Letter Re: Mortgages–WTSHF, Inflation and Deflation

Hello Mr. Rawles,
First of all, thank you for all that you do.  Your books and your site are invaluable information to me.  They have helped me to get pretty-well prepared. 
I have a question about debt.  Every survival type that I have listened to or read says “get out of debt”.  I am out of debt, but I am considering obtaining a small mortgage in order to be able to purchase a place that will be a better refuge location for me and my family.  (Unfortunately, it will have to be on the east side of the Mississippi River.)
What I don’t understand is what will happen to mortgages when the economy collapses.  Surely they (if there is a ‘they’ then) can’t foreclose on everyone.  Won’t people who are heavily in debt just have their debt evaporate with the collapse of the dollar?  Can you explain or link me to a good explanation of what will happen financially in our country when the dollar collapses?
Thank you so very much, – M. in North Carolina

JWR Replies: I concur that installment debt from any banking institution is a bad thing. Granted, there may be mass inflation ahead, and you’d be paying off your mortgage with cheaper dollars. But you can’t count on that. Inflation is just one potential outcome. Another possibility is the prospect of continuing house price declines and a further deteriorating job market, as we slide into a 1930s-style deflationary depression. That will mean even more layoffs and more foreclosures. A third possible outcome is a total collapse of the economy and a temporary dissolution of governmental authority. But the chance of that is quite small. (It might appeal to some in the “There’s No Government Like No Government” crowd, but the chances of that happening are slim.) The two most tenacious life forms on Earth are cockroaches and bureaucrats.

In the next few years, some of the risks of mortgage debt will be: 1.) Continued deflation in residential real estate. 2.) Higher property taxes. 3.) Higher interest rates, and 3.) A “muddle through” situation, where government is still functioning at the county, state and Federal levels. (Their services may drop off to marginal levels, but they will keep on taxing and overseeing foreclosures. How charming.)

The situation that economist John Mauldin refers to as a “Muddle Through Economy” would be traumatic for any mortgage holder who loses his job. Therefore, I recommend that if you must borrow money to buy a retreat-worthy home that you borrow the money from a family member rather than from a bank.