But the best way to make inflation work for you is to buy a home with a low, fixed-rate loan. If you pay off your loans by 2011, home prices will be a lot lower then and you will easily be able to afford what you want with your savings and cash flow.

“I’m hoping we can make it through the next few years if we do things the old-fashioned way: Pay down our current debt, live frugally, and grow and can our own food in case all hell breaks loose…”

7.7% is very high interest in this deflationary environment. Paying off those loans should be of high priority, and if you are able to do that in three years while saving as well, you are doing great. The dollar is not likely to crash anytime soon for the following two reasons:

1) So many people are expecting it — markets almost never do what the majority think. Anti-dollar sentiment reached a peak last year, and now popular opinion has a long ways to swing in the other direction.

2) There is still 40-50 trillion in dollar denominated non-government debt in the US, and people are increasingly desperate for dollars to pay back that debt. It doesn’t matter what you think of the dollar if you have debt and not enough dollars to pay it off.

Hussman has become lost. He lacks a solid understanding of what is happening in the markets now, and his fund’s value reflects that. He thinks stocks are undervalued, though by any reasonable historical comparison (not to the last 20 years, but to the last 200), they are still horribly overpriced. He has also been blindsided by the strength in the dollar and emergence of deflation.

Let me congratulate you. You are aware of what is happening and your gut reaction is exactly what you need to do. You will come through this in a far better condition than 99% of your peers, financially and emotionally, since you have acknowledged the problem and solution.

Some people here are wealthy, some are not. Money makes no difference in understanding.

Do we use the window of the next few years paying down our debts or preparing for the time when the dollar buys less?

Gold seems an overly risky speculation. It may rise - but maybe not. What are some options for the buy-and-hold type of people?

A question for you, if I may: The demise of the dollar (by 40% at best?) seems to be on the horizon - at least in a few years. [In fact, just saw something about the falling dollar in John Hussman’s weekly commentary/2008 annual report as well: http://www.hussmanfunds.com/pdf/sar1208.pdf.

We’re a young family with 2 kids under 3. We rent and live close to our jobs. We don’t plan to buy for a few years (until daycare expenses go away). The challenge: We have school loans of about $50,000 at 7.7% interest rate (still have 10 years to go), but are living *very* frugally so that we are able to save about $20,000 each year. We have an 8-month emergency fund.

Does it make more sense to focus on paying off our school loans over the next 3-4 years - and save half as much each of those years — or should we save the money for when the dollar loses value - because we’ll need more dollars to get by? (and hope the really bad armageddon and defaulting scenarios don’t come to pass.)

I’m thinking we should go ahead and try to pay down the loans and deal with the dollar crash when it occurs. Perhaps I am too optimistic. I’m hoping we can make it through the next few years if we do things the old-fashioned way: Pay down our current debt, live frugally, and grow and can our own food in case all hell breaks loose…

Many of your commenters appear to be dealing with large sums of money. We’re just small timers. Am I missing something from this puzzle in terms of how I’m viewing our cash reserves?

I just found your blog through Calculated Risk. Good stuff.

I’d like to know why you think IRAs (perhaps Roth IRAs also) are a bad idea? I liquidated mine a few years ago but I have a family member with a Roth containing conservative investments (CDs mostly).

I live in Russia and Russians are indeed great people. I don’t hear much anti-American rhetoric from them either. I can’t say that about some other places I’ve lived. I do, however, hear a lot of hateful remarks about Russia and Russians from American expats here. There’s lots of nationalism and bigotry in the expat community, unfortunately.

Make no mistake that we contend with individuals who know just how to boil a frog.

Yes, it is easier to get your body out than your money. And the timing of all of this is the hardest part. It is better to be early than late, of course, but you have to have somewhere that is ready for you to go — a residence and a job or assets to support you and yours. Both are tough to secure, especially in places that are likely to be better off than the US of A, which are few, since the whole western world seems to be descending into some kind of dark age. This is like the un-enlightenment. What was that song again? … think positive.. I’ll look for that.

The good offshore financial centers of course are HK, Sing, Cayman, London (may as well be NYC, for all intents and purposes), Lichtenstein and of course Switzerland. None are ideal, though with its quality of life Switzerland is as close to that as you will find in this world, if you can manage to make a place for yourself there.

It is conceivable that the US doesn’t crash and burn, but just crashes and smolders in corruption for decades, living off the fruits of the former free market, like most of western Europe since WWI. Paris is still today even a nice place, though a shell of its former self.

What’s the danger of having a margin account? (I never use the margin, but do have the permissions to trade with it if I want.)

Any suggestions on offshore banking centers?