Inflation

Discussion in 'The Okie Corral' started by hvnit2gd, Feb 23, 2010.

  1. hvnit2gd

    hvnit2gd

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    If one just bought a new home with a fixed rate 30 year mortgage, why would inflation be a bad thing? I am not econ major, but I would think that inflation would be great for someone with a 30 year fixed mortgage...

    You would be paying your mortgage with inflated dollars... so how is that bad?
     
  2. jilverthor

    jilverthor

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    The problem with that logic is that it assumes your house is your only asset. Generally speaking, your income does not keep up with inflation. Also, inflation will cut into your returns on other investments. All in all, it is a losing proposition.
     

  3. ken grant

    ken grant

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    Higher property values(inflation) = higher property taxes

    Higher property values = higher insurance costs
     
  4. certifiedfunds

    certifiedfunds Cosmopolitan Bias

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    and don't assume that rate will stay fixed. This administration has already set precedent for interfering with private contracts (gm bondholders) and mortgages.

    Given that the government is the largest underwriter of mortgages and the remainder are with the largest banks, don't think for a moment that the .gov won't pass some law allowing rates to be indexed against inflation to save their sorry asses.
     
  5. hvnit2gd

    hvnit2gd

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    I didnt see anything about that in the contract I signed...
     
  6. hvnit2gd

    hvnit2gd

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    lets say it is your only asset, and you have a job in which doesnt allow you the luxury of investing... I would assume your income would rise, maybe not keeping up with inflation, but having a fixed mortgage rate seems to be a small hedge against inflation, no?
     
  7. tous

    tous GET A ROPE!

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    Neither did the General Motors bondholders.

    Contracts no longer have meaning.

    What ever happened to the days of folk buying a house to live in the danged thing?
     
  8. Z71bill

    Z71bill

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    No doubt about it - if you are deep in debt inflation can be your friend.

    Think federal government.



    IMHO the job you have is more important - if your wages will keep up with inflation you will not be crushed - equity investments like stocks should also keep up - but things like bonds will suck.

    I don't see how anyone would buy a long term government bond -


    I am talking about "normal" levels say 1% - 5% a year NOT 15-20% :upeyes:
     
  9. certifiedfunds

    certifiedfunds Cosmopolitan Bias

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    You can be sarcastic and walk smugly into the unknown or you can open your eyes and start thinking the unthinkable.

    To an extent you point is valid. Theoretically too.

    But, with our banks in the shape they are, do you really think the .gov is going to sit idly by and let you repay 2010 dollars back at 5% if inflation is double digits or worse? Who's interests will the government care more about? Yours or Citi's? Will they sit idly by and let you "beat the system" at the expense of the banking system and Fannie/Freddie and the taxpayers, or will they take "reasonable and prudent" steps to correct things?

    Further, if the gov is underwriting your mortgage and FF becomes even more insolvent and needs trillions of taxpayor dollars to remain afloat, where will they get those dollars? Debt/taxes or even more inflation maybe?

    Do you really think you'd have that low fixed 30 year rate if the gov wasn't subsidizing the mortgage market in the first place?
     
  10. doubletap1

    doubletap1

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    Ummmmm....no. A 30 year fixed contract is a 30 year fixed contract. That's why we have courts. :cool:
     
  11. certifiedfunds

    certifiedfunds Cosmopolitan Bias

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    go forth and trust then. No reason not to.
     
  12. kestrou

    kestrou Pin Member #4

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    Sorry, buddy - but I'm with certifiedfunds on this one - Da Guv has been rewriting contracts lately - and I have no reason to think they're done.

    A "contract" is now a medieval invention that no longer exists unless/until the courts get done saying what they want it to say (note I didn't say "get done saying what they interpret it to say" :steamed: )

    Just one thing to add - you're sitting here thinking about this from the perspective of your home mortgage, but there's lots of other people thinking about this from the perspective of business investment - so they (at least I) are being very picky about where/how investments are made to reduce the risk of this new "random factor". Classic example: anybody want to invest in GM and get screwed like the last round of investors? Ayh-Eee-Ell-Ell Enn-Ooo!!!

    kestrou
     
  13. hvnit2gd

    hvnit2gd

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    HAHA, can you imagine if the banks started telling everyone they are raising their fixed mortgage rates because they need more money.... now people that have paid the mortgage on time, have a fixed rate (CONTRACT), are losing there homes... RIIIIIGHT, somehow I dont think A. the courts will go for it, and B. the people will go for it...

    If your presmise is correct, why didnt the gov stop AIG from paying out bonus'? Could it be because there was a contract in place before the bailout!

    I have a 4.5% fixed rate, and its my hedge against inflation... I dont forsee myself needing a bigger home later, so this one will do!! LMAO---
     
  14. certifiedfunds

    certifiedfunds Cosmopolitan Bias

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    If you haven't noticed, contracts aren't sacred any longer if the government deems them to be an obstacle to what they want or need to accomplish.

    Some unthinkable things have already happened. 5 or 10 years ago would you have believed that the government would own General Motors? And, would you have believed that they would have placed the bondholders behind the union contracts as creditors and intimidated the bondholders when they spoke up?

    Would you have believed that the government would threaten banks into taking federal funds, even if they didn't need them or want them?

    50 years ago would you have believed that the government could dictate what you could and could not do with swampland you might own? Would you have believed that the government could expropriate your land so that condos or a shopping mall could be built?

    Has the government told private businesses what price they could sell their wares or provide their services at? Have they seized gold from the populace? Have they forced bank holidays. Has the government formally devalued the currency before?

    Has the government ever passed or threatened to pass a law imposing a tax on a certain very small class of people who's compensation was deemed inappropriate?

    Has the government ever had internment camps for U.S. citizens and imprisoned U.S. citizens in them because of their appearance or ethnicity?

    My point is that no one knows what the government and bankers will do when they become desperate enough. You certainly don't.

    I HOPE you are right. More than that, I hope it never gets to that. But if you think for a moment that the government will not tear up your mortgage contract to protect itself and the nations' bankers in a crisis you are fooling yourself.

    Yes, we have courts. And yes, they may serve as some protection.....eventually. In the interim, what will be your recourse?

    And you are further thinking inside of the box.........

    Who's to say they won't leave your contract alone and, instead, impose a tax on homeowners to offset the funds the appropriate to compensate the banks for their ****ty fiscal policy? Effect is the same.

    As kestrou said, you're also looking at it from only one side. If I'm a bank and I made loans in good faith, yet the government/Fed destroys the currency AFTER I make the loans, I'm looking to be made whole. Why do you think the Chinese are expressing so much concern over U.S. debt?

    Again. YOU don't know. I don't know. My advice was to not ASSUME anything. Because when it comes to a desperate government and banking system, all bets are off.