I am bringing up this topic because as we all know, the Federal Government right now is in the process of intentionally devaluing the dollar and we must all know as investors where we need to put our money. History repeats itself. Being in the right place in the right time is not luck. Those who study history and predict the future based on historical events will be those who seem to always be the ones who get the lucky breaks.
The Federal Reserve is printing money like it is going out of style. Bailout after bailout, all for “the good of the people” since we are in “the worst recession since the Great Depression”. Well, those of us who are not economically challenged know that this is not true.
Carters recession was significantly worse than what we have today. 15% unemployment compared to 8.6% today. Interest rates from 16% for a home to 26% for every day loans. No comparison to today.
The average recession lasts 4 months max. A real bad one lasts 2yrs (1973 oil crisis). That is with NO bailout. Carters recession officially lasted from January 1980 to July 1980. Again, NO bailout.
Obama predicts our deeper than ever recession to last another year. Well, lets say this was one of the worst in history. With NO bailout it should have already been over. This is not about a recession. It is about ruining the economy to create hyperinflation.
So why are they doing this? It is common knowledge that when a country prints money that they don’t have in this manor that the direct result is currency devaluation and hyperinflation.
Take a look at Germany after being devistated from World War 1. We did not go back and help rebuild as we do these days. Germany was a wreck and they had to make the country habitable, so they printed money like it’s going out of style to rebuild. It takes 4-5 years for hyperinflation to show it’s ugly head from this irresponsible behavior.
The war started in 1914 and ended in 1918. In 1922 the effects were felt to a massive degree. 1 year prior to the currency inflation was price inflation. By July 1922 prices had risen by 700%… By 1923 inflation rates were 100% per month. Experts say that the United States inflation will closely match that of Zimbabwes hyperinflation which was 50% per month.
1923 Germany had 2000 printing presses out of 300 paper mills printing money 24hrs a day to try to keep up with inflation. Unions fought for frequent pay increases and couldn’t keep up. Various white collar worker groups and farm workers fared the worst as they had no unions to fight for pay increases for them so they were reduced to hunger. (Another incentive for the Obama administration to show the value of unions)
People were being paid 3 times a day. Their wives picked up the cash so they could spend the money quickly on goods as the prices rose by the hour. A wheelbarrow of cash bought a loaf of bread.
This set the stage for the Nazi party and Hitler to take over the country, and kill the corrupt politicians and the Jews who they felt were the culprits of their oppression when in reality it was directly caused by the mass printing of money by the government. The population was desperate for action to be taken so Hitler was well receipted.
So why hammer our economy? Why are our corrupt politicians doing this? There are countless examples in the past that show the consequences of these actions.
Angola in 1991, Argentina in 1975, Austria in 1921, Belarus in 1994, Bolivia in 1984, Bosnia in 1993, Brazil in 1986, Bulgaria in 1996, Chile in 1971, China in 1948, Danzig in 1923, Georgia in 1994, Germany in 1923, Greece in 1944, Hungary in 1946, Isreal in 1970, Japan in 1943, Krajina in 1993, Madagascar in 2004, Mozambique in 1976, Nicaragua in 1987…. And the list goes on and on and on!!!
The reason is when they tank the dollar; the debt to China and other countries will greatly diminish. It will quickly become worthless. This is why China is angry with us right now and the reason for their attempts to hedge against the US government’s plan of action by creating a new international reserve currency to replace the US dollar.
Now how do we benefit and who will be the losers? Inflation hurts some and helps others by redistributing wealth and income. The consumer is hurt by high prices of goods and the manufacturer benefits from the high cost of goods. People on fixed incomes and creditors will suffer while debtors will be rewarded greatly.
Business will boom and unemployment will vanish until the final stages of inflation. Those who have access to credit borrow heavily and inflation will wipe out their debt.
Although most businesses are booming there will be a severe depression in consumer goods such as textiles, meat, beer, etc. The consumer is who gets hit the worst and they no longer can afford new clothing or anything that may be considered a luxury item, like meat. Everyone is on the rice and beans or Kraft mac and cheese diet that Dave Ramsey talks so much about.
The most successful will be those who borrow to the hilt and buy up goods and non-luxury item companies at severe discount prices.
The final stages on hyperinflation will be a complete collapse of the economy and soaring unemployment.
At this point the German government issues a new currency that will supposedly be stable in value. The people are willing to take on this new currency because it is better than what they presently have and they will put their faith in it at least until it is proven to be false. Ladies and Gentlemen, let me introduce the Amero, step number one in the New World Order.
How investments hedged the inflation:
First of all, white collar workers and skilled blue collar workers used to living well found that their salaries significantly dropped when hyperinflation hit due to the fact that their 100K a year buys 5-10K of goods.
Those who depended on their savings (worthless) pensions (worthless money) or investment income like dividends starved. The elderly will suffer.
-Savings deposits interest becomes worthless.
-Stocks stop paying dividends because the company needs money for working capital and speculation as companies at this point are buying raw materials, equipment, etc like crazy.
-Cash, of all investment forms, this was the worst investment.
-Bonds and Mortgages (notes) – They will drop faster than cash
-Real Estate - Owners of rental property fare no better if the government freezes rents as they did in the last period of hyper-inflation in the US. They requested nationwide to all investors to not raise rents for the next few months and promised government compensation to make up for it. They then reneged on their promise. Germany froze rents for the entire period. Large cities in the last period of hyperinflation in the US like New York imposed rent freezes and landlords sued the city. Over time they won but were still out of cash.
Those with mortgaged property benefit. The inflation wipes out the mortgage debt however rent freezes mean no income as the rent paid is now worthless. Those who hold real estate throughout will manage to save the capital thus invested. Those who sell during the inflation via a desperate need for cash will fare poorly. Since it is not an income producing property it will sell extremely low.
Foreign exchange – The government will quickly put restrictions on exchanging currency to buy gold, or other stable international currencies. Those who exchange their money prior to the laws will be able to save and maintain their capital but not necessarily gain much capital.
Personal property – will fare better than cash when bought at the onset of hyperinflation. This includes things like rare coins, stamps, jewelry, works of art, antiques, etc. Just a hedge, not necessarily a lucrative investment.
Common stocks – will fare pretty well for those who have a well diversified portfolio in solid well established companies and the purchase would need to be at the onset of inflation. Most in this category will retain a great deal of their money as we come out of the inflation.
So, where is the money? The money is in real estate IF there are no rent freezes. The money is with those who are able to maintain real estate and were heavily mortgaged. The money is in non luxury item businesses and manufacturers.
Anyone wants to add to this via historical research please do so. This is a great group of intellectuals. We must fully understand what is coming our way so we can not only hedge against hyperinflation but take advantage of it.