Pay Off Mortgage with Inflated $?

To my former employees: remember back in 2005 when I told you of my strategy to “beat the gov’t at their own game” when serious inflation would hit? I said we would be looking at rampant inflation in the future and the best protection looked like owning physical gold and, especially, silver?

Remember I said I planned on paying off my house with the silver once inflation and demand ran its price to the moon?

Good, you’re with me. I know some of you adopted the plan. It’s what I still intend to do.

However, I just read an interesting contrary opinion from someone whom I respect: George Ure at . Even though he thinks the idea is “obviously nonsense” I thought you might like to hear a divergent view.

“So should we take money out of our 401(k) and pay off our house?” asks one reader? 


I don’t know the specifics of this person’s economic situation, but the answer is simple.  Build a spreadsheet and put all the variables in:  Likely return on the 401(k) given a wide range of expectations (including going to zero) and then paying off the mortgage so you can have a free & clear place to live.  Almost, that is, because government is always your silent partner via the confiscatory tax system.


“But that’s so complicated”  came the answer after I explained about setting up the model to take into account paying off the house with ‘cheaper dollars’ once inflation kicks in (and I can think of 7.4 trillion reasons it might, along with a dollar repudiation that stubbornly appears in Cliff’s work.)


One way to get to the answer is to reduce everything to how many hours of work you’ll have to do to pay off the house.  After all, time spent in this life is the ultimate currency, right?   The goal here is to get as much self-reliance as possible and my 2¢ is that if you’re going to pay your house off, the sooner you stop paying the debt monster, the better off you’ll be.


If you bought a $60,000 house in 1980, inflation alone would bring the house value to $158,990 says the Minneapolis Fed inflation calculator.  And, depending on your interest rates, you would pay about $180,000 for it.


If the average income over this period started from $10, you should now be making $26.17 per hour just to stay even with inflation.  Call it an average of $18.085 per hour.


If you had paid the house off when you bought it, you would have worked 6,000 hours to buy the house (not counting taxes, of course).  Given that most folks work 2,000 hours per year, then you’d put about three years labor into buying the house.


On the other hand, with an average of $18.085 per hour and principal plus interest of $180,000 (varies by interest rate, which I assume to be fixed), then you would work for 9,952 hours to pay off the house, or just under 5-years. Longer, actually, because of indexing of taxes which would be forcing you into higher and higher brackets.


Not saying this will be the case in the future, but a reader wanted to know, so that’s how I look at damn near everything economic:  What gives me the most bang for the most buck?  “Oh don’t worry about the payments because you’ll just be paying the loan back with cheaper dollars..” is obviously nonsense, especially with the National Layoff Festival about to be sprung on us.


So, if you paid off your house with three years worth of labor in 1983, you would have 25-years of no house payment – just taxes.  yeah, no mortgage write off’  but counterbalancing that is the delicious ability to say ‘Take this job and shove it” any time you wanted, because you weren’t locked in to a house payment.


In the end, debt is a yoke of financial oppression which the ruling class seems to wield effectively to keep themselves living off the efforts of others.  Think of it this way:  The difference between the 6,000 hours to buy a house cash and 9,952 hours bought on credit didn’t ‘disappear’.  It went someplace.  And that place is into the ruling elite’s pocket.


Run your own numbers – they may be different.   

Scott Gallup sig

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