflation then the "best" approach is to be heavily loaded with debt nearly to the point of failure. You can invest the money you have borrowed through those debts in the markets while things are down, taking advantage of double-digit gains for the years of recovery, then sell high, pay off debts and come out extremely wealthy. The problem with that approach is that none of truly know where the "point of failure" is and what curve-balls may be thrown at us to bring us closure to that point. Thus, we must have safe-guards in place.

Being 100% debt-free may be best for some people, but it may pay HUGE dividends for others to carry a heavy debt-load. Everybody's economic and financial situation is different so i think it's pretty broad to say "debt free... is a better place to be", because that isn't necessarily true.

 

[brew45]

Let's take this one step further; what about student loans? Most are government backed and in the event of a SHTF scenario, I'm telling them to go pound sand.

 

[DWT]

Jens Parsson wrote a book called "The Dying of Money," and people in Weimar Germany who did best took a HUGE amount of debt just as the hyperinflation started. But the thing they did was buy tangible goods. After the hyperinflation they could sell a millionth of what they had bought and pay off the debt in the same Reichsmarks they had taken the debt in. It's a risky idea, but it could work if you can time things just right.

 

[IndyDave1776]

Jens Parsson wrote a book called "The Dying of Money," and people in Weimar Germany who did best took a HUGE amount of debt just as the hyperinflation started. But the thing they did was buy tangible goods. After the hyperinflation they could sell a millionth of what they had bought and pay off the debt in the same Reichsmarks they had taken the debt in. It's a risky idea, but it could work if you can time things just right.

This is true, but the game wasn't rigged to near the extent then that it is now. I am not saying that it can't be done, but it would be much more difficult. Also, in the current political climate, I would not be surprised that such an event would be countered by recalling the currency in exchange for 'new dollars' in which you turn in bundles of 'old dollars' for a new dollar, but your debts are payable at face value in 'new dollars'.

 

[PistolBob]

If the state ever thinks it is taking my paid for home place, I got news for them. All they get is what remains after the fire, and I've salted the land.

 

[PRasko]

What debt?

I was always raised, if you can't pay cash, you don't need it.

 

[rhino]

What debt?

I was always raised, if you can't pay cash, you don't need it.

I feel the same way, but it's a significant challenge to do that with a home.

 

[SteveM4A1]

I feel the same way, but it's a significant challenge to do that with a home.

Or college.

 

[dusty88]

Most of the answers here assume that an economic collapse would be inflationary.

The FED has been working their hiney off to get inflation, and they've only succeeded in asset bubbles. Price and wage inflation isn't working because the deflationary pressures are so strong.

In order to add more $$ into the economy, they have to keep selling bonds. One of these days, that may come to a stop. I'm surrprised it hasn't already. Who wants those bonds at such low rates anyway? Seems to me they are already the investment of last resort for some people and countries trying to hold on to a tenuous reality.

Point being, if a deflationary collapse occurs, debt is unspeakably dangerous from the standpoint of financial stability.

If the FED were to find a way to enact unconstitutional money printing then yes, we might have severe inflation. But that's not all rosey for debtors either. Sure, you can pay your mortage with a lower % of your income but if you need all of your income to pay your electric bill and groceries, you'll still not have money for your mortgage. If you have any variable-rate debt the interest rate will greatly increase.

 

[RockofStrength]

.

 

[dusty88]

Unless things go so far south that the government and banks are the least of your worries, I wouldn't wager on large, powerful, multinational banks being stuck with the short end of the stick. Rules were bent, broken, or just plain ignored during the 2008 crisis in order to benefit the politically connected.

Yeah, they aren't given up your mortgage too easily. One theory is that the next time will be a "bail in" (seizing deposits)

 

[IndyDave1776]

Yeah, they aren't given up your mortgage too easily. One theory is that the next time will be a "bail in" (seizing deposits)

You mean like what they did recently in Greece?

 

[dusty88]

You mean like what they did recently in Greece?

yep, something like that

I also think it's perfectly realistic that tax-sheltered accounts such as 401K could get locked

 

[IndyDave1776]

yep, something like that

I also think it's perfectly realistic that tax-sheltered accounts such as 401K could get locked

Absolutely! They have made no secret of the fact that 401K funds represent a large pile of money that they have had their lusty little eyes locked on for some time! This is one of the reasons that I am not much for traditional savings. If I invest in tangible assets, which in my reckoning, the means to produce food and other needs accounts for much more than a piece of paper from the bank once a month declaring that I own money of which I do not have custody, it is much harder to confiscate than assets held outside of my physical control which will be turned over to the .gov without protest.

 

[rhino]

Governments seizing or locking bank accounts is the kind of thing that starts the kind of trouble where everyone loses.

 

[dusty88]

Governments seizing or locking bank accounts is the kind of thing that starts the kind of trouble where everyone loses.

Oh, I think people are in general compliant. They don't just say "we are taking your money". They start with making cash transactions more scrutinized and then more difficult (which has actually already happened. ). Then they limit the amount you can take in a day. Then they blame the limits on greedy people, not interested in the greater good (ya know like the gold hoarders in the Depression who didn't want to turn their gold over to the government). As long as a lot of people are dependent on the government (and a LOT of people are not just people who don't work) they'll have compliance.