Business Gold Standard
Last month, out of concern for actions taken by the Federal Reserve back in Sept 2008, I sent out the following notice to my customers advising them of a new pricing policy:
[quote]Effective March 1, 2009
Due to monetary inflation and the tremendous risk of further financial harm resulting from activities of the US Federal Reserve, henceforth and until further notice, the standard hourly rate for services provided by X shall be valued based upon the greater of:
2) the 200 day moving average for SPDR Gold Trust (NYSE Arca symbol GLD) rounded to the nearest US dollar as of the first day of the month in which services were performed
Credit terms extended by X shall be established per customer as indicated on customer invoice(s).
Force Majeure Exceptions and Provisions
Force majeure shall be indicated by any of the following events:
1) Suspension of normal trading for financial instruments related to SPDR Gold Trust, or government intervention in respect to the normal trading thereof
2) Government seizure of SPDR Gold Trust
3) Government establishment of price controls
4) Government establishment of emergency “banking holidays”
5) Government devaluation of US currency
6) Government default on debt obligations
7) Failure(s) of government to abide by their constitutional limits
8) Civil unrest
In any case of force majeure, the standard hourly rate for services provided by X shall be valued based upon 1/10 (0.1) of one (1) troy ounce of .9167 pure gold bullion, or five (5) troy ounces of .999 pure silver bullion, as customer may elect. Payment shall be required and accepted in the form of American Eagle bullion coins with credit terms not to exceed Net 15 days. Any form of payment other than the gold or silver bullion coins indicated shall not be accepted except by mutual consent and only in such forms wherein the value is equal to or exceeds the value of services as established herein in comparison to gold or silver.
The occurrence of a force majeure event would most likely be obvious to all, but customers will nonetheless be notified of the occurrence prior to receiving any invoice for services wherein payment in the form of bullion coin would be required.[/quote]
My intent in implementing this policy was to address concerns I have in respect to inflation. This new policy represented about a 10% increase in price for most of my customers, but I had some leverage in pricing and have loyal customers.
While a few customer’s made comments (one said it was a good idea, others just recognized my concern), none of them really balked. However, given the Federal Reserve’s announcement Thursday, it appears that the force majeure exception listed under #5 has occurred or will occur soon. I really hoped that it wouldn’t be necessary, but it seems prudent to advise customers that payment in bullion may be required in the near future.
I wonder if there are any other business owners here, and what actions you are taking to remain in business under the conditions we face?
My wife and I own 2 small businesses (hi-end service industry) and I’ve been trying to get my head around what to do for months now. I don’t know exactly how it’d be done, but I guess if we had 12% annual inflation I’d be increasing our fees 1%/month. In a hyperinflationary environment (12% a month?) I would add *that* to our fees each invoice. How exactly I’d figure the rate of inflation is the hard part.
Does anybody know of a (reliable, i.e. non-gov/non-MSM) source for inflation numbers?
We are fortunate in our biz that we invoice clients for *upcoming* services (Pilates — they buy 10-session packages in advance) or upon delivery (massage therapy, pay-as-you-go, but pay immediately after the massage), so we are not stuck in the world of bill-the-client-and-wait-60/90-days-to-get-paid-and-borrow-money-to-operate-in-the-meantime — which, in a seriously inflationary environment, would — if I’m not mistaken — completely blast giant holes in your profits.
It’s a stressful time, no doubt. I’m getting the white/silver hairs to prove it. Just like my beloved Dad, may he RIP.
VIVA! — Sager
For non-gov/non-MSM inflation numbers, you might want to check out http://www.shadowstats.com/
FWIW, 12% isn’t really hyperinflation. During the 80s and early 90s, Brazil and Argentina routinely had inflation over 10% a month. I used to travel there for business during that time, and on one occasion where I was foolish enough to exchange dollars for their currency, my US$100 became US$80 in their currency within a week’s time. After that, I got in the habit of using a CC…by the time a transaction cleared, I’d have a discount of 10 ~ 20% vs the exchange rate on the day the transaction actually occurred, which I got to pocket because the company I worked for based expenses on the exchange rate when I arrived on location.
Whoa, so 10%/month inflation isn’t considered "hyper"inflation? Is there an official threshold at which we call it hyperinflation?
Thanks for the website, Ragnar.
I don’t know that there is an official threshold that quantifies hyperinflation, but while very bad, 10% monthly inflation is probably on the low end. During the time I was traveling to Brazil, the currency changed completely twice in 3 years or so. Imagine holding greenbacks, then exchanging them for new bluebacks worth 1/10th, and then exchanging them for redbacks worth 1/100th of the bluebacks. New currency masks the extent of the problem, and that kind of thing is common in a hyperinflationary environment. Or they might be more overt about it and just keep printing up new bills with more zeros until you’re paying for a loaf of bread with a $10000000000 note.
Wikipedia has a good article on hyperinflation. http://en.wikipedia.org/wiki/Hyperinflation
I had the book The Hyperinflation Survivial Guide, and it is currently out of print, but it has been scanned and is available for download (warning: big file) here. http://s3.amazonaws.com/iehi-img-mli/files/hyperinflation-book.pdf