Why is having debt going into a major reset such a bad idea?

barrynilsen
By barrynilsen on Wed, Sep 21, 2016 - 2:42am

So here's a situation.  Like most readers here I'm strongly biased towards PMs and miners because in general most everything else looks bad.  I've got no interest in stocks, bonds, commodities, or GSE/MBS-driven single family housing.  

However, I've got a chance to get some very nicely zoned commercial land on which I could really use to move move all my construction equipment and hold the land productively until a better use comes along.  The zoning is very very good, allowing extremely dense use, blocks to light rail, college campus and a major hospital, etc.  

Owner will take a contract at decent terms in Federal Reserve Notes.  My plan is to move on my shipping containers and put up a modest metal building.  If I put up a little more building, I can sublet it and I'll be saving over renting.

So why not take on more debt, be like the government?  I've Googled around and can't really find the case in an inflationary collapse where being in debt was bad.  Has any government anywhere ever re-wrote the rules so that the inflation only benefitted the indebted government but not the other debtors?  I understand in a deflationary situation like the depression how people lost their farms, but I just think a little diversification outside of PMs might be a good idea in this case.

Why is "getting out of debt" emphasized so much if we're approaching some sort of reset?   Especially if the debt looks like it could really benefit me because it went to cover a productive tangible investment - and may be quite easily extinguished for a few precious metal coins.  Kind of like the story of the waiter who bought his restaurant in Weimar.  I hate "owing" others anything but I also hate renting overpriced yard space.  

I'm really looking for specific reasons and not generalizations that "debt-is-bad . . ."

Thanks in advance for any insights. 

1 Comment

hugho's picture
hugho
Status: Member (Offline)
Joined: Jan 11 2010
Posts: 10
inflationary collapse?

The financial analysts and their readers break generally along two lines: inflationary vs deflationary collapse. There is no way anyone can predict which way it may fall. There really are three possibilities: an inflationary collapse in which case buying that real estate and using debt seems like a smart idea. But in a deflationary collapse it would likely be a terrible idea. You will lose value and have to service expensive debt. The other scenario is a stagflation "collapse" if you will, of BAU much as we have now with no growth.It seems hard to imagine that this scenario could continue ad infinitum but you never know. My gut says that the collapse would most likely be deflationary especially if energy become scarce or expensive and demand continues to fall. In that case there are few or no safe havens including miners and PM.If debt goes unpaid then the collapse will almost by definition be deflationary. Be careful what assumptions you make.

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