mortgages after a currency devaluation

[MichaelM]

Hello all,

I was wondering if there are any economic-savvy thinkers on board that could help me out.

I was musing how a 30-year fixed mortgage (yes, I have one) would play out in the current economic train wreck that is happening in the US.
I tried searching for what happened to people with mortgages in Argentina after their currency devaluation but could not find anything aside from a few references to the Argentinian government converting US dollar denominated loans to Argentinian pesos, with the government kind of "bailing out" the people. Although I haven't read what the details of the currency conversion on loans was, I was assuming that the conversion was done before the devaluation, or if done after the devaluation, the government "took the hit" so that the loan values of the people did not increase in peso amounts because of the devaluation.

I couldn't imagine how a 30-year fixed mortgage during and after a US dollar devaluation would play out. If there was hyper-inflation and banks still were in operation, an increase in the savings and CD return rates (highly unlikely) would be beneficial, especially if you had savings in the bank and the return rate was higher than your mortgage interest rate.
I don't know what the conditions were during the Weimar hyper-inflation scenario. With regards to Zimbabwe, I think the banks were in operation but apart from that, I could not find anything else.

There doesn't seem to be any information I could find on how mortgages were affected during and after the economic crisis/currency devaluation. I would imagine both savings and loans would be revalued to the new currency.
Those with other "stores of value", if the conversions aren't manipulated (e.g. Zimbabwe forcing a lower US dollar to Zimbabwe dollar conversion or the current precious metals price manipulation), would probably luck out by converting their 'stored value' to a new/devalued currency and paying off their mortgages in full/earlier.

Does anyone have any links to articles with info about this particular topic? I tried the search function on this forum as well but couldn't turn up anything after perusing about 6 pages of results on the word "mortgage".
(Also, "TRANSCRIPT # 27 - Surviving The Economic Crash" turns up as a search result but the post is empty: http://www.cassiopaea.org/forum/index.php?topic=6079.0)


I know, there are better things to keep track of (like the latest transcripts, or worrying about developing a soul rather than temporal things like money) but I like to prepare for the worst and hope for the best. And living on this 3D STS world entails that you "play the game" to an extent (buy food to eat, pay the bills, pay the rent/mortgage to have a roof over your head while you practice "the 4th way" and breathing exercises), even if only playing enough to help get you to where you hope to be (4D STO).

With the Cass' latest timeline of 5 years, I know I shouldn't be worrying about that but the OCD in me likes to keep the bases covered and likes to have puzzles solved. :)

 

[Al Today]

All l can offer is what I've seen... and not seen...

The dollar has risen and fallen in global markets drastically during my time on this BBM.
Can't buy squat today for a sawbuck USD as compared with say... back in the 1970s.
A candy bar costs around buck nowadays, more in someplaces. Back in the '70s, I remember buying a couple candy bars and a couple sodas for a buck.
I remember MickyD's (the restaurant with the arches), advertise a hamburger, fries, and a soda for a dollar, and you DID get back some change.!.!.! Now you can get a chinsy steroid/chemical laden make it look like beef burger for a buck.
Startin to show my age now...
My understand of a fixed mortgage: Say, if you had a mortgage for $100/month then, and had say a 50 year mortgage, you'd still be paying $100 bucks/month (fixed mortgage).
I know when a contract is signed for $X per month, for Y number of years, the banksters demand that $X per month for Y years, yes?
That $X does not change in requirement.
With out arrangements with those banksters, if you do not get that minimum $X per month in, every month, eventually the local authorities WILL come a knocking on your door to protect and serve you with a foreclosure notice!
So... You have a good question, if the dollar does tank, and we use those greenbacks for fire starter kindling. Go ahead and just keep paying that $X/month, if there still is mail delivery that is... :P

Being of this working slave worker class, I haven't heard of any mortgage loans written that the $X payment due per month will fluctuate with the value of the dollar.
As always, I could be wrong, but if I am right, and the dollar drops enough we all can start searching for shelter, hunting, and gathering food anyway.

Honestly, when it gets that bad, we ALL lose our creature comforts and standards of living. If you must work on preparedness, be prepared for the worse. If the worse doesn't happen, learn to use what you've prepared and you lose nothing.
If/When the economy goes down the tubes, just be a squatter and a survivalist. I doubt if the PTB can come after ALL OF US... Then again, I've been known to be wrong.

 

[Al Today]

In all seriuosness though, some interesting articles popped up using the search terms ( mortgage currency devalue ). Also inculding (Argentina or Weimar ). Hope this helps in your quest...
Al

 

[Mike]

Personnally, I don't think it is a matter of worrying about the 30yr fixed. I think that any kind of debt going into this possible hyperinflation is going to be a bad thing because although the currency is going to be devalued, wages or other source of income (savings account interest rates, etc) will I think remain stagnant thus trapping a lot of people when the cost of anything that is really needed (food, fuel, etc) goes up considerably. People will have the same money coming in but the cost of the necessaries will go sky high. Even if your debt is at a fixed rate, think of everything you really need being an ARM that is about to have a monster reset in rates.

I use to be a believer in precious metals, but think that the PTB have something up their sleeves besides the run of the mill manipulation that has been going on for countless years. Haven't been able to put my finger on what they might do. Been some grubblings on the net about taxing or registering PMs.

 

[JEEP]

This doesn't answer your question, but may be relevant. From the ZEIGEIST movie video transcript (_http://www.zeitgeistmovie.com/transcript_add.htm) :

When the government borrows money from the Fed or when person borrows money from a bank, it almost always has to be paid back with accrued interest. In other words, almost every single dollar that exists must be eventually returned to a bank, with interest paid as well. But, if all money is borrowed from the central bank and is expanded by the commercial banks through loans, only what would be referred to as the 'principle' is being created in the money supply…. So then, where is the money to cover all of the interest that is charged?

Nowhere. It doesn't exist. The ramifications of this are staggering, for the amount of money owed back to the banks will always exceed the amount of money that is available in circulation. This is why Inflation is a constant in the economy, for new money is always needed to help cover the perpetual deficit built into the system, caused by the need to pay the interest.

[...] It invariably transfers true wealth from the individual to the banks, for if you are unable to pay for your mortgage, they will take your property. This is particularly enraging when you realize that not only is such a default inevitable due to the fractional reserve practice, but also because of the fact that the money that the bank loaned to you didn't even legally exist in the first place.

In the 1969, there was a Minnesota court case involving a man named Jerome Daly, who was challenging the foreclosure of his home by the bank, which provided the loan to purchase it. His argument was that the mortgage contract required both parties, being he and the bank, each put up a legitimate form of property for the exchange. In legal language, this is called "consideration".

(Consideration: -a contract`s basis. A contract is founded on an exchange of one form of consideration for another.)

Mr. Daly explained that the money was, in fact, not the property of the bank, for it was created out of nothing as soon as the loan agreement was signed.
Remember what modern money mechanics stated about loans: "what they do when they make loans is to accept promissory notes in exchange for credits…Reserves are unchanged by the loan transactions. But deposit credits constitute new additions to the total deposits of the banking system." In other words, the money doesn't come out of any of their existing assets. The bank is simply inventing it, putting up nothing of its own except for a theoretical liability on paper.

As the court case progressed, the banks president, Mr. Morgan, took the stand, and in the judge's personal memorandum, he recalled that "The Plaintiff (bank's president) admitted that it, in combination with the Federal Reserve Bank…did create the…money and credit upon its books by bookkeeping entry…the money and credit first came into existence when they created it…Mr. Morgan admitted that no United States law or statute existed which gave him the right to do this…a lawful consideration must exist and be tendered to support the note." "The jury found that there was no lawful consideration and I agree" He also poetically added, " Only God can create something of value out of nothing"

And upon that revelation, the court rejected the bank's claim for foreclosure and Daly kept his home. The implications of this court decision are immense, for every time you borrow money from a bank, whether it is a mortgage loan or a credit card charge, the money given to you is not only counterfeit, it is an illegitimate form of consideration and hence voids the contract to repay… for the bank never had the money as property to begin with. Unfortunately, such legal realizations are suppressed and ignored, and the game of perpetual wealth transfer and perpetual debt continues….

Food for thought...no, wait--food for Lizzies!

 

[Laura]

I couldn't imagine how a 30-year fixed mortgage during and after a US dollar devaluation would play out. If there was hyper-inflation and banks still were in operation, an increase in the savings and CD return rates (highly unlikely) would be beneficial, especially if you had savings in the bank and the return rate was higher than your mortgage interest rate.

I know what you are getting at - if the value of the money goes down, and the mortgage contract is for X dollars, why not just pull your worthless money out and pay off your mortgage with those worthless dollars which would satisfy the mortgage for "nothing" and leave you owning your real estate (as long as you pay your taxes).

You are assuming that the banks will still be open and you will still be able to get your money out. If that is the case, then, yeah, you can do that. But it is not likely to be the case. The game is always stacked against the little guy.

What is more likely to happen is that the money will "disappear" from the banks because it is all "invested" in "complex debt instruments" that are essentially black holes. You will not be able to get your money out to pay off your mortgage much less use it to buy necessities at outrageous prices. BUT, there will certainly be certain people who have "cash on hand" to buy your house from you at ten cents on the dollar to get you out of the hole.

Two things occur to me regarding this theoretical scenario: if you have money in the bank, take it out and stash it elsewhere (not in a safety deposit box, either, since those are no longer secure). Then, if the banks default, the money hyperinflates, you'll have the cash to pay off your mortgage, assuming you don't need it to keep from starving. Or you can light fires with it...

I expect that metals - gold or silver - will have a certain value for a time, but you can't eat them so that will be limited. It's almost too late to get into gold though I expect it to go considerably over 1 K per ounce so maybe better late than never for at least a portion of your liquid assets. And best to have physical, stashed safely.

The most valuable things will probably be your network and practical skills and useful items that can be traded or used to help yourself and others.

Just some thoughts...

 

[go2]

Hi Michael Martin,

I hope the links will give some context to your questions and the possibility that we may have bigger problems than the mortgage payment. Laura’s brief comment that probably your network and practical skills and buying useful items will be most valuable is great advice. I personally have been converting the backyard to a raised bed garden system this year. This feeds the body and the soul. The soaker hose irrigation is working very well. The parsnips have finally started coming up between the tomato and pepper plants. Eating the food one grows is one of those practical skills that is always useful.

I have spent time in Russia and Argentina discussing the collapse and psychological stability appeared the asset most valuable in surviving an economic and social collapse.

The following film entitled “Argentina’s Economic Collapse” documents the ponerization of the Argentine government and economy and the crushing collapse of the “middleclass” in a looting operation engineered by Harvard educated Domingo Cavallo as head of the Central Bank of Argentina. This process is called “globalization”. This heartbreaking film documents the human suffering resulting from a monetary collapse leading to an economic collapse and expropriation of the public and private assets by international gangsters. Domingo Cavallo now conspires with the Group of Thirty in the ongoing destruction of the American economy and possibly a worldwide scientific dictatorship managed by an international banking cartel. I think your expectation of paying down the mortgage with devalued money is the old game the boomer generation played. This economic collapse is of a different category. You must consider the collapse of social order and distribution of basic necessities such as observed and experienced in Argentina and Russia in recent times. You may find yourself able to pay the mortgage but unable to pay for electricity, food, or property taxes in a true hyperinflation environment.

http://www.youtube.com/watch?v=rH6_i8zuffs

http://en.wikipedia.org/wiki/Domingo_Cavallo

http://en.wikipedia.org/wiki/Group_of_Thirty

 

[MichaelM]

Thanks for the replies, Al, Bear, JEEP, Laura and go2.

I've gone through the youtube video clip that go2 provided and am shocked by the "riot police" response to the protesters. I've seen this kind of response before in videos of other protests but was shocked to find the same done in the Argentinian protests. I certainly didn't imagine that there were protests like that when I was reading the wikipedia entry and other articles about that time and location.

I don't have the cash on hand to pay off the mortgage in full but I could certainly make an advance "lump sum" payment to cover a couple of years of mortgage in advance. About 2.5 years for now but there may be some more time to "save up" to pay off an additional 2.5 years to make it an even 5.
I was assuming that if the banks were still up for collecting on my debt that I would still have access to my savings, even after an extended bank holiday and subsequent devaluation. But Laura does have a point that the game is indeed stacked against the little guy so I should probably adjust my assumptions for much worse circumstances (like savings making a disappearing act, not unlike what happened to the money in stocks; the news that FDIC is "underfunded" would most certainly be fodder for TPTB to simply declare that they could not repay even FDIC insured deposits) and plan accordingly.

Thank you again for the replies. I have much to digest (the video clip is only 1 of 12 in a series about the Argentinian event) and think about.
Also, I guess I have to polish up my people skills and introduce myself to the neighbors sometime soon...

I'll post an update when I've gotten around to watching the rest of the vids and read up on the links.
And I'll also post again once I've made my advance payment. I don't think it would be a difficult task to convince my wife to go along with the advanced payment plan, even if going on only what the MSM talking heads are reporting.