Simple. In the case of possible hyperinflation the bankers talk to the politicians (which they've paid for after all) and the govt passes laws to index loans to the inflation rate. Don't think it could happen ?
I agree. A real war (or multiple wars) are much more likely than global hyperinflation. Both are good for PMs, but not so good for people.
trew, That would cause retrospective legislation, and would cause a hell of a stink, probably all the way to the High Court. ...and lose LOTS of votes. OC
If the govt had to choose between a complete banking collapse and the above, which would they choose ? Things that seem impossible in normal circumstances can become quite possible in a crises Were the politicians in Cyprus worrying about saving votes or saving their banks ?
That would be a bet on the 7 judges of the High Court. In fact i think the current make up is about 4/3 or even 5/2 socialist. OC
Except that would be anything but simple. Loans would need to be recalculated daily, and if history is any guide (say Weimar Republic days), twice a day.
I think you will find in any mortgage or business loan contract, the loan is 'secured' by the underlying asset. Thus the bank reserves the right to 're evaluate' these assets at anytime to re access the assets price in a changing market. These re evaluations are conducted by a 'mortgage valuations clerk' who are either contracted by the banks, or work for the banks proper. Hence they receive their livelihood from the banks, and as seen in the recent Commonwealth / Bank West Debacle, they will find a value that suits those who keep them gainfully employed. http://www.abc.net.au/4corners/stories/2012/04/05/3471045.htm I realise the situation quoted above is in relation to business loans, but I think you will find this applies equally to all forms of secured loans.
I have NEVER heard of a bank revaluing a property after the loan has been established. Maybe after a storm or fire or somesuch, but not due to market conditions. And i doubt that the bank would worry just so long as the repayments keep being paid, why should they? This sounds like a variation to a written contract. I HAVE heard of a business loan supported by shares being renegotiated if the market fell, but not a housing loan. OC
Read up on the great depression. Loans were being called in from everywhere. Including real estate. They should if too many assets are underwater. Australian banks have over 60% of their assets in real estate. I know my previous mortgage had a clause for re-valuation whenever the bank felt it was needed. They could also call it in if I didn't put more capital. Maybe because housing has been going up since the 1960s. If/when real estate goes down for an extended period you may get to see how banks react.
"Read up on the great depression. Loans were being called in from everywhere. Including real estate." (I was but a twinkle in my fathers eye, and a blush in my mothers cheek, during the Great Depression.) Maybe, but the reasons may have been varied. many owners lost their jobs and made no payments and lost their homes, as did some landlords for the same reason. Again, if the bank is happy with the customers conduct of the account, why generate, by revaluation, a forced sale? Most banks are not stupid, and a satisfactory account is no real worry to them, as the wise man said, if it ain't broke, don't fix it! ...and a clause in Mortgages back in my day was that the owner had to keep the property in a saleable condition, make repairs, and keep the garden neat and tidy. Mortgages are written by lawyers remember! The Legal Departments of banks are VERY big! OC
an aside, Most housing loans were made by the 'savings banks', such as the Victorian State Savings Bank, the Commonwealth Savings Bank, and so on. Trading banks such as the Commercial Bank of Australia Ltd, (God bless 'em) made business loans only, until they started their savings bank, about the same time as I joined them in 1955. Home ownership rates were very much less than now, probably about 25% or less. Another aside, I joined the Bank on 13th Jan 1955, and a few months prior to that unforgettable date a circular went out to all branches to the effect that it was no longer required that an officer have the banks PERMISSION to get married! OC
Just as an aside to the current conversation, why would anyone consider real estate as a form of wealth protection given the cadence of the OP ? The only reference made to real estate in the quoted article was in reference to productive farm land and expressly mentioned staying away from housing as a point of not being an asset class to invest in in such circumstances. If it is nailed down and either A: has a value relative to the leverage a bankster can use on a balance sheet or B: has a value that a local council/govt can rate a payment due to them on against you then you are C: screwed and D: quite likley done so without lubrication. Productive unimproved farm land free of infrastructure "should" be at the lowest levels of extortion rates wise. I think a few are missing the point of the original article in that you really want to be unexposed to any outside forms of exploitation by TPTB in most of your asset protection vehicles. Trying to beat a system that already plays us for every cent it can squeeze from us by levereging a loan against hyperinflation is like bending over and grabbing your ankles while wearing no pants at the Sydney Mardi Gra, IOW you are asking for it. I think the idea put forth was to ensure you have the least amount of exposure to any form of obligations while placing as much personal worth as you can into assett classes that are beyond the reach of those who could and would exploit such as banks and govt agencies. Mmm wonder what that could be ???
