Thought on Hyper Inflation

[Catshooter]

Pat,

Historically, when governments have devalued their currency it's often done in steps. Like Monday they announce that they've dropped two zeros off the dollar. So your $100 bill is now worth $1. When they do that it is usual that they leave the coins alone. The penny doesn't work when it's worth .001 and so on, and minting new coins is an expensive and time consuming business. So they just devalue the paper money and leave the coins alone.

Most people don't have much in the way of wealth in coin. But if you had say $10,000 in coins when they did devalue the dollar your coin worth just went up by two zeros at the same time your paper money went down two. Make sense? Actually it doesn't but we can pretend it does. Just like we pretend to live in a free country. Works as long as it works.


Cat

[cpileri]

Sir!
given the current state of events, what would you invest in, or advise to protect wealth in the near future?
C-

Sorry Popper, but inflation and deflation are most emphatically NOT the same thing. In fact they are polar opposites. Inflation is an increase in the supply of money over and above the growth of productivity in the economy. You have that right. This comes about by debasement of the currency, as in Roman times when they alloyed lead and tin into the silver and gold coinage, or comes about by increases in the amount of debt, as happens in modern economies that depend on foat money. Debt is money, to an economist. The borrower has the money, and the lender thinks that he too has the money, because he thinks he can demand it back from you at any time. So the both go their merry way, until suddenly the lender realizes, "Oh, $@&x!, that loan ain't ever gonna be paid back!" The value the lender thought he had, i.e. the "money" created by his half of that loan, simply vanishes. THAT is deflation - a shrinkage of the money supply, usually due to debt bubbles bursting. In that scenario, prices for material goods fall because nobody has the money to buy them. After the Revolutionary war is an excellent case in point. The economy had been blown up by the issuance of paper money, which suddenly became worthless as colony after colony repudiated it, when they found that they could not tax the farmers enough to pay it off. The amount of gold and silver in circulation was small. Farmers could not get their hands on any, so many of them were forced into bankruptcy, and when the sheriffs went to auction off their goods, the prices were pitiful, because nobody had any gold or silver to buy with. And THAT, by the way, was the primary reason that we got a Constitutional Convention, and our beloved Consitution.

Sorry for the long response, but before I became an enjineer, I was an economist

[zardoz45]

Gold is good for storing money but I doubt it would be useful as currency. I can't go to the grocery store and pay with a piece of gold, the gas station either, or any of the businesses around here. People are unfamiliar with gold unless it is in coins. Why would this be any different during and economic upheaval?

[Taylor3006]

Gold is good for storing money but I doubt it would be useful as currency. I can't go to the grocery store and pay with a piece of gold, the gas station either, or any of the businesses around here. People are unfamiliar with gold unless it is in coins. Why would this be any different during and economic upheaval?

That is only partially correct. There are many businesses and individuals that will take gold and silver as payment, nothing like Walmart, but lots of people do understand the value of precious metals. Sure there are tons of people who will not accept them for payment, but generally they work for someone else or produce nothing of value that I would give them gold or silver in exchange for. I am unsure why you would think in a hyperinflation scenario that even yer average person would not understand the value of gold, it would probably be common knowledge that your jewelry could buy goods. The Germans figured it out as did the Zimbawians as barter markets sprang up quickly to keep commerce going during their troubles. In times of plenty, stupidity can go unchecked or ignored. In times of crisis, it's deadly. You learn, you adapt, or you die.

If you talk with locally owned businesses and thier owners, I bet you would find some that would barter gold for thier products or services.

[starmac]

It is fairly common here for businesses, or even private individuals to sell stuff for gold. Even the banks take it.

[PB234]

Hyperinflation comes when people lose faith in the value of their currency. Rather than hold on to their currency they go out and buy real goods before the currency becomes even less valuable measured by the amount of real goods it can buy. As soon as this happens in force the demand for real goods exceeds the supply and the price goes up quickly.

The reason the paper in our pockets is valuable is our faith that it is worth something and that something is fairly stable.

Look for information about Germany between the wars. Some folks did very well and most did terribly.

Mostly all of us posting here will do poorly if the economy has a failure. Owning some gold, have debt, or even producing most of one's needs for food and shelter will not help much. We all have a stake in the future. Hyperinflation will corrupt that future as will many other things. In an unstable economy business can't predict the future stops investing which destroys growth meaning we are all going to be hungry one way or another.

[uscra112]

@ cpileri - - - First off I was an economist, not a financier.

The serious answer is "I dunno". But it's helpful to understand the difference between investment and speculation. Investment is the placement of money into some enterprise that you expect to turn a profit and thus pay regular dividends at decent rate. A decent rate is (or was) thought to be 5% of your investment per year. Building a mine, or a factory, or a retail store business is investment. Putting money into something because you expect (or fear) that the market price will change to your advantage is speculation. In modern capital markets, the speculators always dominate the pricing, because they aggressively manipulate the news to try to stampede the market in their preferred direction. But they are usually concentration on "glamour" stocks. (BTW look up the original meaning of the word glamour!)

INVESTORS, like my financial son-in-law, look for less conspicuous stocks that are not overpriced due to speculation, and which reliably pay dividends. Because of the draconian "insider trading" laws, and the policies of the company he is associated with, he rarely ever tells me what he's put his clients' money into. He could if I had enough money to open an account with his business, but unfortunately a million bucks is kinda outside my price range!

As for us "little folks", he says #1 get out of debt, #2 get out of debt, #3 get out of debt. Short of an apocalypse so dramatic that collection of paper debts becomes irrelevant, debt is a Sword of Damocles. A banker can take over your home for $100 as easily as he can for a million, and they will if they see the least financial advantage to it.

I can also tell you that , when I asked him if I should buy gold, he said that he himself does not hold any precious metals whatsoever, nor does he put any of his clients' money in gold or silver. More than that he would not say. Occasionally he gives me a glimpse of what stocks he holds. A supplier of pipeline components for the natural gas infrastructure. A medical supplier that just happens to be the company that supplies my insulin. I will also tell you that he's hell-bent on buying land in a spot that is about as remote from NYC as you can get without leaving the continental US. Daughter sees it as a vacation spot. I think he's looking to have a Bug Out Location.

When I retired, I took that advice and used my saving to pay off 100% of my debt, and paid cash for the little farm-remnant I now live on. I may be poor on the surface, but my monthly bills are low, and no-one can foreclose on me.

If you are young, your best investment is in yourself. Develop your skills and knowledge so that you can be worth a decent living doing something worthwhile to other people. (This does NOT mean becoming a welfare worker.) Maximize your options. There's an old joke about engineers being people who learn more and more about less and less, until they wind up knowing absolutely everything about nothing. I managed to avoid that trap, and although I never made the big bucks, I was never unemployed for long either.
--------------
I just don't see how a hyperinflation can get started here. PB234 brings up a good point about hyperinflation - what economists call the "velocity" of money. A measure of how many times per day that a dollar changes hands. High velocity has the same effect as a sudden increase in the money supply. Panic over price increases is a divergently unstable condition, and the Weimar Republic not only did nothing to stop it, they had no TOOL to stop it. Today the big banks who run the country can choke it off in an instant by shutting down the credit card clearing system. And they will, because they get badly hurt themselves by a hyperinflation.

[shooter93]

I think you prepare in as many ways as possible. Some simply can't buy much gold etc. And just because gold,silver,diamonds etc have a historical stability doesn't mean they will. It all hinges on what people want at the time. Using food as an example.....if the collapse is deep enough no one has enough gold to buy what I have. While I don't think a collapse is a sure thing I do believe there could be economic factors coming that won't be pleasant. If it's a "total" collapse of our economy then it's impossible to know what will be the best protection. Keep in mind a total collapse of our economy means the entire world goes down too.....something that has never happened to the extent doomsdayers are "predicting" for this one so it's impossible to tell what will have value except for food and water. I often think many of the "experts" recommending buying gold and silver already have a ton of it and like to see the price skyrocket. If it happens it happens and I'll do my best to make it through...I either will or I won't. For me...if work was like it was before this administration took over I'd be building a stocked pantry like you've never seen and tell no one about it.

[MaryB]

There is no way in h**l you could get me to buy paper assets right now. The only thing propping up Wall Street is the $85 billion a month the fed reserve is creating out of thin air. Money supply has expanded at such a pace that the graph is almost vertical. Sooner or later they will have to taper off asset and bond purchases from the Wall Street banks and from the government. When this happens the crash is going to be bad. It will make the Great Depression look mild. Hard assets like gold that people buried were what saved many coming out of the depression. It may not be of any use during but as things settle down and trade resumes gold and silver will become money again.

[uscra112]

I can't but agree with you, MaryB. Very low interest rates drive stock markets up. Pension fund managers are desperate for a 3% or even 2% return, when their money gets nearly zero in money market funds or bonds. It's actually more complex than that, but that's the basic principle. So they'll bid stocks up to silly price/earnings ratios, and as soon as any higher interest rates come along, they'll abandon those stocks in a flash.

It's Hobson's choice at this point. The deficit is something like 6% of GDP, so if the deficit gets cut, there will be a massive recession. But if they don't cut the deficit, sooner or later confidence in Treasury bonds will fall, and the Treasury will have to pay much higher interest rates, which will further increase the deficit in a feedback loop that could crash the dollar. But there will be portents. Before that happens, they will find ways of confiscating IRA and 401k accounts, then private pension funds, and eventually even your plain old savings accounts. This happened ten years ago in Argentina. It just happened in Cyprus and Greece. Poland is the latest country to do it. They're just like crack addicts - will do anything to keep their habit going, including stealing from their own families. They've already replaced the SS trust fund with paper, so you can say that the Treasury has already confiscated that to pay their bills. Me, I cashed out my 401k when I retired. Paid the tax, and put the proceeds into the purchase of my "farm", so as to have zero debt. I may have been a little premature, but I fear that before the 2016 elections I will be proven right. (There's an old saying, attributed to one of the Rothschilds: Asked why it was that they always made money on market cycles, he said "we always sell too soon!")

In the 1930s, something like 70% of people still lived on family farms, and could manage to grow some food and get by, unless they had debts to pay, or lived in the Dust Bowl, or had serious medical problems that left the farm without adequate labor. Today it's well under 10%. Think that through......

[oldred]

I have a cousin who is a "Dinar idgit", he has spent over $12,000 dollars (that he certainly can't afford!) on IRAQI currency based on a BS internet scam, he claims when hyperinflation occurs here he is going to be rich because this worthless paper he holds is going to somehow "revalue" and make him a millionaire. The sad part is this thing is turning into one of the most wide-spread scams in history with well over a million people falling for it just here in the US alone!

[oldred]

That has got to be about the dumbest scam ever, have you seen any of those "guru" claims? What amazes me about the whole thing is how widespread it has gotten but it's based on claims that anyone with enough intelligence to tie their own shoes should be able to see through! This guy has tried several times to sell me on this non-sense but he I guess he finally got tired of me laughing at him, most of these people are truly convinced however and it would be comical if so many people had not been hurt by it already.

[PatMarlin]

Pat,

Historically, when governments have devalued their currency it's often done in steps. Like Monday they announce that they've dropped two zeros off the dollar. So your $100 bill is now worth $1. When they do that it is usual that they leave the coins alone. The penny doesn't work when it's worth .001 and so on, and minting new coins is an expensive and time consuming business. So they just devalue the paper money and leave the coins alone.

Most people don't have much in the way of wealth in coin. But if you had say $10,000 in coins when they did devalue the dollar your coin worth just went up by two zeros at the same time your paper money went down two. Make sense? Actually it doesn't but we can pretend it does. Just like we pretend to live in a free country. Works as long as it works.


Cat

Yes- it is still confusing. I think where ever you are, when things change you adapt and make do. Your neighborhood needs a trade currency of some kind. The 49ner's here used gold dust. Prisoners use cigarettes. Kids used to use marbles.

So- what do we have on hand (if we are fortunate enough)? Cash and coins. As long as everyone has the same kind, then your local community will determine the trade value of that currency. I think when you have to trade your currency beyond your neighborhood, then it gets complicated. Hopefully, you live in an area where people can grow food and hunt, etc. If your stuck in the barrio ala Poland or East Germany, New York, LA, Detroit, San Francisco, then you are at the mercy of whoever is in charge. Some folks are (stuck) in this country, but a large majority is not of course.

Interesting article came out yesterday on the subject:

U.S. May Join Germany of 1933 in Pantheon of Defaults
http://www.bloomberg.com/news/2013-1...-defaults.html

Could Obama be following De Führers lead? ...

I think the well- solar powered is mandatory, and one I'm implementing here. I already know what can be done and ran off grid inexpensively and I'm doing just that. I'm going out with a young lady who's been a nurse for 23 years and certified to work in any section of her hospital including surgery. That may be a good move as well...

[oldred]

Pat,

Historically, when governments have devalued their currency it's often done in steps. Like Monday they announce that they've dropped two zeros off the dollar. So your $100 bill is now worth $1. When they do that it is usual that they leave the coins alone. The penny doesn't work when it's worth .001 and so on, and minting new coins is an expensive and time consuming business. So they just devalue the paper money and leave the coins alone.

Most people don't have much in the way of wealth in coin. But if you had say $10,000 in coins when they did devalue the dollar your coin worth just went up by two zeros at the same time your paper money went down two. Make sense? Actually it doesn't but we can pretend it does. Just like we pretend to live in a free country. Works as long as it works.


Cat

No quite!

Re-denominations are fairly common and it's no big mystery how they are done, Russia, Mexico and Turkey are recent examples but ALL the currency is/was affected equally including coins, it can't possibly work any other way! It's an across the board thing, they drop zeros off the currency (usually three but I think Turkey's currency was so inflated they had to drop six) then the old currency is exchanged for the new at whatever ratio it was changed. For example when three zeroes are dropped the new currency is now worth 1000 times more than it was the day before BUT the old must be exchanged for the new at a ratio of 1000 old for one new. It's a neutral event that is done solely to erase the effects of past inflation and no one loses or gains anything in the process except that now business is conducted with fewer but more valuable bills/coins, ALL currency must be affected equally, thus hoarding coins as a hedge against inflation is useless! A quick Google search on currency re-denomination will explain this clearly, the reasons why it's done, how it's done and why ALL currency must be affected equally, it's the only way it can possibly work.

[PatMarlin]

You guys go to fast for me. I can't figure out where to run...

Say you had a $1000 to use as cash on hand as doomsday currency trade. What would you do with it?

A. Buy gold and what denomination?

B. Buy Sliver and what denomination?

C. Buy 60% silver coins

D. Trade it in for $500 in cash (ones and twenties) and $500 in coins up to 1/2 dollars?

E. Buy Iraqi bills

F. Buy US savings bonds...

G. Any combination above?

[oldred]

You guys go to fast for me. I can't figure out where to run...

Say you had a $1000 to use as cash on hand as doomsday currency trade. What would you do with it?

A. Buy gold and what denomination?

B. Buy Sliver and what denomination?

C. Buy 60% silver coins

D. Trade it in for $500 in cash (ones and twenties) and $500 in coins up to 1/2 dollars?

E. Buy Iraqi bills

F. Buy US savings bonds...

G. Any combination above?

Buying gold or silver may or may not be a good investment but historically it usually is however changing for and holding smaller denomination bills and coins will do nothing for you except result in a bigger stack of currency worth the same as a fewer number of the larger notes. There is no instance in history where a country re-denominated (revalued/devalued) it's currency and only changed certain denominations and left others alone (such as changing the bills and not the coins as has been suggested) and I challenge anyone to show me an example of a country that has! An often used argument to this effect is when the US removed from circulation the bills larger than a hundred but that's not a re-denomination, a revaluation nor a devaluation that was simply retiring larger notes and it had no effect at all on the value of either the bills removed (they're still legal tender if you have one) nor the bills/coins remaining.


Buying Iraqi currency is about as good a hedge as flushing your money down a toilet!

[Outpost75]

Hyperinflation is not an economic outcome. It isn't something that emerges, mechanically, from some macroeconomic process gone wrong. It is a symptom of total social and political collapse. And while it would be unwise to say that it could never happen in America, it is simply mistaken to say that it could happen because Congress was too foolish to balance its budget.

To put things a different way: Paul Ryan is wrong that bad budgeting will lead to hyperinflation. It won't. Bad budgeting will eventually lead to circumstances, most likely being higher interest rates, that convince legislators to end bad budgeting (or to budget badly in a different way). The fact that Ryan is left warning about hyperinflation rather than leading the charge for the new, better bad budget simply suggests that his approach is less consistent with the norms American civil society holds dear than available alternatives.

http://www.economist.com/blogs/freee...hyperinflation

http://www.forbes.com/sites/kotlikof...nd-the-corner/

http://www.theatlantic.com/business/...weimar/254715/

[Blacksmith]

You guys go to fast for me. I can't figure out where to run...

Say you had a $1000 to use as cash on hand as doomsday currency trade. What would you do with it?

A. Buy gold and what denomination?

B. Buy Sliver and what denomination?

C. Buy 60% silver coins

D. Trade it in for $500 in cash (ones and twenties) and $500 in coins up to 1/2 dollars?

E. Buy Iraqi bills

F. Buy US savings bonds...

G. Any combination above?

Pat

Assuming you have all your other bases covered i.e. food, necessities, equipment, etc. and this is just for "....to use as cash on hand as doomsday currency trade." I would recommend putting a couple of hundred in US Folding money (no big bills) to use at the start or if it is just a minor glitch because people will take cash even if the computers are down and the credit cards wont work. Beyond that the most liquid thing will probably be so called "Junk Silver". The are US coins made with a silver content, dimes, quarters, halves and dollar coins minted before 1965 which are made with 90% silver (not 60%) the one classed as "Junk" are circulated, worn enough they have no special coin collector value. These are widely recognized and have an accepted silver content. Coins or bullion from other countries or from private mints will always have a question of what the purity is no matter what is printed on them. Junk silver is about the least expensive silver you can buy and you can even get it without buying. There are people doing business right now who will give you a discount if you pay with silver coins. You could offer a similar thing with what you sell and some may take you up on it thus you would get useable silver in trade for your goods. If you are going to deal in silver you need to do some studying and educate yourself.

Here is a site to look up the US coins and what their value in silver is:
http://www.coinflation.com/

This site explains "Junk Silver":
http://www.silvermonthly.com/junk-silver/

And the best places to buy it:
http://www.silvermonthly.com/junk-silver-ratings/

This is a site to read about the real modern times of what happens when money is worthless. This happened in Bosnia but you can find similar tales from Argentina and elsewhere.
http://sovietoutpost.revdisk.org/?p=72

[carolina556]

Food, Bullets, Lead, Powder, Land, and Water in that order The only precious metal I would buy would be the one that I can cram down the barrel if I need to. Each is a good investment as the cost of most all of them continue to go up, faster than a piece of gold or a stock or bond. Plus they provide survival which to me is better than paper money or precious metal.

[shooter93]

Doomsday currency for me Pat ....which I can buy none of now....lmao.....would probably be US silver coins or possibly US gold coins in very small denominations if it's gold. If for no other reason than having a gold coin valued at 1000 bucks it would be hard getting change from a store but with silver you'd be dealing with smaller numbers.