What Effect Will Hyperinflation Have?

Hyperinflation is a devastating phenomenon. It wipes out the middle class by destroying the value of cash, savings, bonds and other paper instruments. But, how does it affect stock markets? With the Federal government just having added $5.2 trillion in Fannie/Freddie liabilities of which about $600 billion will likely default, the Federal Reserve having now polluted its balance sheet by some $700 billion worth of toxic mortgage bonds with a 41.6% default rate ($291 billion in likely defaults), an $85 billion bailout for AIG, and, now, the Administration asking for some $700 billion more to bail out financial firms, it seems clear that the winds of hyperinflation are upon us. What will be the comparative effect of hyperinflation upon index funds, like DIA, QQQ, and SPY, versus bonds and cash?

Hyperinflation is not a particularly uncommon episode in human history. It has occurred in the following countries in the following countries, in the last 150 years. Weimar Republic of Germany 1920 – 23 (1/466 billionth of starting value), Zimbabwe 2003 - Now (6 quadrillionth of the starting value and continuing to fall), Former Soviet Union 1993 – 2002 (1/14th of starting value), Argentina 1975 – 1983 (1/1,000th of starting value), Austria 1921 – 23 (about ¼ of starting value), Bolivia 1984 - 86 (1/1,000 of starting value); Bosnia-Herzegovina 1992 – 93 (1/100,000th of starting value), Brazil 1960 – 94 (1 trillionth of starting value), Chile 1971 – 73 (1/3rd of starting value), China 1947 – 55 (1/10,000th of starting value), Greece 1943 – 53 (1/50 trillionth of starting value), Hungary 1945 – 46 (100 quintillionth of the starting value), Hungary 1922 – 23 (1/4 of starting value), Israel 1976 – 86 (1/16th of starting value), Japan 1934 – 51 (1/362nd of starting value), Poland 1990 – 94 (1/10,000th of starting value), U.S.A. (Confederate States of America) 1861 – 65 (1/90th of starting value, and then, by the end of the Civil War, the Confederate Dollar depreciated to zero). It also happened in the ancient Roman Empire, when the silver and gold coinage of that day was progressively debased with base metals, in order to fund wars, giveaways to the Plebeians, and various other adventures. There are many additional examples that I have not bothered to cover here.

The most studied hyperinflation episode was the early 1920s, in the Weimar Republic of Germany. At the end of the First World War, the mark to dollar ratio was trading at 9:1. By July 1921 the ratio had risen to 77:1, and prices more than doubled again by January 1922, as the ratio of marks to the dollar climbed to 192:1. By the time that the Weimar government introduced the Rentenmark in November 1923, which replaced the deflated mark, the exchange rate had risen to 4.2 trillion marks to the dollar.

Germany’s economic situation in the early 1920s, except for being a defeated combatant in World War I, is frighteningly similar to our own economic situation, today. We can trace the road to hyperinflation, step by step, and compare Germany’s path to the path that is now being travelled by the U.S. Germany abandoned the gold standard in 1914. America abandoned the gold standard, 60 years later, in 1974. Back in 1914, the German government did not expect World War I to last very long, and the war wasn’t properly budgeted, and, instead, it was financed by deficit spending. Similarly, in 2003, the Iraq War was not expected to last very long, and was financed by deficit spending. However, in comparison to the size of the German economy in 1914 and the U.S. economy in 2003, the Iraq War is a somewhat cheaper war.

After WWI, Germany suffered a severe current account deficit, just like the current account deficit we now have in the USA. About 1/3rd of their deficit was generated by the need to pay gold to European allied governments as war “reparations”. But, the rest was due to economic mismanagement, and 2/3rd of the German current account deficit was composed of non-war related spending. Back then, other than for war reparations, America was Germany’s biggest creditor, with American financial institutions, particularly J.P. Morgan, Jr., arranging for consortium loans to the Weimar government, its businesses and industries. News accounts, from that time, indicate that the Weimar German government, like the American government now, was far more concerned with avoiding recession, lowering the unemployment rate, and stimulating business activity than it was about inflation.

German economists in the 1920s thought, just as American economists think now, that a cheaper currency helps stimulate export activity and industrial production. Germany needed exports to buy raw materials, just as the U.S. needs them, now, to buy oil and Asian made consumer goods. Back then, however, the United States was a net creditor nation. It played that role in relation to Germany, similar to the role played by Asian nations, including China and Japan, toward the USA, except that, instead of exporting consumer goods, the 1920s USA exported mostly raw materials to Germany. United States financial firms, in the early 1920s had great faith in Germany, and were buying German government bonds, and supplying loans to facilitate purchase of American commodities. These loans offset the German trade imbalance, just as Chinese Treasury bill and bond buying now offsets the U.S. current account deficit.

When financiers like JP Morgan, Jr., however, finally decided that Germany was no longer a good credit risk, they cut off funds. After that, everything fell apart very quickly. By 1923, you needed a trillion marks to buy one dollar. The German financial class managed, to some extent, to avoid some of the losses, by purchasing large quantities of gold and other hard assets. The German middle class, however, lost everything. This led to a deep resentment of Jews, who dominated the German financial industry, and, later, it gave birth to the Nazi movement and the murder of millions of innocent Jewish people.

German Wholesale Price Index

Source: http://www.usagold.com/GermanNightmare.html

All factories, houses and buildings were still standing, before, during and after 1920s German hyperinflation, just as they will be in 2011 America. Germany in the roaring 20’s was still a potentially rich nation, just as America will be in 2011. But, the stored work product of a generation, represented by the symbols of stored wealth, in the form of cash, savings, stocks, bonds and other paper instruments, became essentially worthless, almost overnight. The same may happen here.

For America, like 1920s Germany, the hyperinflationary trigger will not come from within the nation. It will come from outside. Eventually, China, Japan, and/or some other nation, will see the endlessly increasing American deficit spending as a threat to the viability of the U.S. dollar. In response, they will reduce their purchases of treasury bills. This will bring America to her knees. Indeed, there is already talk, in China, about the danger of keeping Chinese foreign reserves predominantly in the form of U.S. dollar denominated treasury bills and bonds. The Chinese are talking about diversifying away from the U.S. dollar. This will happen, eventually, no matter what we do. It is not a matter of “if”, but, rather, of when.

The joint mismanagement of the American economy by sequential administrations, both Democratic and Republican, have insured that we are now totally dependent upon the whims of the Asian governments. When it finally happens, dollar denominated paper will begin to lose value very quickly. The U.S.A., with a hollowed out economy, is no longer producing much of anything but agricultural products, some sophisticated technological products, a lot of internal services and housing. The need for imports, using a deflated dollar, will swing the country into a hyperinflationary downward spiral.

It will not happen overnight, but it will happen. The situation is so far advanced, at this point, that no matter what we do, there is probably no way around it. The new plan, from this Administration, to buy toxic mortgage instruments from the irresponsible financial firms who caused the credit crisis is not going to stop it, and may very well be the straw that breaks the “camel’s back.”

At minimum, the U.S. dollar will depreciate by the amount by which the Federal balance sheet is corrupted by the toxic mortgage paper. Most frightening is the prospect of giving Hank Paulson, the prior Chairman of Goldman Sachs, one of the key creators of the toxic mortgage instruments that have caused the credit crisis, unlimited discretion in doling out $700 billion in bailouts, without any possibility of judicial review. Doing that assures that the money is used in the most inefficient and nepotistic manner. It will bring us deeper into hyperinflation.

We can rationally expect that the US dollar will lose about 75% of its value, within 2-3 years. Cash in the form of government and/or corporate bonds, money in CDs and other bank accounts, will be hit the hardest. General index fund type of investments, such as DIA, SPY, QQQ, and the like will also be very bad investments. Stocks, in general, do not do well in a highly inflationary environment. However, if the Weimar experience is any guide, stocks will do much better than bonds or cash. Financial and retail stocks, however, will be the worst investments of all equities sectors. The best investments, in contrast, will be gold, silver, shares of companies whose assets consist of modern plant & equipment, productive lands, and other hard assets that will retain value.

Comments

[PastTense:]

I think the hyperinflation will be much closer to that given above for the Soviet Union than the Weimar Republic. Note also that there are major items not mentioned--the exploding health care costs, peak oil, demographic problems as the baby boom generation goes into retirement (social security...), global warming.

So I see a very bleak future, and am looking for advice as to what to do with my savings. Suggestions?

2008 Sep 22 11:27 AM

[Vox Rationalis:]

The sky is falling! The sky is falling! I didn't even get past the first paragraph. Let's just assume all of your numbers are correct, though I'm skeptical.

"With the Federal government just having added $5.2 trillion in Fannie/Freddie liabilities of which about $600 billion will likely default..."

Leaving $4.6 trillion in performing assets for which the government will be paid guaranty premiums of how much? At 28 basis points, it's $13B/year. Of course, the other $600B will add $1.5B per year until they default. Let's assume they default -- oh I don't know -- now. Of that $600 billion, the government then holds underlying assets worth what - $300 billion? $400 billion?

Taking my neighborhood as exemplary, the government's immediate losses are then $200B. Think of that as the cost of the investment. Think of the $13B per year from the guaranty fees on the performing assets as the return on the investment - 6.5%. Not too bad of a risk-adjusted tax-free return. Certainly not as bad as you seem to want to think.

"...the Federal Reserve having now polluted its balance sheet by some $700 billion worth of toxic mortgage bonds with a 41.6% default rate ($291 billion in likely defaults)..."

Again, assuming your numbers are correct, this causes a loss of less than $100B IF the borrowing entities default. They won't. See the Treasury plan below.

"...an $85 billion bailout for AIG..."

The best investment I've seen anybody make in a long time. The government gets paid LIBOR+8.5% for two years on the unpaid balance, providing a huge incentive for the company to liquidate assets, plus warrants to own a vast majority of the company. The terms of this are incredibly onerous, but the company had absolutely no choice - it was either this or outright bankruptcy. Do you actually think the government will LOSE money on this one?

"...and, now, the Administration asking for some $700 billion more to bail out financial firms..."

Do you realize you're double-counting here? The bad collateral you say the Fed now holds is part of this. But let's not worry about facts. This is the part where the government is most likely to lose money; that's why there is still so much up in the air, and why the political debates are ongoing.

So counting it up you appear to have one valid cost to the government. Which leads you to...

"...it seems clear that the winds of hyperinflation are upon us."

I tell you what - I'll lend you $100,000 at 25% interest. You can should jump at the offer, right? You can take those dollars, put them in gold, or euros, or whatever, and in a year or two, after your supposed hyperinflation takes over, you can convert a fraction back to dollars to repay me with.

Hyperinflation. Stop being ridiculous.

2008 Sep 22 12:08 PM

[Brice Timmons:]

Hmm... I'm not going to get all the way on board with this analysis. Some poor analogies are drawn between the status of Wiemar Germany and the U.S. at present. Further, there is an underlying assumption that the economy generally is the same or similar. I think we're already seeing the first signs of hyperinflation, but not Wiemar-like hyperinflation. I would definitely go for hard assets over dollar-based paper, though. Heck, I'd convert dollars into RMB in a heartbeat. China's coastal middle-class will continue to increase their domestic consumption, thus making up for our decreasing consumption and protecting the Chinese economy. I suspect that this will allow them to hold more reserves in RMB, deflating their currency a bit as their diversification undercuts ours.

2008 Sep 22 02:39 PM

[ABG:]

There are differences between America, today, and Germany of the early 1920s. For one thing, the German mark was not the international exchange currency back then. The British pound was. The fact that so many foreign nations are dependent on the value of their U.S. dollar reserves means we will get more a lot help from abroad than the Germans got.

So, the article does not propose that we will have hyperinflation of the same extent as Weimar Germany. Weimar Germany is simply the most studied example of hyperinflation. I consider rates of 20-30% per year to be hyperinflation.

I don't see the dollar at 1 trillionth of its present value by 2011. But, I do think that a 75% devaluation is very reasonable, given the circumstances. Weimar Germany is used as a model, in this article, not for the numbers, but, rather, for the type of behavior leading to high inflation.

2008 Sep 22 03:02 PM

[Hydrogen Bob:]

Inflation? Yes. Devaluation of Greenback? Hyperinflation: No. The American economy and the American people are much more reslient than that. As the dollar falls, exports will soar and Americans will substitute more domestic products for imports. (BMWs for Chevys). They will also benefit from an improved energy policy that will reduce oil imports and increase domestic production of energy from a variety of sources. The next decade may not be great, but it won't be a disaster.

2008 Sep 22 03:51 PM

[you_can_cal...:]

To those of you counting on China to be a safe port in any upcoming storms, think twice. After WWII the U.S. got rich because we were one of the few countries with an intact infrastructure. In addition, we had enormous natural resources. Both were used to basically rebuild the world, and we got paid for it.

China, while definitely destined to eat our lunch, is not going to be rebuilding the world. They, instead, produce cheap toys and Nike knockoffs. They sell us all that crap we like to buy. In a true meltdown, if it happens, no one is going to be running out to buy the latest Ipod (or anything else). Business will suck for everyone, though I do admit they would be a lot better off than the U.S.

glta.

2008 Sep 22 03:58 PM

[scholastica8:]

Hydrogen Bob.... The problem with the idea of switching to more products made here, more home-grown oil production, etc. is that if we do hit hyperinflation, the costs of raw materials will skyrocket. The price of a barrel of hyperinflated oil, may not keep pace with the cost of producing that oil. Most of our Chevys have parts produced outside the US. Will there be the money, at hyperinflated prices, to retool factories, to purchase the raw materials, etc.

Another difficulty is that if we do hit hyperinflation with super expensive gasoline, will workers be able to get to work? Cities, like citizens, won't be able to afford to run mass transit.

We are in scary times.

2008 Sep 22 09:56 PM

[scholastica8:]

Something else about hyperinflation. The best way to survive it is to get your assets out & yourself out of the country. If that can't be done, even people with loads of hard assets don't come out the other side.

If your hard assets are gold, jewels, whatever, you sell bit by bit at whatever price you can get in order to feed the family, keep the lights on, etc. There may not be that many buyers because only the truly wealthy will have cash to spend on anything but necessities. So, more likely you barter whatever you have that someone else might need, for something that you need.... but it will have to be local because shipping fees will be skyhigh.

If you have hard assets in the form of oil stocks, gold ETFs, Swiss Francs ETFs whatever, you end up having to sell those off to make ends meet. Most affluent people, unless you are super wealthy, in which case you escape the country, can hold out for about 3 years. This is usually the point at which a government issues new currency.

2008 Sep 22 10:31 PM

[NOWHEREMAN:]

Cross the Border into Canada, nice country, nice people and a currency which will only get stronger.

2008 Sep 23 10:40 AM

[User 269079:]

BS Detector................. you for real....You obviously are not paying attention to what is going on in the USA. Our money is back by NOTHING!!!!!! If China and all of the holders of our currency bail out, we are in deep &^$%. You need to study up on your history and figure out what is going on before you lose everything. once this sinerio plays out, i am wondering if you will retract this garbage you are writing. "Better to be silent and thought a fool than to open your mouth and remove all doubt"

2008 Sep 24 06:17 PM

[West Coast ...:]

pautaut - the loonie "will only get stronger" is a wrong assumption - the Canadians will not sit on their hands and see that happen. Millions of jobs are utterly dependend on the price-competitivness of Canadian labor compared to the big neighbor. Now as back then in / around Weimar Germany, the devaluation cycle will accelerate until the train cannot be stopped - there is simply not enough gold around to back the monetary system. At least not at today's low prices. We'll see.

2008 Sep 24 06:22 PM

[User 269319:]

I don't think the current delimma will induce hyperinflation, or if it does it will be akin to the smaller examples than the larger examples. I do think we are doomed, however. It mostly has to do with the fact that entitlement programs in particular Medicare and Social Security. The system is insolvent and will come to a head in the 2050s (or so). At some point there will be an inflexion point where Uncle Sam will not be able to borrow enough money to keep the popular programs in place. As this happens the government will print money rather than terminate the programs for political expediency. This will in fact cause massive abandoment of the dollar to the much more stable Euro and other instruments. The result will be medium to high levels of hyperinflation.

2008 Sep 25 12:11 AM

[nonFBer:]

It has begun

HONG KONG (MarketWatch) -- Chinese regulators have asked domestic banks to stop lending to U.S. financial institutions in the interbank money markets to prevent possible losses during the financial crisis, the South China Morning Post reported Thursday. The China Banking Regulatory Commission's ban on interbank lending of all currencies applied to U.S. banks, but not to lenders from other countries, the report added, citing a source


There is nothing left to debate, the US is broke, now they want to fund a 700billion bailout, but who will lend it to them? And if they can't borrow it they will print it, and hyperinflation has begun, however expect more failed attempts by paulson and company to protect there wealthy friends from being hurt to bad, while telling the rest of us to eat cake...

2008 Sep 25 01:08 AM

[James Roberts:]

Looks like we are just in a world of shit......I have over $125,000 in Cd's.What should I do when they mature? I have been buying gold and silver for the last couple of years.

2008 Sep 25 02:40 AM

[mudmandon:]

BS DETECTOR....I will take you up on the loan for $100,000.
When can we sign the papers?...I'm free tomorrow around 2 pm.

2008 Sep 25 02:43 AM

[Big George:]

mudmandon - I doubt BS Detector has $100K to lend you and if he does, at 25% interest, I'd tell him to take a hike. If I had 100K to lend surely I would invest the money in precious metals a far safer alternative than lending it to someone on a promissory note. Who knows if they will go bankrupt and I would be out of luck to collect.

2008 Sep 25 08:47 AM

[Big Mac Attack:]

What do we (U.S.) MAKE anymore? Packard automobiles and Philco TV's? Gone out of business. Bethlehem Steel and Cannon towels? Outsourced. McDonalds & WalMart? Count on seeing your friendly neighborhood stockbroker greeting you at the door or behind the counter there soon!

I'll take MY share of the "corporate welfare" - WHOOPS - I meant, "bailout" - WHOOPS - I meant, "campaign fund payoffs" - WHOOPS - I meant, "economic recovery package," in gold & silver, and politely sit on the sideline. We'll see who's worth MORE, come 2011. I got a '21 Morgan dollar says, it'll be ME...

2008 Sep 26 07:51 PM

[Capt.Bomblast:]

Inflation, 'hyper' or not... Americans are simply far too apathetic to survive that sort of situation without going totally ape. Gas goes to $4.50 per gallon and folks are tapping tanks of parked cars. The dollar loses a bit of its purchasing power, the copper and steel prices go up slightly, and now we have to chain down every hunk of metal in any form and stand guard over junkyards so metal thieves won't run off with all our spare parts. Fact is, it won't take much to turn this country into a free-for-all. Americans are not strong and industrious anymore... mostly we are weak and sneaky opportunists who want something for free. We got through the great depression because people had not, by that time, lost all of their ability to take care of themselves... if that were to happen now, you wouldn't be able to walk down the street with a bag of groceries. I just don't have too much faith in our general population. Sorry to be such a downer.

2008 Sep 27 09:03 PM

[1776jedi:]

bsdetector is a bs shoveler.

Some one wanted to know what kind of investments were safe in this financial atmosphere. Here they are, Guns, ammunition, fuel, dry and canned food. If you're smart you'll think about a few acres of land in the country, seeds, hand farming tools, maybe a mule, solar panels, wood stove, a few books about survival and self sufficiency, a power generator. What ever you do, ditch you're toilet paper assets, turn them into cash, leave the city, and teach yourself how to live off of the land. Yeah I know this sounds stupid to all you city folk driving around in leased BMW's living in mcmansions, but like old hank Jr sang, I 've got a shotgun a rifle and a four wheel drive, I can skin a deer, run a trout line, a country boy can survive. Get serious though, you can't eat C notes, 401k's and certificates of deposit. When the dollar dies and you're stuck in the city, you're going to starve to death, or freeze in the dark.

2008 Sep 28 03:07 AM

[User 271927:]

The author claims hyperinflation caused resentment of Jews in Germany in the 1920s. It may have been a contributing factor (very small), but what the Germans were rightfully angry about was the agreement between Germany's enemy of the time in WWI (England) and Jewish Bankers' for England to turn over the land of Palestine to the Jews in exchange for Jewish Bankers coaxing United States to enter the war. This resulted in Germany's defeat, and provided the seeds for what was to later happen. When a the German diplomat was assassinated in Rome (or Paris?) by a Jewish assassin in 1932, all hell broke loose. The Jews were given a safe haven in Germany after their 1905 exodus from Russia, and the Germans felt they'd been betrayed. I'd be angry too....Please have your facts straight. Thanks for the article...

2008 Sep 28 10:08 AM

[User 272174:]

Dear readers. Hyperinflation and eventual total economic collapse in the US will transpire to a global depression. Unlike say USSR or Argentina where the economies are relatively small and the stronger economies then could sustain the world. The fall of the US will destroy the global system and pull the world into chaos. The foundation is being accelerated by the US congress and accelerated. Te calls and e-mails to the US government did not sway the $700 billion bailout decision. Mass starvation and even the elite that engineered this will perish. You have been warned!!!

2008 Sep 29 12:22 AM

[Vox Rationalis:]

I'm sorry some of you folks can't understand a logical discussion of finance. You see big numbers and think the worst.

"Our money is back (sic) by NOTHING!"

True - been that way for a long time. It's a good thing, too; the economy's grown much faster than the money supply could have grown had we continued to back money with precious metals.

Isn't it interesting how well the dollar is holding up? Since the close on Friday the 19th, the dollar is up 5% against the Euro, more than 3% against a currency basket, and more than 4% against gold. The flight to quality here hasn't been to gold, but to Treasuries. So much for your theory.

"If China and all of the holders of our currency bail out, we are in deep &^$%."

Let's see - if everybody in America stopped eating, we'd be in trouble too. Do you really have so little understanding of how markets work?

"You need to study up on your history and figure out what is going on before you lose everything."

Exactly what in history do you think is comparable?

"once this sinerio (sic) plays out, i am wondering if you will retract this garbage you are writing."

When would you like me to return to continue the discussion?

"Better to be silent and thought a fool than to open your mouth and remove all doubt"

You might want to run a spell and grammar check before you write such things.

2008 Oct 02 12:19 PM

[Vox Rationalis:]

Mudmandon: Let's assume we made a deal at the close on September 26. As of now, you're in the hole $410 because of interest and another $440 or so if you chose to pile in to gold.

2008 Oct 02 12:29 PM

[Vox Rationalis:]

Oops, sorry, I missed a zero. It should have been $410 + $4,400 you're in the hole. Now it's closer to $410+$3,900.

2008 Oct 02 01:17 PM

[iSpec:]

I am preparing even now. My greatest preparation was the simultaneous demise of my very successful business, the death of my wife and the foreclosure of my home. I left Greater NY and moved wayyyy north. I have already bought 6 mos of food, which will sustain us until the spring planting and I can put a line in the ocean for fish, dig clams, etc. I would not stay in larger areas as there will be shortages, hyperinflation and civil unrest. I am thankful I know Christ and I am ready for eternity.

2008 Oct 15 04:45 PM

[Vox Rationalis:]

Oh boy. Say hi to Ted Kaczinski for us.

2008 Oct 16 05:43 PM

[jfrits:]

actually, Kaczinski was not granted parole, so is still jailed in one of the cities to be afflicted. i assume he will starve to death when his jailors have deserted their posts and melted down the cell keys for coinage. [could somebody pass the kleenex?].

2008 Oct 25 12:42 AM

[Vox Rationalis:]

Okay mudmandon, we're five weeks into the experiment. At 25%, you're down 2.4% on the loan. At $725/oz, you're down 17.6% owning gold. Of course, you'd be down 20% in the S&P500. But if you'd put it in the UUP, the PowerShares pro-Dollar ETF, you'd be up 12.1%.

So the dollar's up 12.1% against a basket of world currencies, and 17.6% against gold. How's that hyperinflation working for you?

2008 Oct 31 09:49 PM

[OctoberFaith:]

On Oct 31 09:49 PM BS Detector wrote:

> Okay mudmandon, we're five weeks into the experiment. At 25%, you're
> down 2.4% on the loan. At $725/oz, you're down 17.6% owning gold.
> Of course, you'd be down 20% in the S&P500. But if you'd put it in
> the UUP, the PowerShares pro-Dollar ETF, you'd be up 12.1%.
>
> So the dollar's up 12.1% against a basket of world currencies, and
> 17.6% against gold. How's that hyperinflation working for you?<br/>

Im up 12.1% and 17.6%.

I asked for the ability to let the personality go. I got it.

2008 Nov 01 12:22 AM

[silver-bullet:]

The dollar is up because of deleveraging.

It is a safe haven - Only temporarily.

It will go down after deleveraging is over or close to over. The big question is when.

2008 Nov 01 03:06 AM

[Vox Rationalis:]

"It is a safe haven - Only temporarily."

The dollar is a safe haven compared to gold?

2008 Nov 03 08:01 AM

[User 307657:]

Actually I am looking forward to hyperinflation. The main reason i say this is because i think what this country needs is for this generation to learn what true suffering really is. Something needs to bring of these people back to the real world. This instant gratification generation is just making things much worse. Nothing says reality like feeding chickens and hogs or digging in the dirt to feed yourself.

2008 Nov 26 04:10 PM

[User 307657:]

If the SHF there could be sever food riots among other things, and bullets then become a fine currency breathing. I hate to say it Capt i agree with your assumption here. Americans for the most part have no idea how to feed themself without a fully stocked grosey store or a welfare saftey net handout. We could see some real bad problems in the early stages of a monetary meltdown especially in the intercities.


On Sep 27 09:03 PM Capt.Bomblast wrote:

> Inflation, 'hyper' or not... Americans are simply far too apathetic
> to survive that sort of situation without going totally ape. Gas
> goes to $4.50 per gallon and folks are tapping tanks of parked cars.
> The dollar loses a bit of its purchasing power, the copper and steel
> prices go up slightly, and now we have to chain down every hunk of
> metal in any form and stand guard over junkyards so metal thieves
> won't run off with all our spare parts. Fact is, it won't take much
> to turn this country into a free-for-all. Americans are not strong
> and industrious anymore... mostly we are weak and sneaky opportunists
> who want something for free. We got through the great depression
> because people had not, by that time, lost all of their ability to
> take care of themselves... if that were to happen now, you wouldn't
> be able to walk down the street with a bag of groceries. I just don't
> have too much faith in our general population. Sorry to be such a
> downer.

2008 Nov 26 10:07 PM

[AlexR:]

1. If the U.S. really is going down the drain in a big way, tell me why then international stock indexes have fallen much further and faster than the S&P 500 as the crisis intensified?
2. Japan has had persistent deflation for almost 20 years. They have tried very hard to reflate, and so far failed. So much for the "oops" accidental hyperinflation scenario.
3. I have a big 30-year fixed-rate mortgage. Can you say "forget the mortgage, but keep the house"? Hyperinflation just sounds too good to be true. Winning a free house would offset much of the difficulties one would run into during the hyperinflationary transition.

2008 Dec 03 12:53 AM

[TheLegacy:]

Four months since the last comment, and it seems that things are getting much worse since when this article was posted. So, now that everything is falling apart (the comments by a poster about exporting Chevy's is now dead with the potential automotive collapse), does this seem much more plausable?

I think so. I think it's time to invest in other currencies or solid assets.

2008 Dec 15 02:16 PM

[terryh:]

My advise to everybody is: Take what money you have and buy tangable items such as food and clothing for survival.


On Sep 22 11:27 AM PastTense wrote:

> I think the hyperinflation will be much closer to that given above
> for the Soviet Union than the Weimar Republic. Note also that there
> are major items not mentioned--the exploding health care costs, peak
> oil, demographic problems as the baby boom generation goes into retirement
> (social security...), global warming.
>
> So I see a very bleak future, and am looking for advice as to what
> to do with my savings. Suggestions?

Jan 11 09:16 AM

[Vox Rationalis:]

the mudmandon experiment scorecard:

9/26/08: Gold closed at $880/oz. 1/13/09: $826.2, -6.11%. If you borrowed from me at 25% to buy it, as I proposed, you're down (and I'm up) 13.58%.

Jan 13 01:05 PM

[bosun.j:]

What kind of a wanker advises anyone to borrow money to make a BET on anything? This guy must have a series 0 license!

Jan 13 01:59 PM

[plumstupid:]

You got that right.


On Sep 28 03:07 AM 1776jedi wrote:

> bsdetector is a bs shoveler.
>

Jan 14 04:17 AM

[MarylandDan:]

This article is somewhat right. The govt. will need inflate its way out of the present stimulus and stocks will do better than bonds.

The correctness of the article depends on one's definition of hyperinflationn. If the government only inflates say 1/3 (so that a dollar becomes worth 66 cents) that may do nicely and the government debt will be reduced to a manageable level. This type of inflation bad for many but not the end of the world. We have had some inflation for 80 years running.

What is noteworthy is, the majority of our economy is tangible and not fluff. We produce a massive abundance of food, something the growing and developing world desperately needs increasingly in the future. We are self sufficient in electricity, we build our own homes, and set up our own awesome internet and wireless networks and satellites and airplanes. Doctors, teachers and policemen are not fluff. As for manufactured goods, if one has ever watched the Discovery Channel, or Sesame Street, one knows that gigantic automated factories produce most things at high speed in huge quantity now. Low per unit costs mean a shortage is unlikely to last a long time. If we needed to we could have more of these garguantuan setups at home (if we want the foul air), although we have such a gluttonous abundance of manufactured stuff in our large homes that we could go without for a very long time.

We will have to face a somewhat inflationary world again after this crisis passes, and commodities will be important again. Better to be here! America has an abundance of coal, amber waves of grain and the fortune of being already built up. Electric cars just need to come down in price and one of our biggest problems vanishes! Unlike the rest of the developed world, we are reproducing ourselves!

Feb 06 03:13 PM

[Francis Sch...:]

Very interesting article. Correct is that what is about to happen will resemble to the Weimar revolution rather than to the Great Depression. One major difference is that at the time of the Great depression, the Dollar was backed by Gold but the German Mark not.
As far as the Dollar being a reserve currency, this will only make the drama bigger and ensure the hyperinflation is seen all over the Western World.

Amazing is that many readers (like BS) seem to have forgotten everything one was teached at school! We all had History...

Ever since the beginning of society, GOLD has been the ONLY REAL money on earth. Over and over again Politicans together with bankers have tried to convince the people FIAT PAPER MONEY was better and Gold was and is nothing more than a barbaric relic..Each time, REALITY have shown that this was a lie. This time won't be different.

I won't say History will repeat in exactly the same way as it did in the past. It never does. History is the same all over again...only each time it is a bit different.

Mar 02 05:04 PM

[IndidnaJohn:]

After a short peroid of fermentation, you might want to sniff your toothbrush.


On Sep 22 12:08 PM BS Detector wrote:

> The sky is falling! The sky is falling! I didn't even get past the
> first paragraph. Let's just assume all of your numbers are correct,
> though I'm skeptical.
>
> "With the Federal government just having added $5.2 trillion in Fannie/Freddie
> liabilities of which about $600 billion will likely default..."<br/>
>
> Leaving $4.6 trillion in performing assets for which the government
> will be paid guaranty premiums of how much? At 28 basis points, it's
> $13B/year. Of course, the other $600B will add $1.5B per year until
> they default. Let's assume they default -- oh I don't know -- now.
> Of that $600 billion, the government then holds underlying assets
> worth what - $300 billion? $400 billion?
>
> Taking my neighborhood as exemplary, the government's immediate losses
> are then $200B. Think of that as the cost of the investment. Think
> of the $13B per year from the guaranty fees on the performing assets
> as the return on the investment - 6.5%. Not too bad of a risk-adjusted
> tax-free return. Certainly not as bad as you seem to want to think.
>
>
> "...the Federal Reserve having now polluted its balance sheet by
> some $700 billion worth of toxic mortgage bonds with a 41.6% default
> rate ($291 billion in likely defaults)..."
>
> Again, assuming your numbers are correct, this causes a loss of less
> than $100B IF the borrowing entities default. They won't. See the
> Treasury plan below.
>
> "...an $85 billion bailout for AIG..."
>
> The best investment I've seen anybody make in a long time. The government
> gets paid LIBOR+8.5% for two years on the unpaid balance, providing
> a huge incentive for the company to liquidate assets, plus warrants
> to own a vast majority of the company. The terms of this are incredibly
> onerous, but the company had absolutely no choice - it was either
> this or outright bankruptcy. Do you actually think the government
> will LOSE money on this one?
>
> "...and, now, the Administration asking for some $700 billion more
> to bail out financial firms..."
>
> Do you realize you're double-counting here? The bad collateral you
> say the Fed now holds is part of this. But let's not worry about
> facts. This is the part where the government is most likely to lose
> money; that's why there is still so much up in the air, and why the
> political debates are ongoing.
>
> So counting it up you appear to have one valid cost to the government.
> Which leads you to...
>
> "...it seems clear that the winds of hyperinflation are upon us."
>
>
> I tell you what - I'll lend you $100,000 at 25% interest. You can
> should jump at the offer, right? You can take those dollars, put
> them in gold, or euros, or whatever, and in a year or two, after
> your supposed hyperinflation takes over, you can convert a fraction
> back to dollars to repay me with.
>
> Hyperinflation. Stop being ridiculous.

Mar 03 08:26 AM

[The Great H...:]

Most Americans have way more debt than savings. When we go through the inflationary period, savings will be wiped out, but so will the debts (e.g. If you are making $10,000 per hour as the Walmart greeter in 2012, that "big" mortgage you took back in 2005 doesn't look so bad, does it? Hope you got a fixed rate).

Those wierd people who actually have savings should put them into preferred shares on Non-US companies that pay floating dividends that are tied to the inflation or bond rate. (e.g. BCE Inc.)

Bring it on.

Mar 14 02:09 PM

[avgsap:]

Lots of interesting comments from people who seem to have not gone grocery shopping lately. Hyperinflation has begun. For those of us silly saps who comparrisson shop you may remeber buying canned green beens 3 for a dollar or even 4 for a dollar on sale. 75 cents a can is now a decent price. I may not be the sharpest knife in the drawer but that is a hefty increase. The price of the groceries and the true nesseities continues to rise. This latest stimulus plan promises to increase the food stamp allotment and give average tax payers 15 bucks a pay period. Do the math if my wife and I get an additional 60 bucks a month and a family of four on food stamps gets an additional 25 per person who comes out ahead. Couple that with increased taxes that I pay and the gap betwwen the average joe and the person on government assitance gets pretty narrow. The Hyperinflationary periods marked in the the other countries were also marked by a corresponding sense of dispair among the middle class.

Mar 15 02:47 PM

[Plan B Econ...:]

5 steps from hyperinflation scenario...

www.planbeconomics.com.../

Mar 21 12:39 AM

[mika:]

Invest in Russian or Chinese currency if you are afraid of hyperinflation, hard assests/property are OK from the long term perspective/they are not so liquid. Gold? - No idea. It is just speculative asset: may grow to 2000 or even higher or fail back to 200. US $ devaluation does not equal hyperinflation in the US. It is not the same. We will possibly see higher prices for imported products, but it does not automatically means that money supply and velocity - our salaries (true inflation) will go up. We do not live in the world of fiat money, but credit money. Please think about advantage of the hyperinflation in the US? - cheaper labor and loss of world reserve money status. SOMA is controlled by the governent. Also, you can read this article in order to see that it is not trivial thing to cause hyperinflation in the US.
www.debtdeflation.com/.../


On Sep 22 11:27 AM PastTense wrote:

> I think the hyperinflation will be much closer to that given above
> for the Soviet Union than the Weimar Republic. Note also that there
> are major items not mentioned--the exploding health care costs, peak
> oil, demographic problems as the baby boom generation goes into retirement
> (social security...), global warming.
>
> So I see a very bleak future, and am looking for advice as to what
> to do with my savings. Suggestions?

Mar 23 01:39 AM

[singledad1234:]

you better wake up america

peter shiff and jim rogers and gerald celente are RIGHT

Mar 29 11:46 AM

[JeffHur:]

The solution to this economic crisis must be a moral one. The root of the problem lies in the unbridled greed, that has grown exponentially in the last 50 years. Each person and party sit, hoard, and meticulously guard their own possessions without any consession for others. We are totally submerged in indifference as though has happened. The entire world is in a frozen state. Everything is coming to a screeching halt. This is happening because our intentions are not aimed at benefiting each other.

Mar 30 05:30 PM

[tyson:]

@Vox.

I might take some notice of your informed, yet condescending remarks if you can find me a fiat currency that has actually survived?

Jun 08 08:14 AM