Thank you for your amazing comment @nurseanne84
I'm trying to figure out how hyperinflation can affect those with debts. And I remember hearing from Polish older generation, that when strong inflation hit out country (back in the days) then most lost their savings but many got weatlhy because money they borrowed to start up businesses.
Or got a morgage, which they could pay off a year or two later pretty much fully (assuming that they survived financial crisis somehow).
So Im really wondering, how does it work with debts during hyperinflation?
Yours
Piotr
Hi @crypto.piotr,
Making depts in a country that risks hyperinflation can be very tricky. I can relate from what happens in Turkey where inflation is quite high at the moment.
The only way to fight inflation for a central bank is to increase the interest rates. So most of the time inflation comes together with very high interest rates. So if you have depts that have fluctuating interest rates, your interests will be adapted and you will have to pay much more. You have to imagine that probably your income is also in this currency and it will be equally devaluated. So even though your dept might seem lower in terms of dollars for example, the interests that you have to pay are much higher.
I have friends in Turkey that took depts in foreign currencies but this was also a catastrophe. Even though interest rates were very low, due to the inflation of the turkish money, the interests that had to be paid in foreign currency represented always a bigger part of their income. Their dept grew bigger in Turkish money and in the end my friend had to sell his house and could hardly cover the bank costs.
Conclusion
I would only take depts in such a situation if I had a revenue in a different currency.
Thanks @achim03 for giving me example of turkey. It surely allowed me to understand things better and to see a bigger picture.
That can be very risky. I have my mortgage in CHF (as many polish people do) since their interests rates are super attractive comparing to Polish ones. But it's scary to think what can happen if our currency would lose value and CHF would not. I would be burned alive with my debt.
And ENJOY your NY Celebrations.
Yours
Piotr
Hi @crypto.piotr,
We probably have the lowest interests worldwide. At the moment I have to pay to keep my money on my bank accounts... (negative interests). So mortgages are indeed very cheap in CHF. Mine is 1% p.a. at the moment so I can't complain :-).
I believe as long as our central bank tries at all costs to keep CHF pegged to Euro there is no big risk for you.
I wish you a happy new year !
Regards,
Achim