Reading the tea leaves

[Belbein]

Assume with me--whether your believe it or not--that we're heading into a recession with runaway inflation. If that's the case, does it make economic sense for some unknown and unnamed hypothetical person to trade in a 2 year old tow vehicle with some equity to trade it in for a new upgraded tow vehicle, knowing that the dollar in 2021, 2022, 2023 etc will be worth a lot less than dollars are now? Particularly given the fact that savings pays 0% and the stock and bond markets are diving?


I'm NOT asking (for this hypothetical person) anything about whether debt is good, or whether the markets will rebound, or whether this would happen or that might happen, or any of that other stuff. I'm asking only what I asked, trying to figure out if you assume recession > inflation > dollars worth less > loans paid in inflated dollars are a smart thing now.

[OTRA15]

Originally Posted by Belbein

. . .
. . . trying to figure out if you assume recession > inflation > dollars worth less > loans paid in inflated dollars are a smart thing now.

Yes, but only if one makes additional assumptions . . .

Peter

[SeaLevel]

That's easy. It depends.

Does it ever make economic sense to spend money on things when you don't have to?

[Bill M.]

Short term economics do not make any real difference at all. You are not going to get a free truck from inflation.

[djb75]

I've seen recommendations to buy gold and ammunition, but never a new TV!

I went through this exercise myself when deciding - assuming runaway inflation - whether to accelerate payments or string them out as long as possible. I finally decided I'd rather ride into the storm debt-free. When all hell is breaking loose, the simpler you can make things, the better. Nobody knows who had the newest car in the Wiemar Republic because bigger things were at play than paying off loans on the cheap.

[unnamed hypothetical person] needs to ask him/herself if buying a new TV is the best thing they can do with their money right now. SeaLevel observed "it depends". I agree. When a loaf of bread costs the same as [unnamed hypothetical person]'s monthly TV payment, will the TV be that important? How much towing will [unnamed hypothetical person] be doing when fuel is at $1000/gal? The decision would be a lot easier if one could also assume [unnamed hypothetical person] could buy a new TV made out of gold.

[Acheron2010]

Given the state of the state at the moment, the only reasonable investment today should be a quality shotgun.

[Foiled Again]

Originally Posted by SeaLevel

That's easy. It depends.

Does it ever make economic sense to spend money on things when you don't have to?

AMEN. And the OP simply asked the wrong question. The right question would be, "Do I dump the trailer and the tow vehicle? Or the house and.car? Which gives me the greater bang for my buck and better long term chance of surviving?

"Ancient Wisdom" has always opined that everyone should have enough money in savings to last for SIX MONTHS, and that it should be readily accessible. Of course somewhere between 5% and 10% of people ever come close to that.
(In the event of runaway inflation it would make sense to immediately convert that money to shelf stable food, storable ifuel, etc.)
In a Depression - the first thing you need to.do is look at everything in life that takes money OR a lot of your time and decide ruthlessly which are necessary and which are merely "wants". Almost no one NEEDS cable TV and 4 streaming services, but they are paralyzed at the thought of "pick one and cancel the remainder".
Here in Florida many people who have never sought public assistance have been standing in line at food banks for weeks - because they were laid off or furloughed six WEEKS ago, and have always lived paycheck to paycheck. Many cannot afford life sustaining medicines like insulin because they have been out of work for over 2 weeks.
Of course I made a human lightening rod of myself last time I went to do a grocery pickup. A young woman with an infant approached my truck begging for money for diapers for the child. Said she had bought groceries with her last dollars, but.could not.afford any diapers. Quick check - yes new sneakers and custom nails. Why do I think it is a con? So I suggested that she and her husband MAKE cloth diapers out of old t-shirts and gym socks. Woop! Epic tantrum! Con for sure!

[BayouBiker]

Indeed, djb75 in such a scenario, it's only wise if what you buy continues to be in high demand. Gold, aluminum and most commodities, yes. Fancy tow vehicle, hmm.....

[Shiny16]

I always believe if you want something first decide if you can afford. Do this by looking at your personal finances. Not by making up hypothetical situations.

[GandTSayor]

I think you want a new tow vehicle. So you should just get it! ;-)

[DavidIowa]

The assumption that there will be inflation may be a wrong starting point.
I believe deflation is much more likely. Consumers will wait for prices to come down. Consumers will think incentives and "deals will be better next month or later. They will hold off buying. They may even hold off buying because they have no money, no job, no credit. Money needs to be flowing to create hyperinflation.
My other theory is that hoarding cash, gold, ammo and guns just puts a big target on your back. Low key and under the radar is my idea.

[pmclemore]

I keep thinking of ways to convince my wife that we need a new truck. This won't do it, but thanks for trying.

Pat

[eubank]

Why do you assume runaway inflation? (I am not trying to challenge you. It's just that I haven't seen anything about a major inflation problem, but maybe I just didn't notice.)

Lynn

[andyherman]

I would have to agree that inflation is highly unlikely since it is typically the result of full employment combined with a high demand for goods and services. It will be a while before we are in that situation. In addition, three months ago we were at a point of high employment with no signs of inflation.
Given the current circumstances, the potential for inflation is probably the least of our worries.

[drbrick]

Sounds like you have that terrible male disease called "New Truck Sysdrome". My limited experience as a retired psychotherapist tells me that there is no simple cure. What I suggest is that you weigh all the options, pro and con. Then ask the wife for permission.

Personally as one who drives a perfectly good and beautiful 2013 F-150HD .. I just can't understand how this disease still exists in 2020 among the male population, but it does.

[RamRider]

If your truck is not paid for do not upgrade, you may find yourself upside down on a new loan,

[Daquenzer]

I have an economics degree (which only makes me a bit more savvy than the average person since many economists are out to lunch when it comes to economics). I would be more concerned about deflation than inflation. Look at the price of commodities; like oil. With all these people out of work demand will be severely curtailed. Seldom do you have inflation in a recession. Typically the economy heats up severely and you have high inflation before a recession. Interest rates get too high as there is high inflation, and the result is a crash. Why do you think the FED raises interest rates if there is inflation. It is to stop it. But now I'd be more concerned about deflation due to dried up demand. And I believe that is going to be with us for quite some time; maybe about 18 months; depending upon a vaccine or new treatments. Also depending upon how safely the economy can open up.

Deflation is far far worse than inflation. Since it is better to spend in the future than now, and people tend to hold their money for a better deal in the future. That further contracts the economy. It is a far more difficult cycle to get out of than inflation. That's where you start having negative interest rates. Very very bad.

By the way. The absolute best thing is that everyone who gets a stimulus check (and doesn't need it; which I didn't) spends it and not saves it. That will keep us out of deflationary cycle. I'm hiring my next door neighbor to do landscaping. I'm hiring another guy to pave my driveway. The absolute worst thing to do is pull back and not spend money. Again that causes deflation which is utter catastrophe. Addage: if you have it spend it. It will help everyone out.

[Belbein]

I appreciate all of the comments. And Eubank, I never mind being challenged. If I'm making unfounded assumptions or if my deductions are faulty, I want to know.

So, to clarify: The unnamed person who is hypothetically thinking about a new tow vehicle doesn't want a new truck. The truck was variable, standing in for hard assets. What they want to know is: Does putting money in hard assets protect against inflation if we get it? If I read the answers right, "it depends;" and "a hard asset that's financed does not." So ... I'm disappointed that there's not a simple answer, but then, I haven't seen many simple answers to my conundra in the last 45 years.

I appreciate y'all correcting me on inflation vs. deflation. I hadn't thought it was an issue. Now I know. Back to research!

All in all, I've dealt with economists enough professionally to know there are no hard empirical answers to economic issues. I'm less sophisticated than I thought, though. Well, at least it's not the most humbling experience I've had this week.

Truly, thank you all for your comments. I knew this was the place to ask this question.

[ROBERT CROSS]

Originally Posted by Belbein

> loans paid in inflated dollars are a smart thing now.

Well...The FED's certainly think so...did you get your free money from them? 🤔

Bob
🇺🇸

[rideair]

If you’re really worried about inflation/deflation or everything going south, may I suggest you do the following:

1. Go sell everything you own and turn everything into cash. Then give that money to someone you can “really, really, really, trust, and have them place it in a safety deposit box in their name.
2. Go purchased and finance the most expensive truck that you’ve always wanted to have as a tow vehicle, and put permanent truck tags on the truck.
3. Go purchase and finance the most expensive Airstream trailer you’ve always wanted to have as well and put permanent trailer tags on the trailer.
4. Now, make sure that you pay the first payment on both the truck, trailer and put insurance on both.
5. Now, go get lost, never to be found and never make another payment to your truck/trailer.
6. Since you did pay the first payment, both units will technically be in default, not stolen!
7. As you are traveling around the country, you will need to stay ahead of the repo-man, while having your friend send you money via Western Union.

Not saying it’s the best plan for uncertain economic times, but it’s a plan.

Stay Healthy,