Texas oilman and once-aspiring politician Clayton Williams got into trouble for joking that rape is like the weather: “As long as it’s inevitable, you might as well lie back and enjoy it.”
Well, devaluation is like the weather. It’s inevitable, so you might as well do what you can to prepare for it.
That was the point of my July 2010 post, Devaluation is the only way out.
This past weekend, that post received angry comments:
You know, I like the blog but sometimes you go off the reservation, way off. Let’s just consider one of the more obvious flaws in your argument:
“A 50% devaluation of the dollar would mean a doubling of general price levels, making the house worth $300,000 and allowing the family to sell or refinance the house and/or car, pay off the credit card debts, and go from a negative net worth to a substantial positive net worth.”
You have just cut all savings in half. The person who had saved a down payment to buy this house now no longer has enough for a down payment. Oh, wait, our happy home owners will just do a refinance…at 28% APR fixed. Hope they didn’t have an ARM before the devaluation because they will immediately be bankrupt. Pay off the credit card debts? With what, their reduced savings? Not to mention that credit cards don’t have fixed rates. Do you think their employer is going to magically double their pay because of your little devaluation? Right, the employer will be dancing in the street as a result of massive wage cuts. Meanwhile, our house seller/refinancer must now pay double (or more, no reason to think this will be a linear adjustment) for the necessities of life on half pay.
Money for nothing and your chicks for free only works for rock stars. Money is a medium of exchange and, to a lesser extent, a store of value. That’s all it is. Please note the Paul Krugman agrees with you wholeheartedly and the best real life example to support his thesis (by his own admission) is…wait for it…Argentina.
I’m not advocating irresponsible monetary policy, just saying it’s inevitable. No country in the history of the world has ever gotten back from this point without devaluation (see, for example, the US post-WWII). Once Obama started running serial deficits of 8% – 10% of GDP and we crossed 100% debt/GDP, devaluation was inevitable. Lie back and enjoy it.