Post #9212

I'm listening to financial podcasts lately and what I see is that our politicians and federal reserve have been kicking the can down the road so long that the range of choices they have has significantly narrowed. Right now they can choose between raising interest rates at the fed to stop inflation but at the cost of bankrupting companies. One school of economics is Keynesian and it uses terms like "the velocity of money". Imagine a coin circling one of those fun house funnels. The coin goes faster and faster until the moment when it finally falls out the bottom of the funnel. The people in charge of our money are not in it for the long run. They are in it to make as much money today as they can and we'll deal with tomorrow when tomorrow gets here. Why you should pay off your house. Deflation. Let me explain. Inflation is when central banks print more bank notes and dilute the currency. The central bank might choose to remove those dollars from circulation as a market correction. The good news is that prices fall. The bad news is that contracts written before today use inflated dollars. Let's imagine the central bank decides deflation is the way... they remove 80% of currency from the market. The price of a loaf of bread is now 20c on the dollar. Your wage will drop to 20% of what it was. The problem is that your mortgage was written in inflated dollars. You still owe $400k on a mortgage but you make 80% less per year. It will hit farmers too. Farmers buy seed and equipment on credit. If deflation comes along just before the harvest, they will be on the hook for inflated dollars but their crop will only net deflated dollars. The result is that you loose your house to the bank. The farmer looses his farm to the bank. If the government and fed reserve are able to manipulate the currency, then they are still in power. And that means the courts are still in power and you can bet your ass the courts will give your defaulted house to a bank.