So, what happens to personal debt in a hyperinflationary economy?

[NickB79]

Say the US undergoes a hyperinflationary economic decline over the next year. If I had $20,000 in debt now, what happens to it when the dollar's value drops? If my pay scales up to match inflation, wouldn't I owe far less the more hyperinflation sets in? Or can debts be scaled up too to match?

[Recursion]

1. Well, see, that's the good news

For current debt holders inflation is great. The problem is that taking on additional debt becomes very expensive.

[Chan790]

2. You know, I have no clue...

my best guess is that anything with an adjustable rate will see a corresponding rate increase, but if you could time it right you could pay off your debt fairly early on in the hyper-inflationary cycle.

This is why I'm glad all my debt is fixed rate. 13,000 may not buy a loaf of bread in two years but it'll pay my student loans in full.

[gravity]

3. The problem is that recessions are deflationary

Just to add fuel to the fire

[Warpy]

4. In my lifetime, pay has never caught up to inflation

and that's not even the inflation they've been lying about being so low for so many years.

However, that $20,000 debt would have crippled you financially in 1950. These days, it's a nuisance to pay off and will take many years to do so, but it is doable.

That's what inflation has done.

[murielm99]

6. Yes. Think about it. Debt in 1950...

My parents took out a $10,000 loan to buy a house. It was a big deal.

[TreasonousBastard]

5. Any inflation means you pay off the debt in cheaper dollars...

and is a key reason debt is a great idea a lot of the time.

Problem is if you don't have enough of those cheaper dollars in the future. Hyperinflation means your current weekly paycheck buys a loaf of bread-- this is just one of the many problems in Zimbabwe right now.

(It's also been a past problem in Argentina and other SA countries, and of course, Germany and other parts of Europe during the Depression)

[tularetom]

7. You get to pay your debt off in dollars that are worth far less

Not a bad deal if you owe a lot of money now.

[Selatius]

8. If I owe 25,000 in student loans, and inflation is 1000 percent, I could be making $100/hour quick.

At such pay rates, I could pay off my debt extremely fast.

Unfortunately, in such an environment, a loaf of bread could literally cost 40 or 50 dollars. You can imagine what other food items could cost as a result.

[KillCapitalism]

9. Well hyperinflation is a double-edged sword for debt-holders.

Let's say you're $100K in debt & make $50,000 a year right now.

Hyperinflation kicks in & you now make $50,000 a week, so the $100K in debt seems like small potatoes. Problem is now a gallon of milk costs you $4,000.

[GoesTo11]

10. Hyperinflation makes debts owed into worthless paper

That's why we won't be seeing hyperinflation.

[Trajan]

11. Deflation is more likely ...

And is in fact existent today ....

[dipsydoodle]

12. Any degree of inflation

favors net borrowers.

[JVS]

13. You'd be free.

Unless the creditor is able to increase the rate of interest on your debt to keep up with the inflation.