Most of us think we can get out of dollars gradually, when the time comes.
But that 'time' may come with no warning folks.
You could wake up one day to the news that your savings have been devalued, all so that housing gamblers can be made whole.
Desperate times call have usually called for desperate measures. Let's see how desperate we truly are.
Dollar Devaluation To Fix The Great Recession
Frank Beck, Forbes
A quick dollar devaluation would work wonders for submerged borrowers. Don't kid yourself: It could happen.
World currencies should be devalued overnight.
It can be done on a country-by-country basis, but a coordinated devaluation would work best. A devaluation of 30% would raise the dollar value of all assets by 43%. A $200,000 home with a $230,000 mortgage would become a $286,000 home with the same mortgage. Presto!
The homeowner who was $30,000 upside-down now has $56,000 equity and a good reason to make his payments. Both the homeowner and the bank are immediately better-off.
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43 comments:
If They pull that shit i may become militant. It's hard enough for me to stomach everything that has happened . But that may be the straw that broke the camels back for me . I am just saying.
If they want to implement this large invisible tax a least stop trying to suppress the value of gold .Leave intelligent people with a way out because if you trap them in a corner the may get aggressive .Again i am just saying
After hearing me fret about hyperinflation, my wife bought me some old Weimar German banknotes at an antique shop. The billion mark note is the best. By that time, they didn't bother designing new notes, they just ran old 1000 mark notes through the printing press again and printed "one billion marks" on them diagonally in red. Counterfeiting would have been easy back then, but not very lucrative.
The primary cause of hyperflation in Weimar Germany wasn't that the government printed up too much money to pay war reparations, as many think. That alone would only have accounted for small but tolerable inflation. It was the loss of faith in the mark that triggered investors to flee the mark for hard assets and other currencies. Once the panic started, there was no way to stop it.
What exactly is the psychological tipping point that causes people to loose faith in a currency? How do we know when we're getting close? If the Fed couldn't see the real estate bubble, and thought subprime problems were contained, do you think they can spot hyperinflation coming?
That's nice, but it still doesn't help me (or any other hard working American on Main Street) afford a house.
They just need to send a $500K check to every taxpayer....woo hoo!!
If Frank Beck thinks devaluation is a cure-all, he is a dunce of the highest order.
Yeah, and everything we need to live on goes up by 30%. As was mentioned, you run the risk of a flight out of dollars.
Not that it matters at this point because the USD is already dead-meat-on-a-stick. We probably only have months left before a major USD crisis erupts.
Joe M.
A man with a middle name of Hussein is going to be President of the United States. Anything is possible, including the collapse of the country, and, why not, who does this government represent anyway. This government keeps borrowing money in my name but not with my approval.
Ummm, I really don't think that's how devaluation works - it changes the value of a currency relative to other currencies, not to assets like houses which are only worth what somebody is willing to pay for them. If your house's "value" just dropped by 40%, so did your neighbour's, and so did his bank balance, so your house isn't going to look any more attractive to him than it did yesterday - he's not going to pay you more than your mortgage for it.
That house in Europe he had his eye on does suddenly look 40% less attractive though, so yours does gain some value relative to that... it also looks 40% more valuable to the European who is thinking of moving over here. These are marginal cases though.
The main effect would be to make the flood of cheap shit from China slow down - if China were willing to play ball or let the yuan float. A few American manufacturers would benefit as a result, but how many Americans are even producers these days? Far more companies would be sunk by the sudden 40% hike in their manufacturing costs.
Consumers all round would feel the belt tighten sharply, which doesn't sound like an expansionary event to me.
to anon ... how do we know we are getting close...?
we know we are getting close due to the fact that gold has undoubtedly been suppressed. i think that is a huge key.
Even if they pull that, it still won't help because working wages for the masses will be depressed even further.
This means more houses will sit empty on the market, and foreclosures will still continue.
Our government employess (who get paid for not doing what we tell them to do) will do everything BUT the right thing.
50% of our federal employees could be eliminated and the country wouldn't be any worse off.
That is 100% correct - lack of faith in the curreny - and we're seeing it now.
There will be massive layoffs coming for the retail sector in the next coming months, which will further supress the living standards of thousands more.
Without healthy consumers, this economy is dead.
Anonymous said...
After hearing me fret about hyperinflation, my wife bought me some old Weimar German banknotes at an antique shop. The billion mark note is the best. By that time, they didn't bother designing new notes, they just ran old 1000 mark notes through the printing press again and printed "one billion marks" on them diagonally in red. Counterfeiting would have been easy back then, but not very lucrative.
The primary cause of hyperflation in Weimar Germany wasn't that the government printed up too much money to pay war reparations, as many think. That alone would only have accounted for small but tolerable inflation. It was the loss of faith in the mark that triggered investors to flee the mark for hard assets and other currencies. Once the panic started, there was no way to stop it.
What exactly is the psychological tipping point that causes people to loose faith in a currency? How do we know when we're getting close? If the Fed couldn't see the real estate bubble, and thought subprime problems were contained, do you think they can spot hyperinflation coming?
December 26, 2008 1:42 PM
If that happens, then I will be pissed. It would be the last straw. I hope stocks and real estate come crashing down in value so I can buy it for a good price.
For such a long time I have saved, scrimped and worked hard as hell so I can finally afford a house for a decent price (I am not going to pay $399,000 for a three bedroom,two bath, two car garage house!)
I read this guy's article on Forbes.com. There were extensive comments on that site from economists and other knowledgeable people who criticized what he had to say. All agreed that doing a devaluation would be disastrous.
This is the stupidest shit I've ever heard. Keith, I hope you do not believe in this crap.
Dny
"If They pull that shit i may become militant. It's hard enough for me to stomach everything that has happened."
I couldn't agree more. How much more of this surreal world can one take. Bad behavior is awarded and respondsible behavior punished.It is all so infuriating.
The problem that got us to where we are today are the millions of people who are in debt.
What happens to them dumbass?
Makes sense, until you view the situation further out than the lender-borrower relationship. If that is all that needs help, why not devalue the mortgages themselves? (didn't they already try?)
We're agreed then - we're doomed
Keith,
I am surprised you are opting for such silliness.
For years you have been fighting high home prices as a sign of imbalances (comparing to rental cost, salaries etc) and now you want to artificially increase it say 30%.
If it was so simple then why not devalue it not 30% but 3000%, then wa are all reach and will live happily ever after. Let's say each house is worth minimum a modest million, let's put a floor below (like in Pakistan stock market).
Man you really need to take a trip to Zimbabwe to see how it works in real live or stop pushing this crap.
Maybe it is time for you to become a realtor with such approach :)
I remember your HP manifesto when you wanted a real change and now this. Man I am not surprised you close that HP shop.
only if wages go up too...which they want.
next.
Reward the Wall Street gamblers with their massive bailouts and now the housing gamblers will be rewarded thru hyper inflation by increasing their equity and once again the people who do things right, (live within their means, don't touch the equity in their homes, save money, etc) will be screwed and ignored and will suffer. Anyone who wants hyperinflation in my opinion is crazy because you can create a monster but you can't control it. You say the value of peoples homes would go up, but no one will be able to afford to buy one. If a small bag of grocery's will require a suitcase full off money, how many dump truck loads will it take to buy a house. And how many business's could survive this leading to massive unemployment which means no home buyers out there so once again home values would go down so we're back to where we started. Rather than going with an expansion of the money supply leading to hyper inflation, I'd rather see a contraction leading to deflation. Create value for the dollar, not make it totally worthless. Either way it's going to be very painful.
If the billions of dollars that went to bail-outs would have gone to each American, taxpayers and non-taxpayers too, each of us would have had a BIG sum in our DEEP pocket to spend at will, be it paying mortgage of upside down properties, buying one or more SUV''s, paying credit card debt, or plain enjoying gourmet food every night for dinner, in Which case we would instantly be behaving like French.
And overnight, interest rates spike up making anyone looking to buy a house unable to do so because they can't afford it. Soooo, a $286000 house could only be sold for $200k due to lack of buyers.
The PTB have cornered themselves, and now they are thrashing about desperately. Letting this play out "naturally" may be painful, but Bad monetary policy will lead to armed insurgency.
"A devaluation of 30% would raise the dollar value of all assets by 43%."
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Does this mean the price of a loaf of bread will also jump 43%?
Will we all also receive a 43% raise in our paychecks?
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Perhaps a more likely senario would be a disorderly exit from the US$ as the world's reserve currency.
We could wake up one morning to find that while we were asleep, China decided to dump the dollar. The rest of the world would then immediately follow suit, and we would then become as irrelevant as Russia became after the breakup of the Soviet Union.
The dollar could become worthless overnight!
But all of us S&A'ers are well-prepared for this, and have already diversified our dollar holdings into Gold, Silver, and other currencies.
In addition, we all have guns, ammo, food, and toiler paper stashed away, as well as a piece of arable land, seeds, and the knowledge to grow food with them, right?
Right?
Right?
Better get prepared, then.
-Mammoth
Some of you are slow. I'm not advocating a devaluation of the dollar to bail out underwater housing gamblers
I'm just telling you what's going ot happen.
Do with that what you will.
Kieth says-"I'm just telling you what's going ot happen."
30% dollar devaluation, I doubt it.
Keith, you are perilously close to be called an InflaTard.
Why is wholesale DEFLATION so impossible for you to grasp? Why do you refuse to see that some rather severe inflation ALREADY took place in the period of 1998 to 2007?
You just can't have supply-side inflation only. Without actual GREATER AMOUNTS OF CASH in the hands of consumers, the suppliers will just sit on their inventories until they get sick of the lack of business, and then they MUST drop their prices ... or they will liquidate, which is the same thing.
Unless there's some massive HELOC surge you're planning on in the future, what you're proposing smacks of the same small-minded thinking that built this economic collapse to begin with.
1. this would be most unpopular among seniors living on fixed incomes (a usually huge presence at the polls)
2. higher US wages would encourage more outsourcing, and higher unemployment
Wow, an expert at Forbes believes world wide currency devalation is the answer, as if magic fairies come, sprinkle money over everyone's house, and it's all better. This complete lack of economic intelligence sickens me. Why don't we just devalue the dollar by 10,000 percent, everyone's house will be worth a billion dollars (wouldn't we all feel better), interest rates will go to 10,003 percent, and the banks will lose their behinds, but then we can have Paulson throw all our tax dollars away buying all the worthless $400k mortgages and then handing over that will be worth a loaf of bread and then hand them another billion just to keep them afloat. But hey, our homes are now worth so much money, we could just borrow more on them and consume our way out of our mess and pay our mortgage. I mean really, I'm not trying to take this Forbes "expert" mentality to such an abnoxious extreme, but do they really not understand at all how the economy works. Is this the most intelligent economic discussion these yahoos can put together. The first rule of economics, "there no such thing as free lunch". Forbes to wikipedia it.
The deflationary spiral will be hard to break. Inflation may overpower the cycle we are in but not before the end of 2009 at the earliest.
As Suzie Orman would say, "Show me the money!" Once the money gets ladled out into salaries then inflation is a possibility. Don't see that happening yet!
-Mike
Ha ha! That's quite funny about the French.
But seriously, what's wrong with gourmet food? If more fat lazy Americans took the time to prepare their own food instead of eating out at Chilis or The Olive Garden or Ruby Tuesday's or The great American Buffet, they'd be smarter, healthier, happier and wiser.
Besides, the Austrians are the better cooks anyway.
The homeowner who was $30,000 upside-down now has $56,000 equity and a good reason to make his payments. Both the homeowner and the bank are immediately better-off.
If it happens, I just stop paying my taxes. Some people in this country will be very very angry.
You make it sound like it's a breeze!
If that happens, it's going to get ugly.
Companies will not have time to adapt and you will get bankruptices galore. Unemployment is going to skyrocket and even if people aren't upside down anymore they won't be able to pay their mortgage because they have not job!
Then you have the interest rate to deal with. A huge % of mortgages are with variable rate. What if the rate increases to 20%? What if taxes double? What if renos double?
It's not a slam dunk.
the suppliers will just sit on their inventories until they get sick of the lack of business, and then they MUST drop their prices ...
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First of all, haven't you heard of just in time inventory? Yes, prices are falling now, but once the invetories are liquidated, it will be another story.
Haven't you notived how many companies are on the verge of bankruptcy? And this time they are not getting bought out. It's liquiditation time. Capapcity is going to dwindle.
And where is capacity now? It's not like the great depression where the world suddenly ended up with twice the capacity because Europe rebuilt itself and became self-sufficient. All of our investments in the last few years have been going into consumables that are now in the dump.
So if you have supply disappearing at the same time as Boomers filing for their SS checks, unemployed claiming the unemployment checks, Big 3 employees and retirees cashing their checks without selling cars, new retirees dipping into their retirement funds to make ends meet and governement injecting huge dollars in infrastructure projects, inflation becomes very plausible.
And it's not a win-win. Banks earn the margin and that margin will have devalued byt 40%.
Inflation is terrible for the creditor.
"Again i am just saying".
See? It's pussies like this covering their butt, so afraid Big Brother will come knocking, that has me convinced nothing will ever be done.
Sure. You sound like a militant all right.
I am just saying.
God you globalists/deflationists are dense. Your greed caused this collaspe and now your defending a policy that will destroy all. But hey, at least it allows you to believe your globalist masters will allow you to keep your dirty bag of coins, rather than deflate them away. This act would force you corrupt scumbags to see yourselves for what you are, so much shit on your new world order masters boots.
In 12 months Obbbbbbbbammmmmmyyyyy will be printing money to support half this country through unempolement bennifits and welfare. No inflationary effect there, oh never mind the bailouts, its all about velocity. Lord help us.
Invest in the magic popcicle! ORRRRRRRR ammo.
Keith,
Seems to me that you are the slow one here. How do you suppose that this will happen?
The USD dropped from 120 to under 70 EUR, while China, EU, and everyone else was printing like mad. Now you think that the USD will drop 30% on top of the 41% that it already dropped?
I say that the reverse will happen. Yuan, EUR, New Z Dollar, Australian Dollar, will all take a pounding. Will the USD go up and down while this happens?, of course. By the end of this, the EUR may not even exist. The US deficit will be alot smaller and the USD alot stronger.
Dny
It seems everyone is a bit confused here. Including Damn.
We are definetely in a deflationay period, hense all the price drops accross the board. It is very possible that this continues for a longer period of time than most think. For some reason we believe these things just start and end in a short time. But if you look back in the last few years and you look at the real inflation numbers, inflation was running extremely high (8-12%).
Now that we are in a deflationary period, people think this will end in 2-4 months. This does not add up? Some of you folks will be left holding your breath as this lasts longer than you think.
We will see inflation kick in at one point, just not as soon as you think. Just go back and look at the housing bubble. Some of us were thinking 2003-4 was the end of it and it lasted until 2007.
Dny
Another note on this and straight at KEITH,
Keith and many around the bloggosphere are EXTREME GOLD BUGS. They would LOVE to see HYPERINFLATION kick in to see their GOLD holdings shoot up to the moon. Keith, be honest, you probably have 99.9% of your holdings in GOLD or a related investment? You would love to see another Zimbabwe here.
Dny
hasn't Ben been trying to inflate for over a year now?
Isn't this what they're doing right now? Just a little more slowly?
Currency devaluation is one goal of zero interest rate policy, no? Endless bailouts would also have devaluationary (is this a word yet?) effects.
Whether they are going to do this in one fell swoop or slowly we should still be preparing in the same way. Personally, my preparation has been GDX for gold and PBW for energy. Other investments I might suggest are DAG for agricultural commodities. If you're not comfortable with etfs then I could suggest CCJ as a rock-solid uranium/nuclear company that is way undervalued right now.
Not telling anyone what to do - just telling you what I'm doing.
Dny - not an 'extreme gold bug' at all
but I am about 5% in gold, about 3% in gold miners
gold will rise as currencies melt down, but at the same time it'll see bigtime drops in demand as people stop buying gold as jewelry, using their money for food instead
But I do trust gold more than I trust fiat currencies
2 words for you that will follow with Newton's third law (for every action, expect an equal and opposite reaction)
word one - civil
word two - war
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