Hello everyone,

I am getting disturbing news from a variety of sources that are stating we are going into a depression. There are also rumblings that this will be a global depression that we be worse than anything seen before.

I don't know if it will be that bad (everyone's predicting doomsday these days), but I do wonder what one should do in such a situation.

For myself, I'm still in school (my wife is just graduating as a lawyer this year). We have 62 grand in student debt.

If we are going into hyper inflation.... If our money becomes worthless (more or less) what will happen to the debt that people can't pay? If I and others can't pay it won't it further collapse the economy? What happens then? If money isn't worth working for why would people go to work?

What are people's thoughts on this? (he asks hoping the economy will hold off collapsing for 15 years so he can get into the safe positive-net-value region)

-Nim

As I understand it:

Hyper-inflation or any inflation less than hyper-type, is NOT a worry for you. The amount of monies you owe (your student loans) will not increase as inflation hits. The interest rates may pose a problem but the principles won't change and the interest rates won't change unless you agreed to "adjustable rates". It would mean that you are actually paying off the debt at a present rate of $0.80 cents on the dollar owed, or $0.60 on each dollar owed. As INFLATION affects the economy, your earnings will go up! Your pre-inflation debts will remain the same! As Dan Akroyd's SNL skit stated, "Think of inflation, as your friend" Circa: late 70's/early 80's.

DEFLATION is what we ALL have to worry about because the amount of monies owed will not deflate even though most of our paychecks (those of us who still have a job left) will DRAMATICALLY DECREASE. The value of a dollar suddenly increases to the present value of a $5, or $10, or $20 bill's purchasing power of today! This is what shuts businesses down, they suddenly owe more money than they are taking in, partly because all business comes to a standstill for awhile, and then as business does start to recover, the fees that can be charged for goods and/or services has dropped dramatically, thus profits drop dramatically (read the numbers owed versus the numbers that can be earned).

Rapid DEFLATION is what causes a DEPRESSION! By all opinions, (I have only a Layman's basic understanding of economics), the market is way overdue for an adjustment and that adjustment is PROBABLY going to make the Great Depression look like a Sunday School Picnic.

I recall that John David Rockefeller was the only person who didn't lose money on the stock market. A few days before the CRASH, the elevator operator in his building, gave him a "hot stock tip" while taking JDR up to his business suite. JDR thanked the man nicely as he got off of the elevator w/his entourage. When the doors had closed, JDR turned to his entourage and instructed them to sell every bit of stock that he owned, immediately! When questioned why, he replied, "It is time to get out of the Stock Market when an Elevator Operator has "Hot Stock Tips" to share. His business losses were minimized while he sat quietly through the bottoming out period and business started to recover.

By the way, Coca-Cola was the only business that did not lose money when the depression hit!!

Yes, I still owe way too much money, to too many people, to be comfortable about what knowledgable people's opinions on this subject are that have been expressed, publicly!

Shool loans are annoying too that you can't do the bankrupcy thing and get out of them. If you plan things right you can pay that school loan off early as they re usually a low interest rate and stretched out to a long time. Mine was only 200/month but we rushed into buying a house then a vehicle so I just paid that minimum until the last couple years then I paid double payments and paid it off. If you don't get in any more debt now you can pay extra on that loan and pay it off real early. Chances are she can start out as a lawyer making 50-60k so she should be able to pay it off pretty quick.

The student debt is worrisome to be sure, but I wouldn't lose too much sleep over the situation just yet.

Hyperinflation--which is really hyperinflation, like what cracked open Weimar Germany like an egg and is tearing what's left of Zimbabwe apart at the seams--is usually defined as 50% inflation per month. Even the worst parts of the U.S. aren't seeing anything like that. (We're seeing things closer to 5 or 6% per year. So far. Depending on who you listen to.)

If you default on a student loan what you're really doing is stiffing the U.S. gov't, or the gov't of the city/state where you live if you got the loan locally. The gov't guaranteed the loan when it was originated. The school has its money and the bank that underwrote the loan has its money--the gov't is now asking you (or your wife) to pay it for the luxury of having guaranteed the loan. If she can't and others can't, the gov't can either borrow more money to cover the shortfall or raise taxes to cover the difference. Raising taxes is good for very little, economically speaking, and good for even less politically speaking, so more borrowing is probably how it will go.

The real fallout from what we're seeing in the news comes from the fact that mortgage brokers and banks were selling billions of dollars of high-risk loans to people who had no real ability to pay the loans back. And considering thet most of the jobs created in this country since the mid-1990s were in the housing industry, well, it'll filter down to everything else eventually.

Lots of law suits to go around over this, meaning lots of work for lawyers. I'd say your wife got the degree just in time.

Student loans can be deferred for many reasons, including economic hardship. So if you find yourself having a hard time making payments, or you need money for something else right now, you can defer the repayment. Of course interest will continue to accumulate if you have unsubsidized loans.

As the other posters said, in this case only, inflation is your friend. Since the amount of your loan is fixed, you will be able to pay larger sums of money as your salary is annually adjusted for inflation (normally 2-6%).

Nobody can predict the future. Your sources are suspect.

Best thing for you to do is educate yourself financially.

Personal financial disaster, for most people, is much more likely than getting lost on a mountain.

For rank beginners, I used to give out copies of Andrew Tobias' classic "The only investment guide you will ever need". Probably still in print.

For the very advanced: The first books by Gerald Loeb, Victor Sperandeo, Nassim Nicholas Taleb.

The world is always coming to an end.
Greed and fear make all the evil in the world.

Good luck