Oh and by the way, the hypothetical I mentioned could be done with any hard asset with intrinsic value. I chose silver as an example because I think it is the asset class most undervalued and has the most upside potential should this scenario play out. I would prefer to be able to do it with realestate because it has income potential. But because realestate is heavily over valued right now a 50% reduction in that asset class would have no where near the upside that a 50% reduction in silver has(as an under valued asset).
Just so everyone knows - inflating debt away only works if you are in control of your countries money supply. So only sovereign countries can do it to their own debt (Germany, Argentina etc etc) Individuals need to get OUT of debt when their country is inflating the money supply because wages NEVER keep up with real inflation Individual debt is never a good idea in either inflation or deflation - if inflation buy things, if deflation sell into cash.... is the perfect play - but we don't live in a perfect world Gold does ok during deflation (looses less and rebounds faster), so its the balanced choice in the threat of both
err, Germany is part of the EURO and thus CANNOT print their own currency without consent of ALL the other EURO member states.
^^^ for realz homez? germany is head of euro, and has most say and power... no offense but you would have to be highly naive to think otherwise germany has world's third largest exporting economy, and CAN print money at will by simply IMPOSING their will onto otherz yo wazzup that free. ,
I think Sanchez was referring to the experiences both Germany and Argentina experienced when they did have the ability to do that to their currencies and did. That is certainly wise advice if your intent is to pay down debt to own an asset like a house. Interest rates and inflation will far outpace wage increases and hence "servicing" that debt will be very hard. However I think if you had assets that were quite liquid like gold and silver in such a scenario their asset value would outpace inflation and interest combined - possibly in multiples. Remember hyper-inflation is partly because people don't want to hold cash because it is losing value so fast and therefore the nominal price of goods/assets skyrockets as the inflated money supply chases limited assets. Debt could be extinguished by selling off a fraction of assets while cashing in on the remaining.
Which is an interesting observation when it comes to Australia and the "BIG FOUR" borrowing on the international markets to loan into the domestic economy. Like the Yen carry trade, they borrow in the cheapening global currencies to loan into what has been the appreciating AUD currency. Their debts are neither sovereign (yet) or individual. What happens to their Euro denominated debts when the Euro chashes and burns, or their USD debts when the same happens to the USD? Do those debts just vanish and the Aussie Banks are left with a margin on their loans that approaches infinity as the international currencies collapse? Should we all be investing in the Aussie Banking sector because they are making huge bets on foreign currencies that will pay off like a ... very profitable bet ... when the Forex markets in those failing currencies collapse? If the Euro collapses, how are Euro denominated debts owed by the Big 4 going to be repaid? What happens to the Aussie Bank sector when the AUD takes off into the stratosphere of relative currency values and no one can afford to buy our exports, everyone gets sacked but the Banks are sitting on some amazing paper profits in their housing loan portfolios? I am intreagued by how interconnected everthing is and just how badly things may disintergrate. However, I suspect there will be a period, perhaps we are in it, between global currencies failing, economies contracting and international trade dying, where Australian Banks will be making outrageous profits on their international debts. Perhaps we have already past that period, who knows.
I have thought long and hard about this and I am still not sure I have a handle on this completely. My assumptions have led me to believe that as individual banks in the Euro Zone (and the US) start getting defaulted on by sovereign nations and other institutions that they have also lent to (who have also been defaulted on by sovereign nations and other institutions and so on and on and on) they will have to cash in on their "winning bets" to stave off collapse. I liken it to a similar manner at a smaller level to institutional investors taking profit on their paper gold investments when their other investments turn south. So my guess is that as Euro and US buyers of Aussie bank bonds start taking large losses they may not roll over the bank bonds to provide themselves liquidity in the short term. That will make things very difficult for Aussie banks to fund their huge balance sheets they used to fund the Aussie housing bubble. This is a huge deflationary event I mentioned earlier that will hit us just as much as it will hit them. If say 40% of the Aussie mortgage market is funded through offshore lending and almost overnight the funding can not be rolled over anymore at fundable levels of interest the banks will have one option. Knowing that passing on un-payable levels of interest to Australian borrowers will crash their largest asset class and cause them huge losses through defaults they will call a crisis meeting with the government and the RBA. The result will be the same as the US did during the GFC and the RBA will start their own QE to buy up MBS from the banks to keep them afloat (I intentionally didn't use the word solvent there) just like the RBA did during the GFC but on a much larger scale. IMO As they collapse, we will be printing at the same time ^^^^^^ which will have some levelling effect in relation to forex. While say 400Billion of printed AUD will not cause a complete levelling with a full collapse the banks will still be taking huge losses. I plan on making some bets but they will be short bets. I think the opposite will happen. Those housing loan portfolios will be toast as the asset class (along with all the others) takes a huge dive. The deflation that occurs from all the defaults etc when no one is buying our exports, many are sacked etc will not only eat away all the paper profits but cause massive paper losses. This is where the smart money gets ready for the the mega QE to "rescue" us. Sorry for the long winded Lovey80 explanations. I think your last para is largely correct all but the outrageous profits by the Aussie banks. They will be the main reason this correction turns south really badly IMO. Everything is so interconnected it isn't funny and the best profits are being had now.
The Great Hyperinflationary Scavenger Hunt http://www.zerohedge.com/news/case-helicopter-failure-here-bernankes-plan-z I cannot even start to imagine deflation with the clowns who are in charge
