Economic Collapse & A Debt-Free Home: Are You Still Safe?

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Financial analysts and preppers that are in tune to the systemic corruption of the banking and political systems are encouraging people to get out of debt and into hard assets and sustainable living practices.  For hard assets, this includes storing food, water, clothing, firearm protection and other materials.  For debt, it includes paying off college tuition, credit card, car loans and mortgage debt.  Nothing sounds bad about that right?  Getting out of debt and being self reliant is something that is hard to find fault with.

However, as I explore the theories of how the system might implode, I’ve found that one of the above solutions may not be a solution at all…

While I agree that acquiring hard assets can help you weather the storm, I am not so sure getting out of debt will completely stem the tide of the financial collapse.  In particular, I’m only referring to one type of debt – mortgage debt.

As I received my bank escrow statement for the prior year, I found that it had run a deficit as the property taxes had increased.  Why?  In under three  years, my home and others in the neighborhood had organically grown 14% in value. This is largely due to the real estate bubble returning, and little on behalf of the home owners or locality’s improvements.  In addition to the increase in property values, 2015 taxes have also increased substantially.  What I am left with is a jaw dropping increase in taxes.

So, how might this ruin you in an economic collapse?

Greg Hunter @ USA Watchdog interviews some of the top financial analysts in the world that are blowing the whistle on the collapsing global economy.  While all of them are warning of the impending doom and necessity of preparation, the theory of how it collapses differs between them.

Some people such as John Williams, Rob Kirby, Nick Barisheff and others believe that hyperinflation will consume the economy similar to Germany’s 1920 Weimar Republic or the 1990s  Zimbabwe incident.

Others suggest that a huge deflationary crash will occur and that the hyperinflation theorists are flat out wrong.  In particular, Harry Dent is a subscriber to deflation-only mentality.

However, there is a third and utterly worse scenario:  deflationary crash followed by hyperinflation.  It is this scenario that I feel is most probable.

Michael Snyder, Mike Maloney, Greg Mannarino and others suggest that we will have a major deflationary crash (much greater than 2008), followed by central bank interventions (Quantitative Easing on steroids) which will cause hyperinflation.

With a deflationary collapse, companies will shut down (or merge) and jobs will be lost.  You can think of it as the next Great Depression.  If you survive the first wave of deflation and still manage to have a job, hyperinflation will come in around the backside and ruin you.  Hyperinflation will force goods and services to quickly outpace your salary earnings, and you will likely have a difficult time paying for the most basic necessities.

For example, during the Weimar Republic hyperinflation, the German Mark was 4.2 marks to one US dollar in the beginning.  This spiraled out of control to be 4.2 TRILLION Marks to one US dollar in only a couple of years.  Thats a 1e^13 percentage increase!  To put this into perspective, a loaf of bread in the Weimar Republic cost about 200 billion dollars in 1923.

[German mark currency as play toy building blocks]

weimarplay

And this folks is how they will still get you.  With college debt, credit cards, car loans, etc., the debt is resolved once you pay it off.  However, even after payment of your mortgage, you still owe the state taxes so long as you own the property.

What if your property value increases exponentially alongside of all other hard assets.  For example, let’s take New Jersey with a 1.89% tax rate and the average tax collection being $6,579.  That would mean the average home price is around $348K.  What if this home price increased 10 fold and the property taxes along with it?  Could you afford $65, 790 in yearly taxes?  The 10 fold increase is indeed a meager increase considering how run-away hyperinflation can happen. Even though your home is owned “full and clear” failure to pay your taxes can still result in confiscation of your property.

Find your tax rate @ Tax-Rates.org

tax reates

Solutions?

The only solution I see to this problem is acquiring hard assets to hedge hyperinflation.  Hopefully these assets would increase uniformally with the inflation, and are items that are in demand.  Will gold and silver do the trick?  Perhaps…but that only applies if they are in demand.  Some argue that people will only want life necessities and not some inert metal.  Regardless, if you meet both these properties, you could retain wealth and sell the items to pay off the taxes.

The only other solution I see is to move to a state that has 0.5% or lower property taxes to try and stem the increase if a hyperinflation event occurred.

More Info

If you want to know more on the deflation to hyper inflationary threat, visit Mike Maloney and watch this short video.

  • Reason And Believing

    Things of intrinsic worth are the only things safe. Gold and silver do NOT have intrinsic worth. Their worth is set by an authority based on external conditions. .
    Without the authority in place, gold has no value except a pretty ornament.
    Essentials including your home, food , water, clothing and must haves like toilet paper , medical supplies , electric power, fuel , transportation ,tools
    Beyond that you need something that makes you money regardless if the nation is experiencing inflation or deflation. I for instance bought bargain basement homes when after the real estate market collapsed, all paid in full. Now I have constant income regardless of what economic conditions we are in , If deflation happens , I can adjust my rental price to insure a constant occupant. If inflation happens, I can increase my rental pricings.
    Honestly, buying a few hotdog stands would be a better bet then buying gold and silver.
    The hotdog stands can make you more profit in one day than you will get from Gold even in the best of conditions
    If you buy an ounce a gold at 1100 dollar and it goes up to 1200 dollars, during the year then your 1100 dollars has made 100 dollar.
    A hotdog stand could make that in profit in one day.

  • Nimrod

    Some of us will ‘occupy’, rather than ‘own’ the house in which we live. Local governments will try to collect taxes, but some will meet violent resistance by desperate people. When a house must be confiscates by force, and this action is resisted by desperate people who are willing to use deadly force, it will become harder for governments to find people willing to help with the eviction.

  • Danette Jacobs

    This is rediculous. He has no idea what will happen with taxes after a collapse, but I know that people will always need shelter. The shelter is the valueable asset. And local and state governments do not want to come grab your deed in a chrisis. They don’t want the property – they want the taxes. Look at detroit – houses worth millions at one point torn down, or on the sales block for pennies on the dollar, which is a lot lower taxes then when it was owned. They want people to OWN those houses. Removing families from homes, just to be taken over by squaters and increase crime is not on their “to-do” list.

    • PCMAN1951

      I totally agree.. The Government is not interested in owning small homes. And it would be ridiculous and to no avail to hyper inflate property taxes beyond the means of what people can afford during an economic collapse. I believe that owning your own home is by far the most secure investment one can make.

  • Bill Van Tilborg

    He is also assuming that the property values will inflate as well. When no one has access to credit or is able to afford to buy, the property values will decrease as well. See the book “Aftershock Investor” for more info on that.

  • Don_in_Odessa

    Special Federal rules apply to senior citizens. And, in Florida there additional protections for people 65 and older.