Do you believe in hyperinflation ??
Investor · Camden , NJ · Member since 2010 · 77 posts · 7 votes
Do you believe in hyperinflation??Seems like every where i turn I'm hearing this word ... It's a very scary word  sounds like a horror movie . Guess the government  are the ones with the mask ,.. Lol :)Â
My question is do u believe in hyperinflation  .. If you do how are you preparing for it ???
Me myself I do believe the gap between the rich and poor is increasing everyday . !!!!Â
Exactly, James. Lots of people like to throw the word around. Keep the fear alive!!
But it is very rare indeed. It isn't something that just arises out of high debt or rising money supply. There are several factors that must converge at the same moment in time and they must converge on the right country at the right time.
It is not enough to find 1 or 2 similarities between the US now and other countries which experienced hyperinflation. You have to go much deeper than that.
Unfortunately most people don't go deeper. They read a misleading headline and jump to wild conclusions.
In the current real world, you should fear the effects of stagnation or deflation much more than hyperinflation. It is economically impossible for an economy to be teetering on the edge between deflation and hyperinflation. But if you listen to the kooks mostly on a certain cable "news" channel, that is apparently where we are.
It is ridiculous.
Is it reasonable to prepare for some inflation? Sure. But talk of hyperinflation is simply that...hyperbole.
Congrats Lisandro, you got 100 posts with your 7th post....good job! LOL
Jad, welcome and good explanation. And that will be the trick to keep the demand and strength of the dollar from falling and the Fed will see to that, however, another aspect is that if we continue, as you mentioned, we will be writing interest checks in a couple years at one Trillion dollars. I also heard today that Moody's said that if we don't change our ways that they will drop our rating from AAA. Our interest rates will then be increased with the risk and add to the problem, so a real mess could be on the way. However, even with this I don't see "hyperinflation" where the price of goods and services increases at such a rapid rate that there is no price stability, which is what I would call hyper, as in my example from an ice storm and generators. So possible, but not so probably.
Jad...Welcome to BP. You make some good points...a rarity in this post. I do disagree that hyperinflation is a very real thread as is stated above. However, let's take it as a given for now so as not to belabor the point. What will you do or are you doing to prepare for hyperinflation? Please elaborate.
Jad...Welcome to BP. You make some good points...a rarity in this post. I do disagree that hyperinflation is a very real thread as is stated above. However, let's take it as a given for now so as not to belabor the point. What will you do or are you doing to prepare for hyperinflation? Please elaborate.
A couple of things. I do not have the inclination or the time to respond to most of the misconceptions made in this thread. The best response to most of this thread is to tell others to read a book in fact several books about Austrian economics. Also, I realize it is very unlikely for anyone to change their mind or opinion based on any posts I make ( as I am unlikely to change my view point) so I will not try.
With that said here is how I view things and some of the current actions I am taking. I do not think my thoughts are fool proof, nor do I believe I can tell the future. I just acknowledge what may happen. I look at all the countries who are facing real devaluation of their currencies Greece, Ireland, Portugal, and Spain to name a few and realize that it can also happen here. The difference between them and us is that they can be bailed out by other countries. Who would or is even capable of bailing out the United States?
So with that here you go. Ways that I am hedging in case the dollar does face a period of rapid devaluing.
- I have shifted the focus of my current stock holdings. Where I used to have 85-90% of my holdings in US companies many of which were based on consumer goods I have begun moving towards more foreign holdings. I have an ultimate goal of getting to a 50% USA and a 50% foreign holding. As for the companies I am buying I look for large multinational companies. I am also trying to accumulate companies whose products are 'needs' not 'want' products. Some examples are large multinational drug companies (people don't want to die), oil companies (people still need to get around), fertilizer companies (people will still be hungry), and energy companies (no one likes being cold) to name a few. I also am also holding more mining and natural resource companies.
- I am also not considering buying CD's or any municipal bonds. If the economy does not turn around quick you will start to see defaults on the local and state levels. The Federal government will bail out as many of these as they can but eventually the Feds will be overwhelmed. If a devaluing of the dollar were to happen I believe this would be the first domino to fall.
- Real estate
I imagine this is one that is of the most interest on this board. I plan to continue purchasing real estate. However, I do not believe that now is the time to max up leverage. ( this could be more due to my conservative nature). Now let me clarify.
I think it is very much in the interest of investor to use leverage I just think it is wise to give yourself more cushion than before. Example instead of holding 5-6 loans with 20% equity, the more prudent move would be to hold 2-3 loans with 40-50% equity. The reason this added cushion is now necessary is many people will be irrational during the run up in inflation. Real estate investors may not be able to pass along added costs to renters ( I am not involved in commercial so I will leave that subject to people more qualified to comment on ) immediately. However, eventually renters will have to pay what is the fair adjusted rate for inflation.
Right now the average renter spends about 30-42% of their income on housing. If hyper inflation occurs the availability of consumer goods will drop/ become less affordable, as will the cost of repair and maintenance for landlords. I would bet that the average renter will have to devote 50-65% of their inflated incomes to their housing costs. This will happen because employers will not raise wages at the same rate of inflation, and people in general are slow to react to changes. So, as a landlord I believe I need to be prepared for this by having a large cushion between my rents and my mortgages.
One upside to hyper inflation will be the amount of debt owed on real estate properties will be much easier to pay off as the renters accept the increased housing expenses.
In the end if hyperinflation were to occur all Americans will have to accept a lower standard of living. However, by being cautious now I believe I will be will be well positioned in comparison to most other Americans. With all of this said, I really hope that America (the government and people) will make the necessary changes in the coming future to avoid this, because it is completely avoidable.
I just reread my post and I am afraid it may not have the correct tone to it. I do not mean to be short with any one or to appear so. I am at work so I need to limit the time I spend 'working' on my posts in regards to tone and grammer.
Oh, merry christmas everyone
Nice post Jad...and I have read books by those from the Ludwig Von Mises camp. I want to respond to your points above, but I would first like to quantify what you and/or others mean by hyperinflation. What percentage per annum will we see in the event that it happens and what percentage would your strategy above protect against?
Thanks for your response in advance.
Umm...no you won't! You will get labeled as such if you are a high school dropout (one word...ahh...the irony) or Beck lackey.
Jad...Welcome to BP. You make some good points...a rarity in this post. I do disagree that hyperinflation is a very real thread as is stated above. However, let's take it as a given for now so as not to belabor the point. What will you do or are you doing to prepare for hyperinflation? Please elaborate.
A couple of things. I do not have the inclination or the time to respond to most of the misconceptions made in this thread. The best response to most of this thread is to tell others to read a book in fact several books about Austrian economics. Also, I realize it is very unlikely for anyone to change their mind or opinion based on any posts I make ( as I am unlikely to change my view point) so I will not try.
With that said here is how I view things and some of the current actions I am taking. I do not think my thoughts are fool proof, nor do I believe I can tell the future. I just acknowledge what may happen. I look at all the countries who are facing real devaluation of their currencies Greece, Ireland, Portugal, and Spain to name a few and realize that it can also happen here. The difference between them and us is that they can be bailed out by other countries. Who would or is even capable of bailing out the United States?
China. They'll buy American assets like the Japanese did in the 1980's
So with that here you go. Ways that I am hedging in case the dollar does face a period of rapid devaluing.
- I have shifted the focus of my current stock holdings. Where I used to have 85-90% of my holdings in US companies many of which were based on consumer goods I have begun moving towards more foreign holdings. I have an ultimate goal of getting to a 50% USA and a 50% foreign holding. As for the companies I am buying I look for large multinational companies. I am also trying to accumulate companies whose products are 'needs' not 'want' products. Some examples are large multinational drug companies (people don't want to die), oil companies (people still need to get around), fertilizer companies (people will still be hungry), and energy companies (no one likes being cold) to name a few. I also am also holding more mining and natural resource companies.
I've been doing this for the last 10 years. Not because I believe in hyperinflation, but because we're a global economy and America being 5% of the world's population who consumes and controls 25% of the worlds assets is not sustainable
- I am also not considering buying CD's or any municipal bonds. If the economy does not turn around quick you will start to see defaults on the local and state levels. The Federal government will bail out as many of these as they can but eventually the Feds will be overwhelmed. If a devaluing of the dollar were to happen I believe this would be the first domino to fall.
I park my cash in money markets waiting for opportunites. But it's not a long term investment vehicle, nor should it be for anyone(aside for an emergency fund), hyperinflation or not.
- Real estate
I imagine this is one that is of the most interest on this board. I plan to continue purchasing real estate. However, I do not believe that now is the time to max up leverage. ( this could be more due to my conservative nature). Now let me clarify.
I think it is very much in the interest of investor to use leverage I just think it is wise to give yourself more cushion than before. Example instead of holding 5-6 loans with 20% equity, the more prudent move would be to hold 2-3 loans with 40-50% equity. The reason this added cushion is now necessary is many people will be irrational during the run up in inflation. Real estate investors may not be able to pass along added costs to renters ( I am not involved in commercial so I will leave that subject to people more qualified to comment on ) immediately. However, eventually renters will have to pay what is the fair adjusted rate for inflation.
Right now the average renter spends about 30-42% of their income on housing. If hyper inflation occurs the availability of consumer goods will drop/ become less affordable, as will the cost of repair and maintenance for landlords. I would bet that the average renter will have to devote 50-65% of their inflated incomes to their housing costs. This will happen because employers will not raise wages at the same rate of inflation, and people in general are slow to react to changes. So, as a landlord I believe I need to be prepared for this by having a large cushion between my rents and my mortgages.
One upside to hyper inflation will be the amount of debt owed on real estate properties will be much easier to pay off as the renters accept the increased housing expenses.
In the end if hyperinflation were to occur all Americans will have to accept a lower standard of living. However, by being cautious now I believe I will be will be well positioned in comparison to most other Americans. With all of this said, I really hope that America (the government and people) will make the necessary changes in the coming future to avoid this, because it is completely avoidable.
Thanks for your response in advance.
This is a good point about quantifying 'hyperinflation'. This is a very hard question to answer. You are asking me to make a rational guess about what will happen when people become irrational. Also, who knows what the politicians will come up with.
If a run was made by foreign countries in efforts to get out of the dollar I would guess that the dollar could drop as much as 20 - 40% in a year. After the initial shock inflation would remain high but would settle out (where? who knows?). This would then continue until the country reestablishes savings (both personal and governmental).
Another concern (which would be much worse) would be the Interest on the debt becoming unsustainable then the government deliberately prints money to cheapen the debt. If politicians are in control it will be very hard to take a guess at numbers.
As for Glenn Beck, I really cannot tell you much about him. I do not watch him or any other of the talking heads (political or financial) on TV. They are entertainers who pander to their prospective audiences. I like to kid myself in thinking I have better things to do with my time.
Nice post Jad...please try to ignore some of the Beckians on this thread that don't contribute constructively.
I'll respond to your other thread later when I have some more time. I agree that it would be hard to know what the rate of hyperinflation would be...I also agree that the term gets tossed around VERY loosely.
JL
I do not believe that China is capable of stopping a real devaluation of the United States dollar. In fact China in the long term would stand to gain tremendously if the dollar were devalue and lose its standing as the world's currency reserve.
Currently China sends goods to the USA in return for dollars. These dollars have no real value just perceived value. If the Chinese (or Japanese) have their faith shaken in the dollar they will quit propping it up (buying US treasuries). At what point do they stop throwing good money (goods) after bad money (the currently held US treasuries)? Bad investments are hard to accept, but eventually reality will smack you in the face.
They will then stop accepting the dollar for their goods. Will this cause financial pain in China/Japan? Yes, but it will much less than the pain felt here. I imagine your next question is’ what will they do with all of these goods then’? How about selling them to their own citizens? While taking a short term punch in the gut, the Chinese will end up with a much more stable and desirable economic standing. The Chinese standard of living will increase and increase greatly while the American standard of living will drop and drop dramatically.
Or so I think, but I could be wrong. (in fact I hope I am wrong)
I'll respond to your other thread later when I have some more time. I agree that it would be hard to know what the rate of hyperinflation would be...I also agree that the term gets tossed around VERY loosely.
The news channels, talk radio, and columnist use the word hyperinflation to scare people. I am not a chicken little nor do I tend to listen to them. The same thing was happening a year ago with deflation.
I rarely post on message boards due to the superficial nature of most topics. For most topics I do not feel I have the required depth to respond intelligently. I do enjoy reading though because I come across perspectives I may not have thought of yet. I will often times have a concept introduced to me by reading boards. Unlike most though, I will then research and read for a better understanding.
Even with this topic while I believe I have a pretty good foundation there are so many nuances to the subject I hesitated to post or continue to respond.
On a slightly different subject ,this is something refreshing about this board in that you find some investors with a deep understanding of real estate investment. Maybe, one day I will be one of these posters.
I do not believe that China is capable of stopping a real devaluation of the United States dollar. In fact China in the long term would stand to gain tremendously if the dollar were devalue and lose its standing as the world's currency reserve.
Currently China sends goods to the USA in return for dollars. These dollars have no real value just perceived value. If the Chinese (or Japanese) have their faith shaken in the dollar they will quit propping it up (buying US treasuries). At what point do they stop throwing good money (goods) after bad money (the currently held US treasuries)? Bad investments are hard to accept, but eventually reality will smack you in the face.
They will then stop accepting the dollar for their goods. Will this cause financial pain in China/Japan? Yes, but it will much less than the pain felt here. I imagine your next question is’ what will they do with all of these goods then’? How about selling them to their own citizens? While taking a short term punch in the gut, the Chinese will end up with a much more stable and desirable economic standing. The Chinese standard of living will increase and increase greatly while the American standard of living will drop and drop dramatically.
Or so I think, but I could be wrong. (in fact I hope I am wrong)
This is why I invest in China/Asia on a regular basis. It might even be evidence of future inflation(ie. prices going up for limited goods because standard of living goes up for Chinese). But I'm not sure this is evidence that we'll see people in the United states carrying barrel full of dollars to buy a loaf of bread(hyperinflation).
I disagree with this wholeheartedly. Several BP members HAVE changed their mind about outlandish ideas from reading these threads. Several more won't ever change their mind about anything despite reasoned and very convincing arguments that show them they are misinformed. You don't strike me as that type of person based on your commentary thus far.
- I have shifted the focus of my current stock holdings. Where I used to have 85-90% of my holdings in US companies many of which were based on consumer goods I have begun moving towards more foreign holdings. I have an ultimate goal of getting to a 50% USA and a 50% foreign holding. As for the companies I am buying I look for large multinational companies. I am also trying to accumulate companies whose products are 'needs' not 'want' products. Some examples are large multinational drug companies (people don't want to die), oil companies (people still need to get around), fertilizer companies (people will still be hungry), and energy companies (no one likes being cold) to name a few. I also am also holding more mining and natural resource companies.
I think it is very much in the interest of investor to use leverage I just think it is wise to give yourself more cushion than before. Example instead of holding 5-6 loans with 20% equity, the more prudent move would be to hold 2-3 loans with 40-50% equity. The reason this added cushion is now necessary is many people will be irrational during the run up in inflation. Real estate investors may not be able to pass along added costs to renters ( I am not involved in commercial so I will leave that subject to people more qualified to comment on ) immediately. However, eventually renters will have to pay what is the fair adjusted rate for inflation.
I disagree with you here. People should be leveraged to the hilt during periods of heightened inflation. During hyperinflation the dollar denominated debt would be worthless almost instantly so you would be left with more real assets by spreading the equity across more properties.
"While taking a short term punch in the gut, the Chinese will end up with a much more stable and desirable economic standing. The Chinese standard of living will increase and increase greatly while the American standard of living will drop and drop dramatically."
"This is why I invest in China/Asia on a regular basis."
There's only one problem here. You have to believe what China is telling you about their economic stability.
China is a paper tiger...they don't worry me in the least. All of this talk about China taking over the world is a bunch of empty puffing.