[quote=CA renter]
No, a currency collapse tends to be inflationary (even hyperinflationary), not deflationary. This is when the currency loses the most value. When I said, “if our currency can survive such an event,” I meant that if the currency can survive the inflation and the resulting collapse/deflation (IF the deflation can happen), then it might be worth more at the end. But most currencies don’t survive — their money is exchanged to a new currency worth a fraction of their old currency…and this can happen multiple times in a row. People who hold hard assets like real estate are the most likely winners, though in some cases, you will see reforms put in place that redistribute land when these collapses happen. Ultimately, there is no safe place when currencies are manipulated like this.
That is what scares me most: that so many people who did nothing to create this mess — people who tried to be as conservative and prudent as possible — will end up carrying the burden for a long, long time, possibly for generations.[/quote]
Iceland’s 2009 currency crisis is a decent case study because it’s fairly easy to get historical data on want happened. In a nut shell this is what happened.
1) Currency collapsed by about 50% relative to the US Dollar/Euro
2) Inflation went up to 20%
3) Interest Rates went up to 18%
4) Home prices lost about 20% measured in Krona
5) Stock market declined by 95% measured in Krona
So in the nutshell the best place to be when Iceland had a currency crisis was to be in some foreign currency or investment. The next best place to be was in cash. The worst place to be was in the stock market or other assets like houses that are priced based on the availability of leverage. The problem with a currency crisis is that interest rates go sky high so that hits assets that rely on the availability of leverage. So you have consumer price inflation but that doesn’t translate into higher home prices.
