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Preparing for Hyperinflation: What You Need to Know

March 31, 2021 0 comments

Money wasted

Imagine if cash suddenly became worthless. What if it was wiser to burn your currency for a fire than to use it to buy firewood? It’s happened before: 58 times to be exact (according to history and finance experts).

During times of war, economic turmoil, and depression, hyperinflation can occur. When it does, chaos becomes the norm. There are surges in pricing minute by minute.

In the book Paper Money, the author Adam Smith writes about hyperinflation in post WWI Germany, “Menus in cafes could not be revised quickly enough. A student at Freiburg University [in Germany] ordered a cup of coffee at a cafe. The price on the menu was 5,000 marks. He had two cups. When the bill came, it was for 14,000 marks. ‘If you want to save money,’ he was told, ‘and you want two cups of coffee, you should order them both at the same time.'”

Food and fuel prices surge. People panic shop. Hoarding becomes a major issue, which also causes food supply shortages. Towns are no longer safe, and security is a problem.

Yes, hyperinflation is real. And yes, it can happen during your lifetime.

The reason hyperinflation is currently in the news is because of the combination of the pandemic, economic upheaval, job loss, and government stimulus packages. The good news, is most experts do not think hyperinflation in America is likely.

That being said, hyperinflation is not completely out of the realm of possibility. According to The CATO Institute, there have been 58 episodes of hyperinflation across the world since 1923.

According to the report, “No one has ever been able to forecast the magnitude or direction of hyperinflations.” Since hyperinflation occurs with little warning, it is wise to stay aware and practice preparedness just in case.

The Difference between Inflation and Hyperinflation

Bread chartThere is currently a lot of talk in the news about inflation. This is due to the pandemic and the stimulus packages. People are worried as they watch gas prices and other commodities and interest rates rise. This currently appears to be standard inflation, which is different from hyperinflation.

Investopedia explains, “While inflation is a measure of the pace of rising prices for goods and services, hyperinflation is rapidly rising inflation, typically measuring more than 50% per month. […] Whereas normal inflation is measured in terms of monthly price increases, hyperinflation is measured in terms of exponential daily increases that can approach 5 to 10% a day.”

In the United States, inflation is measured by the Consumer Price Index (CPI) and tends to be around 2% annually. This type of inflation is a good thing because it is a sign of a healthy, growing economy.  In contrast, hyperinflation is a rapid increase within 30 days.

Finance blogger Len Penzo writes, “Zimbabwe dealt with hyperinflation between 2006 and 2009. How bad was it? During the month of March 2007, the inflation rate there was 1730%. To put that in perspective, a $2 loaf of bread on March 1st would have cost $36.60 on the first day of April.”

How to Prepare Today for Hyperinflation

House and gold

Just as you prepare for natural disasters and societal unrest, you also need to prepare for hyperinflation. Many of the steps you take to prepare for hyperinflation are similar to those you’d take for other emergencies. The difference is you are prioritizing your financial stability amid economic upheaval.

With the possibility of hyperinflation, some people look for opportunities to lock in fixed interest rates. If you have a variable interest rate, you can expect your interest rate to rise during times of hyperinflation as the federal government raises rates to keep banks from failing.

Another way to protect your finances is to diversify your income. Don’t grow dependent on one income source. Similarly, follow the 60/40 rule for stocks and bonds just like you would with everyday inflation.

Investopedia suggests, “A 60/40 stock/bond portfolio is considered to be a safe, traditional mix of stocks and bonds in a conservative portfolio.” As the markets change, so should the way you allocate funds in your portfolio.

Strategic Purchases to Make ahead of Hyperinflation

Ideally, the best time to make purchases is before hyperinflation occurs. If you wait until prices surge, you may find yourself unable to afford the things you need, or the items may be difficult to find. Make strategic purchases and stock up today based on what history has shown is valuable during times of hyperinflation.

Real Estate

People need shelter and a roof over their heads, so they are willing to pay for it even when costs are inflated. According to Money Crashers, “The value of the dollar in the United States roughly halved in the 30 years from 1990 to 2020, per the Bureau of Labor and Statistics. The median home price in 1990 was $117,000 […] Yet at the end of 2020, the median home price had reached $346,800. Note that home prices outpaced inflation significantly.” Yet, people continue to buy and rent homes.

Moreover, if you own a home with a fixed-rate mortgage, you are protected against hyperinflation rate hikes.

Precious Metals

Precious metals, such as gold, are valuable during times of hyperinflation. The value of gold never changes, even though cash does. For example, it takes more cash today to buy the same amount of gold. However, that same amount of gold is even more valuable today. As we wrote in a previous Survival Scout, “A $20 gold coin from 1920 (which was nearly one ounce of gold) is still the same amount of gold. Its essence has not changed. [Today] one ounce of gold is approaching its all-time record of $2,000.”

[Related Read: Why Gold Still Has a Strong Role in Your Emergency Preparedness Plan]

TIPS

It is also wise to invest in Treasury inflation-protected securities, or TIPS, which adjust according to inflation. These are special types of bonds with a fixed interest rate that can be bought or sold on the open market. However, they have added protections against inflation and are backed by the U.S. Treasury Department.

emergency foods and long term food storage

Commodities

Think back to this past spring when panic shoppers emptied grocery shelves of toilet paper and Clorox wipes. During times of hyperinflation, expect the same types of commodities to be hard to come by. Household staples, such as toilet paper and cleaning supplies, as well as food and water, are items that you should stock up on now rather than later.

My Patriot Supply’s Emergency Food Storage with a 25-year shelf life would hedge against disaster and be a great investment. If our country faces food shortages, you can rest easy knowing you are prepared. Likewise, if food costs rise to an alarming and unaffordable degree, you won’t have to panic.

Similarly, stock up on first aid supplies and medications while you can. Investopedia used the Consumer Price Index (CPI) to calculate the costs of certain commodities at the 2021 price with 1000% hyperinflation. A vial of insulin costing $95.00 in 2020 would rise to $96.90 in 2021 with a 2% inflation, but it would shoot up to $1,045.00 with a 1,000% hyperinflation increase.

“Craved” Items

Items that people crave or are addicted to, such as cigarettes, alcohol, and coffee, become valuable during periods of hyperinflation. During recent hyperinflation in Venezuela, cigarettes became a go-to payment source when their currency was no longer valuable, bartering cigarettes for gasoline. In fact, bartering using cigarettes is so popular that experts suggest Americans store them for this purpose.

Investor Doug Casey for Mises Institute suggests, “If you're American and are going to be storing things, you probably can't go wrong building a stash of cigarettes. Even if you don't smoke — or perhaps especially if you don't smoke — every time you return to the US, you should buy the maximum amount of duty-free cigarettes allowed and store them.”

franklin's finest survival coffeeAnother item to stock up on is Franklin's Finest Survival Coffee, 100% Colombian coffee with a 30-year shelf life. It is ideal for survival bartering.

Solar Power

One cost that tends to rise with inflation at shocking rates is electricity. Get ahead of inflation increase by investing in solar power tools, such as solar lighting and solar-powered appliances. The less reliant you are on your electric company today, the better you will be if hyperinflation occurs.

Security

Lastly, it is wise to stock up on tools or weapons for security. Should the U.S. undergo hyperinflation and you have a stockpile of wanted goods, you will be a target. You will need to protect yourself, your family, and your stockpile. Additionally, hyperinflation leads to periods of unrest. Make plans today to keep your loved ones safe.

Prepare today for possible hyperinflation tomorrow, friends.

In liberty,


Grant Miller

Preparedness Advisor, My Patriot Supply

 

 

SOURCES
https://www.investopedia.com/terms/h/hyperinflation.asp
https://survivalist101.com/tutorials/financial-planning-for-preppers-financial-prepping-101/getting-ready-for-hyperinflation/
https://www.investopedia.com/articles/personal-finance/122915/worst-hyperinflations-history.asp
https://www.moneycrashers.com/investments-protect-against-inflation/
https://mises.org/library/store-em-if-you-got-em
https://www.foxnews.com/world/venezuelans-bartering-food-cigarettes-to-pay-for-gas-amid-inflation
https://lenpenzo.com/blog/id602-18-scary-things-you-didnt-know-about-inflation-and-hyperinflation.html
https://www.cato.org/commentary/hyperinflation-kaleidoscope-uses-abuses
https://www.bloomberg.com/news/articles/2021-03-04/why-hyperinflation-won-t-happen-in-u-s-like-in-venezuela-or-zimbabwe
https://www.investopedia.com/are-we-in-for-a-hyperinflation-5093627

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