Democratic Underground Latest Greatest Lobby Journals Search Options Help Login
Google

OK Here is a contrarian view of the Economic Collapse advice....

Printer-friendly format Printer-friendly format
Printer-friendly format Email this thread to a friend
Printer-friendly format Bookmark this thread
This topic is archived.
Home » Discuss » Archives » General Discussion (1/22-2007 thru 12/14/2010) Donate to DU
 
Blackhatjack Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 11:33 AM
Original message
OK Here is a contrarian view of the Economic Collapse advice....
IF the value of dollars is falling fast, then today's dollars are worth far more than tomorrow's dollars.

IF you pay off all the debt you currently are scheduled to repay over the next 10-20 years with today's dollars, you are in fact paying 'much more' to eliminate the debt by paying today than paying it off with cheaper dollars tomorrow and the all the days after.

A contrarian financial advisor has pointed out that a 'falling dollar' has value only if it can be readily converted into a good or commodity that will hold it's relative value as the 'dollar falls.'

For example, necessities like non-perishable food and energy purchased today purchased with today's dollar will hold their 'relative value' better than holding the dollars and watching them shrink in value(ie. food and energy prices will go up as the value of the dollar goes down).

One approach is to use today's dollars by converting them to non-dollar necessities rather than using them to pay off all your debt. As dollars become worth less, the debt you owe will have less value and can be paid off with less valuable dollars.

IF you really believe the dollar will drop in value by 1/3 over the next 12-24 months, then you should be acquiring debt today which can be paid off later for 1/3 less in value. IN the meantime you might actually reap offsetting profits if the price of food and energy necessities you purchased today continue to rise.
Printer Friendly | Permalink |  | Top
Fredda Weinberg Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 11:36 AM
Response to Original message
1. That only works w/fixed rate loans. n/t
Printer Friendly | Permalink |  | Top
 
jwirr Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 11:37 AM
Response to Original message
2. I like everything you say UNTIL it comes to acquiring more debt. nt
Printer Friendly | Permalink |  | Top
 
Blackhatjack Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 11:44 AM
Response to Reply #2
3. IT is contrarian logic ... but it raises some interesting possibilities...
When Argentina suffered through 'hyper-inflation' people who got paid Friday afternoon stood in line at the bank to cash their checks so they could spend it right away since waiting until Monday to cash their checks left them with substantially less cash buying power.

That is extreme.. but a real life example.

Of course the terms of borrowing always determine what is prudent.
Printer Friendly | Permalink |  | Top
 
Viva_La_Revolution Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 12:23 PM
Response to Reply #3
9. I'm spending on staples...
water, flour, beans, rice. Got some of those new 5gal. plastic paint buckets with lids from the paint store. With food prices shooting up the way they are, I don't think we can go wrong stocking up.
Printer Friendly | Permalink |  | Top
 
Mugu Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 12:45 PM
Response to Reply #9
14. Be sure to do some research into storing food items in plastic.
You might be surprised at what you find out (I much prefer glass w/metal lids.)

Regards, Mugu
Printer Friendly | Permalink |  | Top
 
Viva_La_Revolution Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 02:32 PM
Response to Reply #14
16. Short term, I think I'll be ok...
I prefer glass too, but try finding anything bigger than a gallon in this day and age. :(
Printer Friendly | Permalink |  | Top
 
Mugu Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 02:39 PM
Response to Reply #16
18. You are correct that short-term plastic shouldn't be a problem.
Even the gallon glass jars are getting difficult to find. Almost everything is plastic these days. Anytime I find any gallon glass jars I grab them right up.

Regards, Mugu
Printer Friendly | Permalink |  | Top
 
screembloodymurder Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 11:45 AM
Response to Original message
4. I remortgaged my house two years ago for this reason.
Took the cash and put it in euros. Each year I use the interest to buy a tax deductible IRA. Net return well over 20%.
Printer Friendly | Permalink |  | Top
 
Matariki Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 12:30 PM
Response to Reply #4
10. technical question
how do you go about putting cash into euros? Where do you keep it?

thanks.
Printer Friendly | Permalink |  | Top
 
On the Road Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 11:48 AM
Response to Original message
5. That is True,
but only if you purchase items that will inflate increase in price by more than your personal interest rate. Either

-- The rate you pay on a loan or credit card if it requires borrowing or
-- The return you would get if the money were saved or invested.

You also have to subtract the costs of damage, loss, theft, or increased usage (as tends to happen when you stockpile a lot of something).

On that principle, the beginning of a period of inflation is normally a good time to buy real estate. That probably doesn't apply now because prices are still historically high.
Printer Friendly | Permalink |  | Top
 
Blackhatjack Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 12:01 PM
Response to Reply #5
6. Simple example....
My Dad noticed canned food was on sale at the grocery store, and that each can had a coupon good for an additional 25 cents off a future purchase of the same item. He bought multiple cases with a real costs of 19 cents a can. The same item today sells for 76 - 95 cents a can in the same store.

Ignoring the costs to transport and store, and taking into account the shelf life which makes this a non-perishable, he has created a substantial savings over future purchases of this item.

Economies of scale do not always apply to individual consumers, but there are ways to convert today's dollars into non-perishable commodities which will be worth much more as prices rise in the future.

So why pay off the debt which may be worth substantially less, even after taking into account interest accruing?
Printer Friendly | Permalink |  | Top
 
Snarkoleptic Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 12:03 PM
Response to Original message
7. The dollar is weak as compared with other currencies.
Edited on Mon Mar-10-08 12:05 PM by Snarkoleptic
As for taking loans and getting a benefit by paying off with a weak dollar-
If you take out a loan in dollars and repay the loan in dollars, you will be repaying in cheaper 'inflationary dollars'.
Even if the dollar plunges by 1/3 of it's value, your debts will be paid off later in a dollar weakened by inflation (curently an annualized rate of 4.28%) rather than it's value relative to other currencies.
Printer Friendly | Permalink |  | Top
 
Blackhatjack Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 12:09 PM
Response to Reply #7
8. Remember taking out a loan in dollars benefits you only if you convert them and not hold them...
THe idea is that there are commodities or goods that will hold their relative value better than the dollars themselves.
Printer Friendly | Permalink |  | Top
 
SoCalDem Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 12:30 PM
Response to Original message
11. Here's the problem.. IF you have money NOW, and you have debts
It makes sense to pay them off and be debt-free, so if you lose your job, you are flexible and can survive on less.

It might mean the difference between keeping your house & being homeless..
Printer Friendly | Permalink |  | Top
 
Snarkoleptic Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 12:32 PM
Response to Reply #11
12. Ding Ding Ding...we've got a winner!
Printer Friendly | Permalink |  | Top
 
L. Coyote Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 12:37 PM
Response to Original message
13. Contrarian view would be Doom and Gloom BS is just the usual election year psy-op
Tin-foil alert :rofl: Doom and Gloom is BS.

Fear fear = Stay home = Don't vote
Printer Friendly | Permalink |  | Top
 
Winterblues Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 12:51 PM
Response to Original message
15. This is an attitude that was prevalent in the late seventies
Every time one went into a store the prices were higher. People were influenced into buying as quickly as possible before the next price hike. People were spending their pay checks as quickly as they could and going for long periods with nothing. It was devastating. Ford came up with his campaign slogan WIN (whip inflation now) but didn't know how to go about doing it. Reagan managed it and that IMO is why he became such an American Hero. America was on the verge of Panic.
Printer Friendly | Permalink |  | Top
 
Selatius Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 03:17 PM
Response to Reply #15
20. Reagan had nothing to do with it. Paul Volcker did. He was Chairman of the Federal Reserve.
Paul Volcker, a Democrat<2>, was appointed Chairman of the Federal Reserve in August 1979 by President Jimmy Carter and reappointed in 1983 by President Ronald Reagan.<3> Volcker's Fed is widely credited with ending the United States' stagflation crisis of the 1970s by limiting the growth of the money supply, abandoning the previous policy of targeting interest rates. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983.<1> The change in policy contributed to the significant recession the U.S. economy experienced in the early 1980s, which included the highest unemployment levels since the Great Depression.

However, Volcker's Fed also elicited the strongest political attacks and most wide-spread protests in the history of the Federal Reserve (unlike any protests experienced since 1922) due to the effects of the high interest rates on the construction and farming sectors, culminating in indebted farmers driving their tractors onto C Street and blockading the Eccles Building.

http://en.wikipedia.org/wiki/Paul_Volcker#Chairman_of_t...
Printer Friendly | Permalink |  | Top
 
bean fidhleir Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 02:38 PM
Response to Original message
17. Only true if the change due to inflation is more than the interest you pay on the loans
Which it never is except maybe in Weimar Germany. That "contrarian" sounds like a shill for the banks.
Printer Friendly | Permalink |  | Top
 
DemBones DemBones Donating Member (1000+ posts) Send PM | Profile | Ignore Mon Mar-10-08 02:48 PM
Response to Original message
19. Seems reasonable enough to use credit cards to buy staple foods, gasoline,

heating oil or propane and, as you say, pay them off with dollars worth less, but I wouldn't do it if I had other debts. I also wonder if they'll jack up interest rates so that your idea would no longer work.

It's always good to have food stored, though, in case of shortages, not to mention price increases.
Printer Friendly | Permalink |  | Top
 
DU AdBot (1000+ posts) Click to send private message to this author Click to view 
this author's profile Click to add 
this author to your buddy list Click to add 
this author to your Ignore list Sun Dec 28th 2014, 02:58 AM
Response to Original message
Advertisements [?]
 Top

Home » Discuss » Archives » General Discussion (1/22-2007 thru 12/14/2010) Donate to DU

Powered by DCForum+ Version 1.1 Copyright 1997-2002 DCScripts.com
Software has been extensively modified by the DU administrators


Important Notices: By participating on this discussion board, visitors agree to abide by the rules outlined on our Rules page. Messages posted on the Democratic Underground Discussion Forums are the opinions of the individuals who post them, and do not necessarily represent the opinions of Democratic Underground, LLC.

Home  |  Discussion Forums  |  Journals |  Store  |  Donate

About DU  |  Contact Us  |  Privacy Policy

Got a message for Democratic Underground? Click here to send us a message.

© 2001 - 2011 Democratic Underground, LLC