Debt Free In a Collapse, Why?
 

OK, politics aside. Say there's a collapse. A real meltdown. Deflation followed by hyperinflation, dollor goes almost worthless. There's, massive unemployment, social chaos, general upheaval, interrupted energy supply, periodic blackouts; a total mess. Why bother being debt free? What are they going to do, evict millions, foreclose on 70% of the population? Reposses almost every car sold in the last three years? Serious question. The financial advisors say get out of debt to protect yourself. From whom? From what? What good will cash be?

In a total meltdown where a government ceases to exist, it won't matter one bit if you are debt free or loaded with debt. All that will matter is if you have enough ammo do defend yourself or enough things of value to trade for your survival.

What is far more likely is some form of partial meltdown. In that case, it is generally a good idea to be beholden to no one. That said, our current government tends to reward failure and punish success, so maybe the "experts" have that one wrong too...

It is theoretically a good thing to borrow at a fixed rate, acquire an asset that pays an income stream that is subject to inflation, then see inflation go high. Because you received more valuable dollars, and are repaying with less valuable dollars. The lender is the one getting hosed. Which is why interest rates move with inflation.

Not sure this all matters in the scenario you're describing, which is extreme and, in my view, highly unlikely.

Why be debt free during a financial meltdown? To me, the answer is simple -- eventually things get better, and the meltdown ends. Those who have assets and are relatively debt free will be the ones who will be able to claw their way out of the financial hole quicker - not just due to lack of debt, but also due to their way of thinking financially.

-Z-man.

It seems to me, following my bleak scenario, everyone will be starting from scratch. Possession will be more than 9/10ths of the law, like 100%. Who owns what will be a matter of whoever has the strength to hang on to whatever it is they possess. And to whom would anyone be beholden? Even in a partial meltdown with the way things are today with so many people owing so much to so many how would they all collect from each other? Just a question. Every time I hear the advice to get out of debt before a severe depression or even total collapse scenario I ask why? I don't think it's far fetched actually; the total collapse of the dollar I mean.

Wow. Nicely stated.

Legion nailed it.

We're not heading towards this kind of collapse - more like a partial collapse. I can absolutely envision a scenario where martial law is imposed to keep order coming in the next few years. I can also absolutely envision a scenario (more likely) like Japan has had for the last couple of decades where things limp along stuck in second gear for a long, long, LONG time with no real "kaboom" or change, only a bleak, miserable existence for a prolonged period of time. People are far too apathetic these days to do what it would really take to effect meaningful change in this country. It would take a lot more than we have today - a LOT more. People are just way too lazy and stupid.

Under such circumstances as you suggest in the scenario you pose, I do not agree that there would be a power vacuum. It seems logical that that we would revert back to some form of a feudal society. That or a dictatorship. However dictatorship seems unlikely as no single person or group has that amount of power at the moment.

The folks in debt, would of course become serfs. If they don't become serfs, well lets just say they very likely will be dealt with and no longer be with us. History has shown us that government may coddle debtors, but the free man does not.

The folks with no debt, well, are beholden to no one. The ones who I'll call break-evens, its anyone's guess as to who they'll align with. They have nothing but owe no one anything. The ones with even a modest amount of possession, likely will have land, which they can then convert to live off of. They also will likely have the means to procure the necessary tools to defend themselves. Then there are the ones who also have excess, for which of course they can use to either procure the tools or hire the tools to project force.

That all being said, I'm not sure why one would pose such a scenario. Even for consideration. Yes we are a messed up bunch collectively, and yes a good 85% of the folk well are not capable of being responsible for themselves or their families. Our history has ALWAYS put the money on that other 15%.

Keep your eye on the shakers, the makers, the movers, and the the doers, in other words that other 15%. The other 85% is nothing but noise. I call them the living dead. They're alive but have the value to our society about as much as a dead person. The 15% are the ones who will show all the signs that the scenario you pose is emminent. At this time, those 15% are not showing those signs. In fact just the opposite, they are showing the signs of determination with which to sort this who mess out in which we are in.

IF the world comes to that, i will sort it out then.

In the meantime, it is extremely foolish to live expecting such a corner scenario. If you do, YOUR world might collapse around you financially while others recover.

Another trillion dollar spending bill passed the senate today...trust in our current leadership to bring the ultimate meltdown that much closer.

As it has been said here, there are various levels of meltdown/collapse that could occur.

I assume the financial advisors say to get out of debt so that if you lose your job, you'll own a place to live... and a means of transportation.

If you can't pay off your home and vehicle without extreme belt-tightening before this collapse, just be prepared to deal with the bank taking these things away from you... and you can either rent a smaller place (if you can afford that) and buy a less expensive car to get you by.

Possibly the most sensible answer here...thanks.

Being debt free is the best way to live in any econo
ic climate.

Also, in the event of a total collapse I doubt that our small arms and ammo will do much good. It will be the China man that comes a knockin anyhow. They got us by shear numbers alone. No match for them.

Agree and the last thing we need is to spend more and more like they have been doing.

Being debt free is nice but also having cash on hand, and not just paper money would be better should something like this happen. If it really gets that bad, gold and silver and things that you can barter with, like food, ammo and so on.

This is one major reason why I went to a diesel truck a year ago. I can make diesel out of various things, not the same with gasoline. Pays to be ready "just in case" its needed. Hope the rest of you are ready....

Wow doom and gloom. Merry F'n Christmas

Doom and gloom? Yes, if you are not ready for it. Otherwise you just deal with it!

During the great depression, which is as close as we have come to a complete financial meltdown(that period also had great social upheaval-remember the Okies?) the banks continued to fail and great amounts of capital were lost. Farmers were a great proportion of the population back then and a large percentage of them that had crop loans lost their farms to those banks and their successors. (Mortgages were very uncommon, if you and your family didn't have cash, you simply didn't buy a house or farm, you rented forever. Easy mortgages were a result of the depression due to rewriting a lot of financial rules by the government.)
The farmers were forced off their lands by the banks, and as the banks failed completely, state governments took possession of the assets of the failed banks, sometimes large swaths of land were picked up by the states, sometimes in chunks of 8,000+ acres(now a lot of state forests or parks). Those farmers were dislocated, just like folks today losing their houses, and really had a tough road back. Going through foreclosure left a blot on their record just as surely as walking away from debt today will leave.
That being said, I think that a complete loss of all government structure(a doomsday such as what might follow a large nuclear exchange) is so unlikely as to be nothing to spend time planning for. No vacuum of power exists for long, chaos might be a localized thing, but the state would eventually return. I don't think anyone will walk away from their debts scotfree, the system of records on land transactions, land titles and debt is pretty well foolproof, and all that record is recorded in multiple places, so the history is always there. Heel n Toe had a very relevant comment, get out of debt now and the bank won't crush you at the worst possible moment(they are good at that).

Couldn't agree more.

The only flaw in that logic is this: the banks don't want your possessions - they want your cash. They would rather you keep your car and get a job in order to pay them the cash back which they loaned you.

-Z-man.

While we're on hypothetical events--what if the nation doesn't go Mad Max and instead, we see a period of weak growth and deflation. Then, debtors would be screwed.

I'm not saying cash is king. We'll, it is, but I don't see going into debt as a solution.

Use debt to finance quality investments ONLY. Hone your skill set. Act so you can succeed today, as well as tomorrow.

Lastly, don't buy into idealized notions of the collapse of the dollar. If you're assuming meltdown, who's to say the Chinese don't march over and begin collecting debt. Chinese mercenaries take possession of mortgages. They begin calling mortgages, and if you do not produce the balance in Euro/Yuan, you go to debtor's prison (manufacturing facility in the US). Why pay a Chinese man $2/day to work in a plant, when they can use you for the price of 3 meals and a cot. The US would become the new export leader of the world.

Those in power will try to stay in power.

As mentioned before, the Great Depression was closest we've been. Those who were liquid, solvent, and had capital, we're hurt the least. However, in today's segmented economy (less focused on subsistence), having capital isn't enough. One must think about being well-rounded. Being solvent and capable is sound no matter what the economy is doing. Why stray from what works?

Hate to tell ya no matter how much anyone thinks they "prepare" youre still gonna be f'ked. No one is prepared for this no matter how ready they think they are.

Currently the economy (US and world) has a substantial output gap (factories producing well under capacity) and demand gap (demand for goods well below potential supply). That includes commodities e.g. energy. And, while governments (US and world) are pursuing stimulative monetary policy, the private sector (banks) are more than offsetting that with tight lending policies. This is not a recipe for inflation. So I think that setting your personal finances up for hyperinflation is a bad idea. It's fun for the Gloomy Gus types to talk about, I suppose.

I continue to be amazed at the level of crazy on this board.


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Because at the end of the day, a true measure of a man is to pay his way and earn his keep - debt is a nessecary evil in our society but should be kept at a very bare minimum. The reason the country is in the shape it is in is because too many people think that they are entitled to all sorts of 'stuff' they didn't work for and will leave for the future to figuer out.

There is no better feeling than working for something and earning it - credit and debt allows us to have without the effort to earn it.

We need folks like you. You'll make excellent slaves for those with a plan. ;)

I don't believe this will ever happen, though. If I accept meltdown as a likely event, I would have no motivation to work now. On the other hand, can't say I'm in a bad position, so I am not worried either way. Roll with the punches I will.

Easier to justify your gun purchases that way.:D

That's it? That's all that's going to happen? Geez - if that's the case, I'm not worried - I thought it would be worse! ;)

Nailed it Matt. What disturbs me most is some folks here want an apocalypse to occur just so they can shoot roving bands of "survivors that didn't plan." What are they called again?

Gotta say, love the hoped for sci-fi-fantasy, soap opera these guys dream up. Hollywood could use this untapped talent.

If you're not in debt, you either make WAY too much money, or you live in a cardboard box.....

Bet you run outta ammo before me. I never stated that I had no plan. Just was pointing out that it is Christmas, then the paranoid patrol had to start up.

Actually, there's another option -- you live below your means.

I recently read an article on how to live like the wealthy do - and that theme - living below your means is very prevalent in most wealthy people's lifestyles. The article went on to state that the average value of a home of a millionaire in the US is $300,000. Not quite what one would expect. And the typical car such a millionaire drives is a Toyota - NOT a Mercedes or Lexus, or Bentley.

Wealthy people, IMHO, know how to live below their means, minimize debt, and maximize their money on proper investments. And that forumula works no matter what the financial level is.

-Z-man.

:rolleyes:


. . . or you live below your means and work hard to pay off big ticket items that you bought with credit.

I make a modest amount of money, live in a decent, well maintained home in a nice neighborhood, that I paid for in 9 years on a 30 year loan, my DD is an 18 year old Toyota that I maintain myself, I stash a few bucks away each month and still have enough discretionary to have a lot of fun.

And I still worry about an economic crash wrecking my lifestyle, but I am trying to mitigate the damage.

(beat me to it, zman, and no, I am not a millionaire, not even close)

This thread of more of a social experiment than a declaration of intent.

If you have a bullet and a gun handy, you have more than I. However, what's to say your plan with a gun is any better than my non-plan. Mercenaries are cheap. Feed them. Give them shelter and women, and they will be committed. I'm not saying that is my plan, but how do you plan for the time when there are no rules?

ratsnake, read Millionaire Next Door.

Yeah, that works well for millionaires, because 'living below their means' equals putting food on the table and their kids through college, etc... So what does it mean when you don't have it to start with and have to pay the electric bill with a credit card every month so your power doesn't get turned off? Sooner or later you get into a serious hole but not by spending frivilously.

Point is, you guys always think everyone who is in debt got there because of careless spending or 'wanting it now sydrome', but truth is, most people get there trying to maintain essential living things.. (not talking about the house flippers who got stung when the market collapsed, etc..)

Also, alot of you guys are older.. Simply put, my parents dont have any CC debt either, sorry, but life was just not as expensive then as it is now.

but this hits close.. I have a good friend who lost his wife, has three kids and is basically a slow sinking ship financially. He is getting alot of support, but he just filed chapter 7 finally. Hopefully, he can be alright and start over once all those debts are erased. What did he do that was so wrong?

Sorry, but I don't believe that for a second. Most people get into debt by living beyond their means or by being ignorant (not understanding how to manage finances - not the same as being "stupid" by the way).

I absolutely have sympathy for those that can't put food on the table and keep the lights on. In such situations it is my belief that the Church and community should provide assistance. Sad situation.

That is the quote of the year! Expenses have always been out there..



As for your friend, I am sorry. He may have run up many bills caring for his wife, or maybe their lifestyle was based on their combined income. We don't know the details, but odds are he did nothing wrong. Insurance is important when you have kids. Otherwise, chapter 7 exists and they should be OK in the long run.

The USA is now climbing above the 80% of GDP in debt levels and within a few short years will be above the 100% of GDP in Debt. Japan is currently in the 100% + territory.

World population will sooner or late asorb that extra industrial capacity and commodities...however that doe not mean a reduced unemployment rate as there are more people with the same number of jobs.

There will be rumblings and crisis before the big meltdown...

At some point those lending money to the USA will cease to do so, or they will gradually reduce their exposure..which is already happening...

This means the USD will slowly be devalued, gold will climb higher and US interest rates will go higher as the US govt will have to pay a higher interest rate to keep investors buying our debt. Commodity prices in general reflect industrial utilization, and should remain relativily stable so long as industrial capacity utilization remains weak.

The devaluation of the USD is negative in the sense that ANYTHING imported is going to become very expensive as to be unaffordable including enrgy prices. However much of what Americans consume daily is produced right here...so those costs will not skyrocket except for the energy/commodity component of the product that is imported.

Interest on Debt is going to continue to increase as a % of GDP. If interest rate should spike either taxes or services/entitilment s will have to be cut.

The US is finding itself in a condrum in that anyway it moves it is finding a negative unintended consequence at the end of the Rainbow. What we are seeing is inertia in the economy. If one raises taxes or goes into debt one slows economic growth which then decreases tax revenues further.

I don't agree that a declining USD is overall negative. It is more complicated than that.

A declining USD has both positives and negatives.

The negatives are oft-discussed - higher import prices for Americans, lower local currency returns for foreigners investing in USD-denominated assets.

The positives are usually overlooked - American-made goods and services are more competitive internationally, which is good for American export businesses and thus for the balance of trade.

It is pretty obvious that the US government wants the USD to decline, in order to boost the competitiveness of American exports. When the US government gives lip service to "a strong dollar" but conspicuously does nothing about it, thus implicitly permitting FX traders to continue betting against the USD, you are seeing a competitive devaluation. Driving interest rates down and competitively devaluing the currency are, combined, a strong stimulus. This isn't new, it has been done by past governments.

In theory, foreign investors might desire higher US interest rates to compensate for the negative FX return from the declining USD, as tabs says. So far, they don't appear to be acting on the desire, not with US interest rates as low as they are. Investors are still risk-averse, certain US-denominated assets are seen as safe havens, and the motivation to seek higher safety still trumps the motivation to seek higher return. Dubai World's default is helpful here.

Note that this FX return factor will motivates foreign investors to demand higher US interest rates only so long as the USD is declining. If the USD is stable, whether at a low or a high level, then the return from FX is neutral and no longer a factor in interest rates.

The decline in the USD is toughest on the Europeans and Japanese. Not only are their companies' at a disadvantage since their costs are in increasingly expensive EUR and JPY, they are also faced with even more competitive Chinese prices since the RMB is still being managed to the USD.

Try this move .... reduce taxes, increase domestic production and alleviate some of the corporate regulations so that they are encouraged to keep business here.

What would be a negative unintended consequence here? (this isn't a rhetorical question)