When you rely on good debt to leverage into wealth and create a good income, why would you want to get rid of all that debt all of a sudden? That’s a question that has been asked of B.Invested founder Nathan Birch, who has said a number of times that he plans to use a period of hyperinflation to pay off all his remaining debt.
The reason is simple. The Australian dollar as we know it is going to die in the not too distant future. It has happened to countless currencies throughout history. Many of which were around for far longer than the AUD has been so far. Remember, we only changed over from pounds and pence to the AUD in 1966.
What usually happens before a currency bites the dust is a period of hyperinflation. Think of Germany post World War One, or Zimbabwe in more recent times. Nathan believes a similar fate may befall our own currency relatively soon. Already we are seeing the RBA struggle to get inflation under control, even as they push rates to a level that may soon bankrupt a large portion of the country.
If they lose that battle, we are faced with more and more inflation.
And when hyperinflation causes a monetary reset, it allows governments to rewrite the rules. They might say “OK what was worth $1000 is now worth 1 cent under the new currency.”
If you have existing debt at that stage, it’s suddenly much harder to pay it off than it was during the hyperinflationary period.
Your debt remains the same
When we take out debt on an asset, the debt doesn’t go up with inflation. It stays the same. So if hyperinflation was to take hold, there would be a period before the death of the Australian dollar, where paying off existing debt was at its easiest.
A cheeseburger might suddenly be $1 million, a wage might be $1 billion, but your debt is still fixed at no more than what you borrowed at originally. Before the system resets into a new currency, Nathan plans to quickly pay out his debt using money that would be worthless for anything else.
When does this happen?
Nathan believes that later in this decade, closer to 2030, there will be a period where, if hyperinflation has taken hold, it will become much easier to pay down existing debt than it is now. Then, when the monetary reset happens, you still have your physical assets that will be worth something no matter what is happening in the economy.