If Hyper Inflation arrives ........

sb44

Disregarding mortgages, will the people with an average balance on credit cards go bankrupt?

I know that people have quite low balances compared to some ie £1000 to £5000 but am I right in thinking if we get hyperinflation, repayments on credit cards will go through the roof?

lukekelly_2

Inflation reduces debts and reduces savings.

stevetodd

lukekelly wrote: »

Inflation reduces debts and reduces savings.

I was worried about the possibility of future inflation but my wife pointed out that although my savings are significant, my mortgages are larger, which relaxed me

bendix

sb44 wrote: »

Disregarding mortgages, will the people with an average balance on credit cards go bankrupt?

I know that people have quite low balances compared to some ie £1000 to £5000 but am I right in thinking if we get hyperinflation, repayments on credit cards will go through the roof?

Huh? How do you work that out?

Inflation decreases the value of money. Existing balances accumulated when prices were more stable would be easier to pay.

If you buy a product worth £1000 in January and we suffer hyperinflation, then that residual debt in, say, 6 months will be worth much less than when you bought the good.

Indeed, logically, hyperinflation would help those in debt and encourage even more credit abuse.

sb44

lukekelly wrote: »

Inflation reduces debts and reduces savings.

Ok, I am a total numpty where anything like this is concerned, don't bother telling me to go and read up on it as it probably won't sink in!

Now don't laugh, but I thought that hyperinflation meant that interest rates would go through the roof so say if my credit card % was 16.5% if we got hyperinflation that rate would go to something like 60% or so.

I just remember mortgage rates in the 80's being about 4 times what they are now and thought it would mean the same with credit cards, ie the repayments going sky high.

mitchaa

Hyperinflation would be good for all those with fixed rate mortgages as long as their salaries rised in line.

Bring it on

bendix

In that regard, you're right, but interest rates would trail inflation rates, meaning the value of money spent historically would never be close to the value of that money to be repaid.

example. A year or so ago, when Zimbabwe's inflation rate first hit 1,000,000%, interest rates were around 500-1000%. That's a pretty good deal! Today, of course, Zimbabwe's inflation rate is several billion % and the economy is unmeasurable, but you get the point.

Anyway, hyperinflation is not going to happen. 10% maybe, certainly not more than that.

Generali

If hyperinflation arrives, then you're all pwned.

Nice boarding school or local Comp, banker or barman. Hyperinflation means a quid and a million quid are both worth the same.

MyLastFiver

sb44 wrote: »

Now don't laugh, but I thought that hyperinflation meant that interest rates would go through the roof

Not necessarily. Governments may increase interest rates in order to combat inflation, as it is a way of making money scarcer, and therefore more valuable.

The problem is that in a stagnant economy, ie one that is not growing, raising interest rates would be disastrous as it would damage the economy further as people spend even less, more companies go bust and unemployment rises, tax revenue falls, etc.

This is called "stagflation" - a stagnant economy with an inflation problem. If low interest rates and quantative easing fail to get banks to lend, and people to go out and buy flat-screen tellies and ipods again, then this is where we're headed.

To answer the OP, moderate inflation, if matched by pay increases and not combated by interest rate rises, is good for people who are in debt as the value of their debts fall relative to their wealth.

ad9898_3

mitchaa wrote: »

Hyperinflation would be good for all those with fixed rate mortgages as long as their salaries rised in line.

Bring it on

The issue is, in the current climate salaries will not increase, people need to prepare to get poorer.

mitchaa

Generali wrote: »

If hyperinflation arrives, then you're all pwned.

Nice boarding school or local Comp, banker or barman. Hyperinflation means a quid and a million quid are both worth the same.

But your mortgage amounts become worthless? No??

I cant see how the above is true unless you are comparing it to Zimbabwes situation of which i can pretty much put my house on this country would not allow to happen.

If we see inflation at 20% and salaries rise in line then anyone with a fixed rate mortgage will gain substantially, as their debt although still ''£100k'' is a lot more affordable with a lot more surplus left over.

A good thing (For those on fixed rates with mortgages anyway, and i suspect for those with a savings nest egg)

Admittedly i know very little about the financial industry and looking at Zimbabwe i would not like the same to happen, but perhaps you can enlighten me as to why it would be bad for all?