Basic hyperinflation question

Discussion in 'Economics' started by bkveen3, Oct 11, 2008.

  1. bkveen3


    My question is regarding loans. Say you owe $10,000 on a loan. If a currency experiences hyperinflation you are then being paid a significant amount more per year does the loan really just become easier to pay? There has to be something that changes right? Does the amount increase with inflation. What if we were to experience hyperinflation, would that mean those of us who kept our jobs would be able to easily pay our loans off?
  2. morreo


    That is the beautiful thing about inflation on fixed rates for loans. If we experienced hyperinflation, NOTHING CHANGES ON A FIXED LOAN! It becomes that much more easy to pay it off.

    The reason this is so is that the interest rates are decided on what expected inflation will be + x amount based on credit score. So the interest rates now are expecting a modest amount of inflation. However, let's say 5 years from now we're experiencing hyperinflation in the double digits (though I believe we won't), all interest rates will ALSO be in the double digits.

    This is a double edged sword however. If inflation is much less than expected or worse, we experience DEFLATION (I believe will happen significantly) then you are the one stuck with the bill because your wage goes down and $10,000 would be worth a lot more.
  3. So the question to be asked is - if/when long rates go up signficantly - who will eat all the losses on all those fixed-rate long term mortgages?

    Hint: grab a mirror.
  4. bkveen3


    I think the key would to not assume any new debt during that period. But thanks the first answer is pretty much what I wanted to know.