what could happen to asset prices if there is a US debt crisis?

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No one has a crystal ball of course, but some experts are saying that if a debt crisis unfolds due to excessive issuance of dollars and treasuries, it could actually lead to a spike in interest rates and an increase in asset and housing prices relative to the dollar. This would be contrary to what happened during the Great Recession in 2008.

Is it possible that we could experience even worse inflation while people have much less purchasing power? How would such a scenario be addressed (seems like QE would make it worse)?

In: Economics

3 Answers

Anonymous 0 Comments

Your 2008 comparison is way off. Real estate crashed in 2008 because real estate was broken, not the US dollar.

If there was a dollar debt crisis, where the price of US government bonds went up, the first hit would be interest rate sensitive industries like small businesses and capital investment. This would slow the economy and cause high unemployment because we’d need fewer workers because people would be buying fewer things.

Government costs would also go up, currently debt payments cost more than the Defense budget in the US. If at some point the US were to default on its debt, that would crash that part of the world financial system that uses USD for exchange, about 80% of it. Some trade between China, Iran, and Russia might continue. Maybe if it took long enough the BRICS nations would be able to continue trading. The effects a lot more likely to be a global depression than runaway profits in gold or other hard assets. Without USD, there isn’t really anyone to trade with.

Anonymous 0 Comments

They could skyrocket if inflation went crazy.

Like if your house is worth $100k when the dollar was worth X but now the dollar is worth X/2 so your house would then be worth $200k. I believe that’s hyperinflation territory.

Assets go up in price while inflation reigns supreme it’s why you see a lot of rich people park their money in physical assets. Even if the world goes to shit you still own a tangible item that has some inherent value.

Again this is a very very rough example of one scenario.

Anonymous 0 Comments

On a [maybe] related note: My mom keeps buying up millions of Vietnamese Dong and gifting it to people (in the US). She’s not stopping. Should I be concerned?