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thedrifter
Penny Sorter Member
USA
96 Posts |
 Posted - 04/27/2010 : 17:57:46
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If a "Bank Holiday" occurs and the dollar is devalued at the ratio of four new fiat dollars to one old fiat dollar, will the same happen to our debts? If I have 1000 old fiat dollars of debt, will I then have 4000 new fiat dollars of debt?
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The Drifter |
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Country
1000+ Penny Miser Member
USA
3121 Posts |
Posted - 04/27/2010 : 18:33:24
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Banks and other creditors to which we owe money will find a way to get their money. I would guess money we owe would be prorated so that banks don't loose a cent. However, you can bet that your salary will not keep up with the re-evaluation, and prices of essentials, such as groceries, will exceed the re-evaluation so that your new dollars somehow don't have the buying power you expect. 
PMs would retain their buying power, perhaps expand their buying power, as the general public finally looses their trust in fiat money and realizes the value of REAL MONEY.  |
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Edited by - Country on 04/27/2010 18:37:44 |
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Nickelless
Administrator
USA
5580 Posts |
Posted - 04/27/2010 : 18:37:25
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quote:
Originally posted by Country
Banks and other creditors to which we owe money will find a way to get their money. I would guess money we owe would be prorated so that banks don't loose a cent. However, you can bet that your salary will not keep up with the re-evaluation, and prices of essentials, such as groceries, will exceed the re-evaluation so that your new dollars somehow don't have the buying power you expect.
PMs would retain their buying power, perhaps expand their buying power, as the general public finally looses their trust in fiat money and realizes the value of REAL MONEY.
You bet!
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Edited by - Nickelless on 04/27/2010 18:38:06 |
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aloneibreak
Penny Hoarding Member
USA
672 Posts |
Posted - 04/27/2010 : 20:09:59
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best thing to do before that bank holiday happens? get rid of your debt!
easier said than done i know but like country said, you can bet the banks will get their money one way or another.
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My reading of history convinces me that most bad government results from too much government.
Thomas Jefferson
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wheeler_dealer
Penny Collector Member
USA
402 Posts |
Posted - 04/27/2010 : 23:29:36
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All public debt I/e bank mortgages, bankloans, credit cards would all be prorated to any revaluation of the currency. If you have privately held debt(private consumer to consumer) you might win as without a protective clause in the contract you could pay off your creditor if you could find him as he would probably hide while he tried to figure out how to not lose his shirt.
If you ever make private loans you should structure them based on golds value. I/e repayment in ounces of silver or gold. I loan you x and when you repay me it must be in silver or gold at a preset amount of ounces. this way you actually could come out whole or even ahead. |
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Mikep2020
Penny Collector Member
USA
402 Posts |
Posted - 04/28/2010 : 09:03:06
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| I'm in the other camp who thinks debt will not be pro-rated and in effect the debt will be reduced by the ratio of the devaluation, at least for the first round. One goal of a devaluation would be to reduce the government deficit, so if the debt of the government is reduced by whatever percentage, and regular citizens debt is not reduced the same way, their would riots in the streets the next day. A currency devaulation would be "sold" to the public this way (as helping the public with their debt obligations) to gain any support they can get from the public majority who are drowning in debt. A devaluation would hurt savings and retirement accounts the most. The bankers NEED some sort of public support or their power would slip away, and since not a lot of americans have any significant savings, most would support a devaluation if it helps them personally. |
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beauanderos
1000+ Penny Miser Member
USA
2408 Posts |
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Lemon Thrower
1000+ Penny Miser Member
USA
1588 Posts |
Posted - 04/28/2010 : 09:29:59
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certainly your salary is unlikely to increase with the devaluation, with that i agree.
but i'm not so sure they could increase your debt proportionately to protect creditors. i'm not sure how that would work or would be legal.
a few years ago there was a devaluation in argentina. the argentine dollar originally was equal to the USD, then devalued so that it cost 4 argentine dollars to equal 1 USD. some people had usd bank accounts, but those were frozen or stolen by the govt during the holiday. if you had USD out of the reach of the govt you came out ahead.
as it pertains to debt, in a lot of 3rd world countries, debts are repayable in a neutral currency like USD or CHF which is built in protection for the creditors. I did not hear of other protections for the creditors occurring - did anyone else.
a USD devaluation would be somewhat different because its first world and creditors would not have thought to protect themselves when the debt was contracted. still, i don't see how this could be implemented.
assuming no adjustment to the debt, you actually want to maximize your pre-devaluation debt prior to the devaluation. devaluatioan is a trasfer of wealth from creidtors to debtors, becuase the main debtor is the govt. and the creditors are anyone holding USD-denominated assets like FRN's and loans. |
Buying:
Peace/Morgan G+ at $15.00
copper cents at 1.3X
wheat pennies at 3X
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wildjo
Penny Sorter Member
USA
28 Posts |
Posted - 04/29/2010 : 09:59:25
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| Pre-existing debt will not be prorated. If it is a debt, it is due to a contract entered into (whether written or oral) in the past. A future currency revaluation can't unilaterally alter the terms of past legal obligations/rights. |
Life is more than getting from point A to point B. |
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Lemon Thrower
1000+ Penny Miser Member
USA
1588 Posts |
Posted - 04/29/2010 : 11:14:48
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| well, in 1933 congress abrogated rights under contracts that called for payment in gold. i would say that was illegal/unconstitutional, but its a historical fact. |
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NiBullionCu
Penny Pincher Member
USA
168 Posts |
Posted - 04/29/2010 : 13:01:49
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It's not that hard to calculate.
If the current dollar (call them old dollars) are replaced, hypothetically, by a new dollar, where the new dollar is worth 4 old dollars.
If your contracted debt was for 1000 old dollars, it would now be for 250 new dollars.
no difference in debt before or after.
The kicker will be how long the old dollars will still be redeemable.
Look at the Euro countries.
The old national currencies were (and some, like Germany still are) redeemable at a fixed rate to the Euro on the date of conversion.
The devil is in the details.
You don't hear an outcry from Germans that they got their money stolen by the conversion, they can still convert old Marks to Euros; France and Netherlands, no. they phased out and demonetized the old pretty quickly.
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Lemon Thrower
1000+ Penny Miser Member
USA
1588 Posts |
Posted - 04/29/2010 : 14:48:28
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quote:
Originally posted by NiBullionCu
It's not that hard to calculate.
If the current dollar (call them old dollars) are replaced, hypothetically, by a new dollar, where the new dollar is worth 4 old dollars.
If your contracted debt was for 1000 old dollars, it would now be for 250 new dollars.
no difference in debt before or after.
The kicker will be how long the old dollars will still be redeemable.
Look at the Euro countries.
The old national currencies were (and some, like Germany still are) redeemable at a fixed rate to the Euro on the date of conversion.
The devil is in the details.
You don't hear an outcry from Germans that they got their money stolen by the conversion, they can still convert old Marks to Euros; France and Netherlands, no. they phased out and demonetized the old pretty quickly.
the point is not the calculation, but the legality of implementing it.
so lets say you make $50,000 a year and have a $100K mortgage. Lets say you own enough silver to pay off your mortgage - 5,5556 ounces @ $18. So lets say they devalue the dollar to where 1 old dollar is worth 4 US New Dollars. (Argentine ratio). Silver at $18 would overnight be worth $72. You would only have to sell a quarter of yoru horde to get $100,000 New Dollars to pay off your mortgage. Compare that to someone else who had $100,000 in FRN's under their mattress instead of silver coins - that guy still has to trade in his entire horde to satisfy his mortgage.
The one kicker is prices of everything - gas, food, etc. will go up 4X, and you would hope your salary of $50K would go up to $200K. In all likelihood it won't, and thats why the devaluations are painful even for people who were prepared. |
Buying:
Peace/Morgan G+ at $15.00
copper cents at 1.3X
wheat pennies at 3X
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Lemon Thrower
1000+ Penny Miser Member
USA
1588 Posts |
Posted - 04/29/2010 : 14:54:16
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| another way to look at this is once they go to the new dollar, or US Peso or whatever, you would be able to trade one of those to get 4 of the old dollars. so if the 4 - 1 exchange rate is your assumption, then by definition you could trade those for old dollars and satisfy your existing debt. of course the govt could change the rules in the middle of the game, etc but thats how it ought to work |
Buying:
Peace/Morgan G+ at $15.00
copper cents at 1.3X
wheat pennies at 3X
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NiBullionCu
Penny Pincher Member
USA
168 Posts |
Posted - 04/30/2010 : 08:15:09
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quote:
So lets say they devalue the dollar to where 1 old dollar is worth 4 US New Dollars. (Argentine ratio). Silver at $18 would overnight be worth $72.
Hmmm. I think it would overnight be $4.50, not $72. In this example, $18 was the "old dollar" price, so 18/4 = $4.50, the "new dollar" price. As long as "the rest of the world" accepts that the "new dollar" is worth 4 "old dollars".
Unfortunately what normally happens, like in Argentina, is the "rest of the world" doesn't trust the revaluation and inflation quickly erodes the value.
Where the Euro transition was slow and planned and not forced by runaway inflation.
So a transition like the "Euro" is not so scary, a transition forced by runaway inflation will not be good.
I agree that having PM's is a good way to "hedge" against the inflation where a currency revaluation takes place. No argument there. That's why most of us are here on this board, we "get that."
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Copper Catcher
Administrator
USA
2092 Posts |
Posted - 04/30/2010 : 12:55:24
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Dated August 1999 From The New York Federal Reserve Website:
You must be logged in to see this link.
Currency Devaluation and Revaluation
Under a fixed exchange rate system, devaluation and revaluation are official changes in the value of a country's currency relative to other currencies. Under a floating exchange rate system, market forces generate changes in the value of the currency, known as currency depreciation or appreciation.
In a fixed exchange rate system, both devaluation and revaluation can be conducted by policymakers, usually motivated by market pressures.
The charter of the International Monetary Fund (IMF) directs policymakers to avoid "manipulating exchange rates...to gain an unfair competitive advantage over other members."
At the Bretton Woods Conference in July 1944, international leaders sought to insure a stable post-war international economic environment by creating a fixed exchange rate system. The United States played a leading role in the new arrangement, with the value of other currencies fixed in relation to the dollar and the value of the dollar fixed in terms of gold—$35 an ounce. Following the Bretton Woods agreement, the United States authorities took actions to hold down the growth of foreign central bank dollar reserves to reduce the pressure for conversion of official dollar holdings into gold.
During the mid- to late-1960s, the United States experienced a period of rising inflation. Because currencies could not fluctuate to reflect the shift in relative macroeconomic conditions between the United States and other nations, the system of fixed exchange rates came under pressure.
In 1973, the United States officially ended its adherence to the gold standard. Many other industrialized nations also switched from a system of fixed exchange rates to a system of floating rates. Since 1973, exchange rates for most industrialized countries have floated, or fluctuated, according to the supply of and demand for different currencies in international markets. An increase in the value of a currency is known as appreciation, and a decrease as depreciation. Some countries and some groups of countries, however, continue to use fixed exchange rates to help to achieve economic goals, such as price stability.
Under a fixed exchange rate system, only a decision by a country's government or monetary authority can alter the official value of the currency. Governments do, occasionally, take such measures, often in response to unusual market pressures. Devaluation, the deliberate downward adjustment in the official exchange rate, reduces the currency's value; in contrast, a revaluation is an upward change in the currency's value.
For example, suppose a government has set 10 units of its currency equal to one dollar. To devalue, it might announce that from now on 20 of its currency units will be equal to one dollar. This would make its currency half as expensive to Americans, and the U.S. dollar twice as expensive in the devaluing country. To revalue, the government might change the rate from 10 units to one dollar to five units to one dollar; this would make the currency twice as expensive to Americans, and the dollar half as costly at home.
Under What Circumstances Might a Country Devalue?
When a government devalues its currency, it is often because the interaction of market forces and policy decisions has made the currency's fixed exchange rate untenable. In order to sustain a fixed exchange rate, a country must have sufficient foreign exchange reserves, often dollars, and be willing to spend them, to purchase all offers of its currency at the established exchange rate. When a country is unable or unwilling to do so, then it must devalue its currency to a level that it is able and willing to support with its foreign exchange reserves.
A key effect of devaluation is that it makes the domestic currency cheaper relative to other currencies. There are two implications of a devaluation. First, devaluation makes the country's exports relatively less expensive for foreigners. Second, the devaluation makes foreign products relatively more expensive for domestic consumers, thus discouraging imports. This may help to increase the country's exports and decrease imports, and may therefore help to reduce the current account deficit.
There are other policy issues that might lead a country to change its fixed exchange rate. For example, rather than implementing unpopular fiscal spending policies, a government might try to use devaluation to boost aggregate demand in the economy in an effort to fight unemployment. Revaluation, which makes a currency more expensive, might be undertaken in an effort to reduce a current account surplus, where exports exceed imports, or to attempt to contain inflationary pressures.
Effects of Devaluation
A significant danger is that by increasing the price of imports and stimulating greater demand for domestic products, devaluation can aggravate inflation. If this happens, the government may have to raise interest rates to control inflation, but at the cost of slower economic growth.
Another risk of devaluation is psychological. To the extent that devaluation is viewed as a sign of economic weakness, the creditworthiness of the nation may be jeopardized. Thus, devaluation may dampen investor confidence in the country's economy and hurt the country's ability to secure foreign investment.
Another possible consequence is a round of successive devaluations. For instance, trading partners may become concerned that a devaluation might negatively affect their own export industries. Neighboring countries might devalue their own currencies to offset the effects of their trading partner's devaluation. Such "beggar thy neighbor" policies tend to exacerbate economic difficulties by creating instability in broader financial markets.
Since the 1930s, various international organizations such as the International Monetary Fund (IMF) have been established to help nations coordinate their trade and foreign exchange policies and thereby avoid successive rounds of devaluation and retaliation. The 1976 revision of Article IV of the IMF charter encourages policymakers to avoid "manipulating exchange rates...to gain an unfair competitive advantage over other members." With this revision, the IMF also set forth each member nation's right to freely choose an exchange rate system.
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Cody8404
Penny Hoarding Member
USA
602 Posts |
Posted - 04/30/2010 : 17:12:33
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I don't see a trade like this coming.
The Communists and Socialists have at times made a turn in your old currency for new with in X time.
Those nations who have inflated to the point it takes 1,000,000,000,000 of what ever to buy a loaf of bread must by neccessity change the currency so people don't get thier Millions, Billions and Trillions mixed up. Human minds just can't figure out that many zeros.
The U.S. Dollar has went from 1/20 th ounce of Gold and 3/4 ounces of silver to a 1/1100 th ounce of Gold and 1/20 th ounce of silver in the past 100 years. People can still callculate in the dollar amounts we have, at least for lunch gas and motgages, etc. We would really need to hit a much higher infation rate before a trade or an official devaluation could take place.
The whole purpose of the FED in thier stated information is to "Keep inflation at a managable rate." In other words it is to devalue the dollar at a rate that people can handle.
I do think in the future all peoples will have a period of high inflation and trade in thier Dollars, Yaun, Yen, Eruos, etc for a new one world currency. I think it will happen soon, possibly in 5-10 years. We would need a bit more economic problems, hunger, famine before it happens. Those who control the governments will make it happen when they are ready. |
Awake, O kings of the earth! Come ye, O, come ye, with your gold and your silver, to the help of my people, to the house of the daughters of Zion, to the help of the people of the God of this Land even Jesus Christ. |
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Lemon Thrower
1000+ Penny Miser Member
USA
1588 Posts |
Posted - 05/01/2010 : 06:54:13
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you have to take what the fed says with a grain of salt.
the reason for devaluations is becuase the govt cant pay its bills. right now, the national debt has become unpayable, not to mention social security, medicare, fannie and freddie guarantees, and likely bailouts of states like calif and illinois.
i may have had my numbers backwards in the previous example. its easieer to think in terms of 10s, although a devaluation that severe in the us is not likely.
a devaltion of 10-to 1 would mean for every 10 current dollars you get 1 new dollar. |
Buying:
Peace/Morgan G+ at $15.00
copper cents at 1.3X
wheat pennies at 3X
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beauanderos
1000+ Penny Miser Member
USA
2408 Posts |
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Nickelless
Administrator
USA
5580 Posts |
Posted - 05/02/2010 : 01:50:46
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quote:
Originally posted by beauanderos
all the more reason to hang onto a stash of cents and nickels. They wouldn't be able to revalue or devalue all those fractions of dollars... therefore... ten dollars in fiat would be one dollar new... but 1000 pennies would be ten dollars new 
You really can't think of it in terms of how many pennies would equal a new dollar, because the government could eliminate the penny altogether. What you SHOULD do is hang on to the fact that no matter how much the dollar is devalued, $1.54 in pre-1982 pennies will ALWAYS give you a pound of copper. |
Visit my new preparedness site: Preparedness.cc/SurvivalPrep.net
--Latest article: Stocking up on spices to keep food preps lively
---------------
Be prepared...and prepared to help: http://www.survivalblog.com/charity.html
Are you ready spiritually for hard times? http://www.jesusfreak.com/rapture.asp |
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"Bank Holiday" and Debt
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