How will banks handle my mortgage during Hyperinflation?
August 23, 2010 by Bob Livingston
Hi: An article I read that came from you talked about the falling value of the dollar. It made me wonder what would happen to a homeowner like myself when out-of-control inflation makes a situation that the dollar I repay as a monthly repayment on my home doesn’t satisfy the repayment value for the home. How do the banks handle this type of situation? Many would be in same situation. Are we all on the street while many home are empty? There would be many of us that would not be able to fill a wheelbarrow of cash, plus I can’t imagine asking a government for a daily payment so as to buy food before it went up in price. What do you think?
There is a difference between what happens with the falling value of the dollar and what happens in hyperinflation. The dollar has been losing its value slowly since the Federal Reserve instituted a fractional banking system. That’s because as more fiat (unbacked) dollars are printed the value of each of those in circulation is lessened. The dollar has lost about 95 percent of its value since 1910 (the Fed began in 1913). That is why you see rising prices in commodities. An ounce of gold will buy essentially what it would 100 years ago in terms of oil and commodities, yet it takes $1,200 to buy that ounce as opposed to $27 as in 1910.
In hyperinflation the cost of goods skyrockets. To keep up, governments print new currency adding zeros. Your salary as a worker would have to increase; otherwise you would not be able to afford essentials. In Weimar Germany during hyperinflation, workers were paid in wheelbarrows of cash and they would hurry to the store to buy bread before the price increased again. It was so bad that people were burning the equivalent of their $1,000 bills for fuel because that $1,000 bill was worth peanuts.
The good news is if you hold a mortgage with the bank that mortgage is going to stay the same. Say you owe $100,000 on your mortgage and your mortgage payment is $1,500 per month. In hyperinflation you will still owe $100,000 on your mortgage but your salary will have to increase in order to keep up with the cost of goods. So, if you are able to set aside a certain percentage of your rising income you should be able to pay off your mortgage sooner. The banks will be the loser in that case. However, the cost of all goods will rise exponentially in hyperinflation so it will continue to be difficult to buy all your essentials and have any left over, even as your paychecks increase regularly.
This is why we recommend you keep as little of your money in cash as possible. Keep enough in the bank to cover your monthly bills, keep enough to pay off a couple months worth of monthly bills at home, and put the rest in precious metals. Precious metals are going to be the only thing that has value when hyperinflation comes. We also recommend you store food, which can be bought relatively cheaply now as opposed to when prices start to rise, and guns and ammunition. These will be essential for survival and will also make good barter items when the crash comes.