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If the US revalues its currency at 10-to-1, let's say, what happens to outstanding dollar-denominated debts?

What I mean is...let's say John Doe sees hyperinflation coming. He has a $100,000 mortgage, but he buys another $100,000 worth of land, and gets the seller to finance at 100%. Hyperinflation happens, to the tune of 3-to-1. Now, John gets 3 times as many dollars, but his mortgage stays the same.

So the gooberment revalues at 10-to-1. The original $10 bills are now worth a new $1 bill. Because his notes were written for year 2010 bills, can he pay them off for a total of $200,000 (original bills), and does this correspond to $20,000 of Revalued Bills? Or does he need to cough up $200,000 in revalued bills to satisfy the note?

Essentially, does the lender get ten times as much money? Is this how the government will protect their banking friends and try to stave off the collapse of the fiat dollar? Does John Doe take it in the proverbial rear, or does he get a windfall for his prudent investment n land?
 

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As with taxes, NAFTA, globalization, etc. they'll set it up so that it kills the little guy, but aids the biggest players (the ones who donate the most money to politicians, run expensive media ads, fund think/spin-tanks, etc.).

The other way is by deflation -- maybe we're wrong in predicting inflation. Apparently deflation has followed previous economic downturns.

The last way, I've wondered about, is a sort of targeted inflation. Maybe they'll print money like it's going out of style, but only give it to the banks, foreign governments, biggest corporate behemoths, etc. to prop them up -- but do whatever the heck they can to ensure that main street remains deflated and struggling. In fact, that seems to be the case...
 

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I have heard the gov't was looking into a dual currency system. One for us that live here and one for them to use outside the U.S. in dealing with other nations, banks, etc. This would allow them to do exactly what aramcheck mentioned above. Keep the currency that the big guys use as valuable and take all of the value from the normal American's money.
 

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In the case of a devaluation, the original $200K mortgage would stand making it easier to pay off. The issue is on the other hand. Historically, wages will not keep up with the "devalued" amount. This means you'll be making relatively the same money but a loaf of bread will cost you $6. That's the rub that makes hyperinflation a SHTF situation.
 

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Discussion Starter · #5 ·
In the case of a devaluation, the original $200K mortgage would stand making it easier to pay off. The issue is on the other hand. Historically, wages will not keep up with the "devalued" amount. This means you'll be making relatively the same money but a loaf of bread will cost you $6. That's the rub that makes hyperinflation a SHTF situation.
There can be created a lag if you provide a store of tangible value. For example, if John Doe grew wheat and baked bread, in a self-sufficient process, he would get the $6 per loaf.
 

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There can be created a lag if you provide a store of tangible value. For example, if John Doe grew wheat and baked bread, in a self-sufficient process, he would get the $6 per loaf.
This is very true. In this sense, you would be wise to shop your posterior off at the dollar store if there was a bank holiday. You could preserve some wealth. In the long run, I believe the economic devastation would see a serious lag in wages. If
 

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Essentially, does the lender get ten times as much money? Is this how the government will protect their banking friends and try to stave off the collapse of the fiat dollar? Does John Doe take it in the proverbial rear, or does he get a windfall for his prudent investment n land?
One way to determine what might happen here is to look at what did happen in other countries that experienced the same situation.

Mexico has experienced several currency revaluations. I remember when they chopped three zeros off the currency, making three thousand old pesos equal to three new ones. Banks in Mexico were wise and had refused to give fixed rate loans. They would simply raise the interest rate on the loan to remain equivalent to inflation. So the banks did not lose.

Argentina was a little different. Unlike Mexico they were pretty much a first-world country. Many loans were fixed like in the U.S. In fact, for years they pegged their currency with the dollar and you could use dollars or pesos interchangeably in Argentina. I remember being shocked the first time I used an ATM in Argentina and it asked me if I wanted pesos or dollars. When their crisis hit they removed the peg and the peso rapidly dropped from 1-1 to 3-1. It took 3 pesos to buy 1 dollar. The government closed the banks for a holiday and forcibly converted all dollar accounts to pesos at the new (bad) rate, eliminating nearly 70% of people's wealth in one swoop. This was followed shortly with indexation. In an effort to save banks and businesses the government declared that fixed rate loans would be repaid at a rate indexed with inflation.

So, to answer your question... no. Every government depends on functioning banks. If banks were to lose (10-1) roughly 90% on every loan then they would go bankrupt. The government would not permit that. They could not. The government would change the laws and force you to pay back your loans as indexed by inflation. Banks would turn on their PR machine and frame it as mortgage holders vs. depositors. They would win.
 

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It goes a long way toward explaining why so many big commercial real estate owners can sit on vacant properties indefinitely without taking a loss, don't feel any economic need to lower rates to attract tenants, or how the Big Box near you can often run its heating, electricity, pay its workers, etc. even if it's practically a ghost town half the time in terms of customers. It really does seem like there's a different currency altogether for big vs. small. Hard to explain simply by tax incentives favoring the big players.

If true, then money is more like an effect of an underlying caste/power system, rather than a cause.

I have heard the gov't was looking into a dual currency system. One for us that live here and one for them to use outside the U.S. in dealing with other nations, banks, etc. This would allow them to do exactly what aramcheck mentioned above. Keep the currency that the big guys use as valuable and take all of the value from the normal American's money.
 

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It goes a long way toward explaining why so many big commercial real estate owners can sit on vacant properties indefinitely without taking a loss, don't feel any economic need to lower rates to attract tenants, or how the Big Box near you can often run its heating, electricity, pay its workers, etc. even if it's practically a ghost town half the time in terms of customers. It really does seem like there's a different currency altogether for big vs. small. Hard to explain simply by tax incentives favoring the big players.

If true, then money is more like an effect of an underlying caste/power system, rather than a cause.
A "two party system" so to speak ? Thats how it seems to me.
 
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