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What if the Fed devalued the dollar by 40%?

June 15, 2012, 12:00 PM Przemysław Radomski , CFA

What change would occur to credit card debts if the Fed devalued the dollar by 40%? I have utilized the extremely low or no interest rate offers on fixed credit card promotions to buy precious metals for almost a decade now. I’m aware of Ben Bernanke’s speech claiming his last move in a depression would be devaluing the dollar. I’m thinking the time is at hand.

From the nominal point of view (which would apply if you simply held these dollars at the time of the devaluation), nothing would change - the debt would still be there. From the real point of view (which is more applicable since you own precious metals) the value of the debt would decline because precious metals would likely soar after such devaluation. Therefore, the value of the debt relative to the value of precious metals would decline. From the dollar (nominal) point of view, your investments would make a lot of money and therefore, it would be much easier for you to pay off the debt.

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