Will Your Debt Be Marked Down?

Back in February 2008, Leap2020 predicted the U.S. would enter a recession starting September 2008. Their prediction was dead-on. I even wrote about it on this blog last March.

Now, the same organization is predicting the U.S. will default on its obligations by summer 2009.

If this were to happen, the conditions would be perfect for the replacement of the U.S. dollar with a new currency — perhaps the Amero or some similar “new Dollar” invention.

Leap2020 writes:

It would be a pity if Euroland, Asia and oil-producing countries, as well as US citizens of course, discover one morning of summer 2009 that, after a long-week-end or bank-holiday in the US, their US T-Bonds and Dollars are only worth 10 percent of their value because a new Dollar has just been imposed.

Currencies are normally replaced when they’ve become worthless. And they become worthless when the money supply is hyper-inflated.

The Fed and our government are intent on hyper-inflating our currency as we speak. Trillions more dollars are needed every month to keep the American empire afloat.

When the Weimar Republic went under, they marked down both assets and liabilities. Why? Because they had to deflate the currency to reasonable levels.

Let’s consider what might happen in the U.S.

If somebody has $1,000 in the bank, he might be given 200 Ameros as replacement. Likewise, if a person has $1,000 in debt, his liability might be reduced to 100 Ameros.

If I remember correctly, debt is normally marked down more aggressively during a currency replacement because debt is often one of the major causes of economic hardship.

Here is an excerpt from an article titled “The Nightmare German Inflation”:

As usual in an inflation, bonds and mortgages fell in value even faster than cash. After the stabilization, some restitution was provided by law. Holders of government bonds were reimbursed to the extent of 2.5% of the original bond values. Mortgage holders also received some repayment, while a 1925 law provided for 15-25% reimbursement of corporate bondholders, though the payment was delayed for some years. Here again, few investors held bonds or mortgages throughout the entire period; most holders got rid of them for whatever pittance they would bring during the inflation. […] Farmers and holders of urban property seemed to benefit if their property was mortgaged; the inflation soon wiped out the mortgage debt.

Think about this. If your annual wage became your monthly wage, you could very quickly pay off all your debts. During hyperinflation, you might make $40,000 a month — or even every week — instead of $40,000 a year. You could pay off all debts, mortgage included, within a few months.

Anyway, I don’t know whether the prospect of hyperinflation will affect how I pay off my debt or not. But it has certainly given me pause. What IF hyperinflation kicked in? What IF the currency was eventually replaced? And what IF debt was marked down to reduce the financial burden on debtors?

Food for thought…

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