Understanding the effects of hyperinflation (and debts) on a personal level
A very interesting topic. I have been wondering about the practical effects of inflation/hyperinflation for a while. I have a couple of questions:
1. Given that I do not have a lot of current savings to buy gold/silver, but own my house outright, would it be a good idea to take out a fixed rate secured mortgage on my house to buy gold/silver? I have a relatively stable/safe job which I hope to keep to pay the loan payments.
2. If I buy gold/silver now, who will I sell it to in a hyperinflationary situation. I am talking about holding physical gold/silver and trying to find someone with huge wads of dollars in a small local community to buy it. Will the banks still buy it at a reasonable price (not COMEX). I do not foresee merchants taking gold/silver directly (at least not early in the hyperinflationary stage). I would need many small units of gold/silver in order to cash them in on a weekly basis to buy necessities. I really wonder if gold is truly functional in this environment.
3. Would I be better off just buying food and things like Greg above. If I buy canned food, water, and other essentials I can meet my family’s needs and also use it to barter for what I need.
Would greatly appreciate any advice you have.
Buying and stocking for an inflationary time works to an extent but if you really want to thrive during those times – learn to grow your own food too. It’s the most radical thing you can do to ensure your family’s security during most un-expected events – like:
- natural disasters -tornadoes, hurricanes, earthquakes, floods and . . like now – snow storms.
- man-made disasters – economic swings, bank holidays, gas price swings and the like.
- personal economic issues- illness, accidents, extra un-expected expenses arise . .
Learning some basic skills- gardening, permaculture and raising animals, as well as how to survive off the land can be a great hobby that will ensure smooth sailing in any economic situation and the goods you produce in excess can always be used to barter for other goods.
The other thing we keep in stock & good condition is our bikes. We found them invaluable last summer when gas hit the roof. You’ll feel healthier and more energetic too!
The great thing about this – it doesn’t cost a lot. No reason not to get started.
It’s all about the End Game.
I agree with your advice about growing food. We do have a backyard garden in the summer (I live in Canada and now have 18 inches of snow over the garden now). This does cut down a little on groceries but we simply do not have enough land to provide for a family of 5. Also in many places zoning bylaws prevent raising animals (even chickens). Unless you live in a rural area I do not think you can be truly self-sufficient. I do have an old farm in a rural area as a backup plan but for now I am still dependant on a JIT food/energy delivery system (as most people are). Given this situation, and the coming inflation (probably before the snow melts), I am wondering what the right plan would be? Buy food or buy gold/silver?
The notion of buying tangible assets on credit, and being able to repay the debt with inflated/devalued dollars later down the track may seem appealing, but this benefit is going to be greatly outweighted by the reduced standard of living for everyone under a hyper inflationary environment.
Long term planning and investment will be non existent, civil unrest and crime will reach epeidemic proportions. The economy will grind to a halt as people resort to primitive bartering.
Wages will skyrocket, but they will always lag the real inflation rate and peoples real purchasing power will fall. Anyone with a fixed income or savings in cash will be wiped out.
Everyone should own gold to protect themselves, even if its only an oz.
An oz of gold in 1920 could have bought a reasonalbe quality mens suit. In 2009 an oz of gold will still buy you a reasonable quality mens suit. People should hold gold not to make them rich, but to preserve their wealth.
Gold is perhaps not suited to everyday trading, so having a stash of ciggarettes, soap, tampons, toothbrushes, candles, whisky or basically anything that is durable and always needed is a good idea.
Growing your own food, even if its only to supplement your total food needs is a great idea, so is owning a bicycle.
Along with tangilbe necessities and precious metals, you want to own assets that generate real income. Things like energy, agriculture and mining stocks. You would also want to have a portion of your wealth stored outside of your home nation in the event currency controls/capital restrictions are introduced.
Some argue that if things get so bad that the currency is deemed worthless, you would have been better off buying guns and ammuntion rather than gold. This is quite logical, if you have prepared for the worst, you become a target for those who didnt and now have very little to lose.
If we do experience hyperinflation, it will be a horrible experience. Ask the zimbabwean families panning for gold specks in the rivers in order to buy food what its like living in an economy where the money is worthless. But even if the gold bugs are wrong and Bernanke pulls one out of the hat and the system of debt based consumption is revived, you haven’t lost anything. You can sell your gold and use the goods you;ve stashed in the cupboard.
It seems so irrational to not take some simple steps to protect yourself from a world where the currency is no longer a store of value or medium of exchange.
i’ll leave you with two accounts from people who lived through hyperinflation in Weimar Germany:
Two women were carrying a laundry basket filled to the brim with banknotes. Seeing a crowd standing round a shop window, they put down the basket, for a moment to see if there was anything they could buy. When they turned round a few moments later, they found the money there untouched. But the basket was gone.
The memories of a German writer
A friend of mine was in charge of the office that had to deal with the giving out of … pensions …in the district around Frankfurt…. One case which came her way was the widow of a policeman who had died early, leaving four children. She had been awarded three months of her husband’s salary (as a pension). My friend worked out the sum with great care …and sent the papers on as required to Wiesbaden. There they were checked, rubber stamped and sent back to Frankfurt. By the time all this was done, and the money finally paid to the widow, the amount she received would only have paid for three boxes of matches.
A German woman who ran a Christian relief centre for the poor