$USD debasement question.....

Discussion in 'Economics' started by Proactive, Oct 18, 2010.

  1. Proactive


    Evidently we are in a mad race to debase our $USD & where it stops nobody knows.

    there are some sharp cats & number crunchers here.my question is basically straight forward regarding paying down a hard assett in which i reside.....formula is:

    $700k home in which i reside,in which i owe $140k with about 10yrs left on a 30 yr conventional considering i continue to pay into additional principal on a monthly basis without making a big lump sum payment.(note is only 3 yrs old).im on shedule to knock off approx $100k off on interest by do so.

    my rate is 6.27%,,,& am not interested in refi by paying all that front loaded interest again.

    im carrying approx 5k of cc debt but pay 0% interest most likely due to impeccable FICO.

    im sitting on $300k in cash,literally due to my lack of appetite for risk/reward that is offerred out there now in just about anything.

    would it be prudent to pay down this note completely? or would a paydown of 50%...knocking note down to $70k while mantaining some cash to put to work should something arrise as i do smell limited opportunity on the horizon.

    note:i am completely liquid in all markets from Oct `07 where i liquidated everything except an investment property that pays me.....no note/paid.

    thanks in advance,perry
  2. I have no answer to your question but wonder why/how the value of the $ comes
    into repaying or not your mortgage

    am I correct that US residents can deduct the interest portion of their mortgage
    from their taxable income ? which seems to me then to be the question if it's a
    greater financial benefit to continue paying the mortgage - tax deduction
  3. Though not exactly correct, generally so.
  4. Refi and pull out $400k in cash. The put all your cash into Silver/gold and only pay the minimum payment on your mortgage.

    This is what you should do if you believe they are debasing the currency. Its better to owe debt and own gold/silver during debasement, than to be debt free with lots of cash in the bank.

    Assuming a real inflation rate of 4%, you are losing $12,000 per year by sitting on that cash. Assuming commodity prices dont come down again and judging what has happened to them in the last couple months, your buying power has dropped alot more than $12,000.

    I think you are probably a more conservative guy though and gold & silver swings probably make you nervous. But do something with that 300k you are sitting on for pete's sake, you are losing money just sitting on it.
  5. You hear it all the time... "inflate your debt away"... "pay debts later with inflated dollars". But it's not as simple as that.

    Scenario #1.... tomorrow, you wake up and find that the $USD has been cut in half by official decree. Your $300,000 in "liquid" (cash equivalents, presuming) is still just $300K. The $USD devaluation hasn't helped you, and you're in the same boat whether you did or did not pay the mortgage note the day before the devaluation.

    Scenario #2... Same deal on the devaluation, but instead you had all of your money in gold metal. Upon devaluation of the $USD, your $300K would immediately be worth $600K. You could take $140K of that and pay off the note... and you would have "paid with deflated money".

    Sooo... the ONLY way you benefit from this attempt to "pay with devalued money" is if your ASSETS (and income, generally) keep pace with or exceed the devaluation. Unfortunately, that is not usually the case. And your home may or may not jump in inflated price like gold.... many issues of leverage, over supply, etc about RE that don't apply to gold.

    There wouldn't have to be an overnight devaluation, of course. Let's say the $USD lost 50% of its value over 3 years. You'd want your assets to have increased by more than 100% (taxes, you know) in the same period.

    Therefore, the answer to your question.... "it depends".
  6. Bernanke, the little snake, is counting on Americans waking up to this fact... and then deciding to cash out their CDs and spend it all before the government confiscates it through inflation and currency destruction.

    :mad: :mad:
  7. thanks Scataphagos for your clarification - and explaining the op's question

    I have to disagree with both Scataphagos and peilthetraveler about gold, since both
    gold and the $ may be very near to their top/bottom
    in a general portfolio I believe the common gold holding is usually 5%
    a speculation in gold should only be done with 'excess/mad money' capital unless
    one had been smart enough to have 'invested' in gold in 2001 when gold was around
    $250 an ounce and the $ was at 1.20

    my $ targets are 74 by year end and possibly 70 by March 2011 and depending on
    how much one wants to risk, I'll say my preferred defense would be to Short the
    'DX US Dollar Index' at $3,000 o/n margin (variable) per $100,000 contract - actual
    $1,000 x Index
  8. I wasn't making a forecast on gold's price. I only said, "if the $USD were officially devalued by 50% overnight, the price of gold would necessarily double".
  9. jprad


    While that's mathematically correct it doesn't take into account the more than likely event that the government would do something to screw people who own gold/silver out of any windfall gain due to an overnight devaluation.
  10. People always say that. My parents did not want to buy gold in the 70s when it was trading at $100 because it had just had a big run from $35 to $100. A few years ago I didnt want to buy gold at $650 because it had had that run from $250 to $650. I finally got a clue at $900 and bought and been holding ever since.

    Everyone looks back years and says "oh it would've been a good idea to buy that 5 years or 10 years ago."

    5 years from now, people will say "yeah, It would've been a really good idea to buy gold at $1350 or silver at $24" By then Gold might be $4,000 and silver $100. Pay no attention to what the euro or other currencies are doing. Dollar index will likely always be between 70-90 as everyone will debase their currencies together. 10 years from now people will say "I should've bought gold at $4,000" and so on.

    Sounds crazy now, but if you told someone in 2001 when gold was $250 that in 10 years gold would go up to $1300, they would've laughed. If gold continues its path at the same rate it is now, Gold will be $7500 in 10 years and $41,000 in 20 years.
    #10     Oct 18, 2010