How does the average person prepare for a currency devaluation?

[Kansas1960]

I am not sure what actions to take to minimize the pain or possibly even prosper if our currency is devalued. Let's not make this thread a dissussion of if this may happen or not. Let's assume the people that believe this are correct and our currency gets officially devalued by our government. I am not talking about the gradual erosion of the dollar but swift overnight announcement that the dollar has been devalued. If anyone is schooled in this subject please answer these many questions I have.

In this senerio lets make the following assumptions. October 1st 2010 the United States Government devlaues our currency 50% and today is March 4th, 2010. John Doe is discharged and case closed. He has 100,000 in a 401K that is invested 100% in money market funds. His home is worth 200,00 and he owes 100,000 on it. John also has 10,000 cash in his checking account and 5,000 in gold. John is debt free except for the house. John is obtaining a interest free loan on his home for home improvements and will get the check September 1st for 50,000. This loan will be interest free until the home is sold and John plans on staying in the home for life.

Questions.
1. How would a devaluation most likely happen?

2. Would this devaluation help "cut" what I owe in real value on my home by 50%. So in a way would this help in this area?

3. Would my cash in the bank now be 5,000 or would it be 20,000 in the new currency?

4. If I got he check for 50,000 on Sept. 1st would it be best to spend it before oct, 1st or wait until the dollar is devlaued and spend it later in October.

5. Would it be wise to delay the "loan" until after the devaluation?

6. Would John be best served to transfer his 401K investments to stocks, gold or stay in money market? How would this devaluation affect interest rates for saving and for borrowing?

7. Would all existing contracts remain in old dollars?

8. Would prices double?

9. Would it be wise to spend most my cash before the devaluation on things like food, clothes and maybe a gun and ammunition? Would stock piling goods help or be a waste?

I know this senerio is crazy and the assumptions are intended to help me understand how the possible devaluation may affect the average John and how to prepare for this event.

[WhatMoney]

Devaluation is just a resetting downward of the exchange rate for the dollar with other foreign currencies. There is no "new currency". The $10K in your bank account would still be $10K, but if you buy foreign products you will need more dollars since the dollar is worth less in euros, etc. I think you need a basic understanding of what devaluation really is. The Federal Reserve explains it clearly here:

http://www.newyorkfed.org/aboutthefe...int/fed38.html

[banca rotta]

Devaluation is just a resetting downward of the exchange rate for the dollar with other foreign currencies. There is no "new currency". The $10K in your bank account would still be $10K, but if you buy foreign products you will need more dollars since the dollar is worth less in euros, etc. I think you need a basic understanding of what devaluation really is. The Federal Reserve explains it clearly here:

http://www.newyorkfed.org/aboutthefe...int/fed38.html

Very true but there's one small detail. We buy a lot of foreign oil and if our phony currency gets devalued by 50% (or more) guess how much oil, gasoline will go up to? Since everything here at home requires OPEC's oil think about how high basic necessities will cost.

This would devistate the poor and middle class first and turn the rich people that can't manage money like some dumb Holywood actors for example into paupers.

It's a good question Kansas and thanks for bringing it up. Personally no one here is qualified to give any investment advice, hence we probably wouldn't be here , but keep doing your home work, keep taking this subject seriously and you will find the answers you are looking for.

[banca rotta]

Devaluation is just a resetting downward of the exchange rate for the dollar with other foreign currencies. There is no "new currency". The $10K in your bank account would still be $10K, but if you buy foreign products you will need more dollars since the dollar is worth less in euros, etc. I think you need a basic understanding of what devaluation really is. The Federal Reserve explains it clearly here:

http://www.newyorkfed.org/aboutthefe...int/fed38.html

Whatmoney please be careful on what the fed tells you!!!! The fed is owned by the same banks we all love to hate, JP Morgan/Chase, Goldman Sux, and many other international bankers. Don't take my word, look it up.

They aren't working for us. They are working against us. They couldn't even see that housing was in a bubble and they were the ones that said many times "we are not in a resession".

[WhatMoney]

LOL BR,

I can't trust the Fed? Who knew? Next thing your going to tell me is there is no Santa Claus.

I agree there would be many serious ramifications to a sudden devaluation of the dollar, and depending on the response of our trading partners, it would be unpredictable, but a mess in any case. The Fed article does address some of the possible consequences. Always trust the Illuminati.

Since I used to trade currencies I might tackle a few of the OP's questions when I get the time. There are no simple answers. The obvious thing to do to protect your assets would be to move to Hong Kong and exchange your dollars for a stronger currency before any major devaluation. Jim Rogers is already ahead of the game.

[BCA2009]

The american dollar is pegged against a floating exchange rate. The only way the US could purposely devalue the dollar by 50% would be to print a drastically huge amount of new cash and continue to sell it to the world thru treasury notes and bonds. This would flood the market with dollars without adding any new value to the world market. therefore the dollar would be worth less.

We don't have a system that would allow out policy makers to just say "we are devaluing the dollar by 50%. It just couldn't happen. The devaluation could only occur if the world economy decided that the dollar wasn't going to have as much buying power in the future. This happens every day to some extent. That is why the dollar goes up and down against other floating currencies. It definitely is affected by whole range of policy decisions. But our government can't just randomly choose a revaluation or devaluation of of our currency.

Now, assuming that they could do it and you knew about it in advance, you should get rid of all of your US dollars and aquire either cash from another counrty that you expect to go up verses the dollar or buy gold or property. Anything that would hold it's relative value. and you should borrow as much as you could before the devaluation and buy these assets.

Any debt that you have would effectively be cut in half. you would still owe the same amount to the creditor, but you would be paying him back at half the value.

This is exactly what happens with inflation. People sittng on cash lose buying power. People who already have large debts get to pay it off with cheaper money.

[Kansas1960]

BAC, thanks for your information. I have been reading up on this and all the information has me confused so your comments have confirmed what I thought. The reason I have these questions are from the 6 videos I watched on youtube the other day featuring Lindsey Williams on the Alex Jones show.

http://www.youtube.com/watch?v=njqHFtSrqZA

What I heard did not seem too unrealistic.

Did anyone notice the "Ad" that was put next to my posting? Too funny!

[Xue]

A devaluation can be done... by cutting wages and prices, but this is the recipe for disorder and revolution.

--Hans-Werner Sinn, the President of IFO talking about Greece just recently.

Germans tell Greece to sell islands to pay off debt

http://www.investortoday.co.uk/News/Story/?storyid=2784&title=Germans_tell_Greece_to_sell_islands_to_pay_off_debt&type=news_features

I feel looking at Greece is relevant to Kansas1960's concerns...

[onwards]

Devalued against what?

The euro? buy euros. The yen? buy yen. And so on.

Am I not understanding something?

[Kansas1960]

Onwards...I found the answer to yours and many of my questions in the article in Forbes magazine.

http://www.forbes.com/2009/12/11/gold-dollar-commodities-personal-finance-financial-advisor-network-hard-assets.html

http://www.forbes.com/2009/03/24/inflation-dollar-devaluation-personal-finance-investing-ideas-helicopter-ben.html

http://www.forbes.com/2008/12/09/dollar-devaluation-gold-pf-ii-in_fb_1209soapbox_inl.html

[Pizza]

Devaluation against foreign currencies increases exports, and, in effect, could create jobs.

We are screwed in terms of commodities like oil and metals, however, unless we either become self-sufficient, or other countries competing for these commodities have their currencies revalued.

Today, there has been solid talk of China revaluing (raising the value of) their yuang currency, which would help equalize currencies, but the progress would be too slow to create any economic growth in America for the forseeable future.

[onwards]

Onwards...I found the answer to yours and many of my questions in the article in Forbes magazine.

http://www.forbes.com/2009/12/11/gold-dollar-commodities-personal-finance-financial-advisor-network-hard-assets.html

http://www.forbes.com/2009/03/24/inflation-dollar-devaluation-personal-finance-investing-ideas-helicopter-ben.html

http://www.forbes.com/2008/12/09/dol...apbox_inl.html

Yeah, agreed. Back in mid 2008 I had several discussions with friends that culminated with "why aren't we taking this great opportunity to simply print tons of money, devalue the dollar, and recover?". I think the time IS better now to do the same, but the principle is well understood.

It's why I now have a lot of my cash in Euros. Not because I believe it's a stronger currency, but because I think the US will devalue first, at which point I will quickly convert them back to dollars before the ECB does the same to the euro. My hunch is the US will go first and I'm betting on that.

[onwards]

Devaluation against foreign currencies increases exports, and, in effect, could create jobs.

We are screwed in terms of commodities like oil and metals, however, unless we either become self-sufficient, or other countries competing for these commodities have their currencies revalued.

Today, there has been solid talk of China revaluing (raising the value of) their yuang currency, which would help equalize currencies, but the progress would be too slow to create any economic growth in America for the forseeable future.

And I have to say, the Chinese have a good point to do it slowly. They are looking at what happened in Japan in the 80's when the Yen was allowed to rise "per market", which was way too quickly, and rightly thinking "we don't want that".

Do give them credit though, they have been steadily allowing the renimbi to strengthen for years; they removed the 8.27 peg in 2005 (I think) and it's now around 6.8, and may well go to 6.5 or so in the next few months. They are just doing it in a measured way, and living in the US, I do have to admire their capability to take the long view and doing it this way without the short-term politicking that results in some of our own policies. Regardless, if you're nimble you can benefit yourself in either environment.

[dakota112]

Buy as much gold, whiskey, guns and gunpowder as you can.

[Kansas1960]

Any thoughts on taking your "extra" cash and put in your paypal account and then convert the dollars to a "basket" of currencies. I was thinking 25% Canadian Dollar 25% Swiss Franc 25% Yen and 25% something else. Does anyone know of any better ways to convert cash to another currency?

I already know about the gold and silver. Just make sure you don't tell anyone about your stash of precious metals, they might get a reward for turning you in when the government makes it illegal to own gold.