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Does hedging against hyperinflation make you a kook?

Posted by John Reed on

Copyright 2012 by John T. Reed

This is a second installment in a discussion of angry emails I got from some of my book buyers when I sent them an email suggesting my book How to Protect Your Life Savings from Hyperinflation & Depression, 2nd edition.

This email accuses me of being a crazy right wing kook:

I loved you Succeeding book it was really fantastic. I didn't know you were a right wingnut though; the advice is your Succeeding book is great. In this email below you sound like just another lunatic right winger picking and choosing facts to fit some personal political views. I'm disappointed. I thought you were a straight shooter on solid ground, and it appears you're another O'Reilly/Hanity/Savage/Limbaugh/Rove lemming. And you're a Doomsday Prepper too?!

It the interest of full disclosure, I sent him a four-paragraph response and he decided to buy the book. He is a big city lawyer with a financial legal specialty. But I will go ahead and discuss it anyway because it is not the first time I’ve heard it.

The first time I heard it was from my wife when I started researching the first edition of the book. “You’re starting to sound like a kook,” she said. I discussed that on page 13 of the second edition.

She changed her mind after she proofread the first edition. She is a Harvard MBA and a career federal bank examiner and banker. It was also proofread by another federal banking executive.

‘Right wingnut…lunatic right winger…another O’Reilly/Hannity/Savage/Limbaugh/Rove lemming…Doomsday prepper’

First, I will state position and explain it in the most basic non-kook way I can.

It is probable that the amount of U.S. dollars that the U.S. Federal Reserve has and will “print” via its “Quantitative Easing I, II, and III” programs and other “printing” programs will trigger hyperinflation of the U.S. dollar.

There are many steps individuals can and should take to minimize loss of their income and/or net worth caused by hyperinflation.

Simple explanation

Is it possible, not probable, that your house might burn down?


Is it possible, not probable, that the United States dollar might become hyperinflated?

Has it ever happened before?

Yes. The phrase “not worth a Continental” which was common during the Revolutionary War period referred to hyperinflation of that colonial currency. Also, the song lyric “I don’t give a damn about a greenback dollar, spend it fast as I can,” refers to hyperinflation during the Civil War era. America also had high inflation in the World War I era and in the late 1970s and early 1980s.

Is there hyperinflation anywhere in the world today?

Yes. Iran and Argentina.

Did it happen anywhere else recently?

Yes. Zimbabwe. Latin America. Israel. Eastern Europe.

Those are all goofy little countries. We’re the United States. Stupid stuff like that does not happen here.

I just told you it happened multiple times here in the U.S. including 30 years ago.

I ask you again, Is it possible, not probable, that the United States dollar might become hyperinflated?

I guess it IS possible, but not probable.

Is it probable that your house will burn down this year?


Do you have fire insurance?


Why do you have fire insurance if it’s not probable?

The mortgage lender requires it.

Why do they do that if it’s not probable?

Just to make sure they don’t lose money, I guess.

Would you have fire insurance if you did not have a mortgage?

I guess.


Insurance doesn’t cost that much and the house burning down would be a financial disaster. We would not be able to afford to build a new house without the insurance.

So you have fire insurance because your house burning down is possible not probable, and the insurance is cheap, and it would be a financial disaster if your house was uninsured when it burned down?


And you admit hyperinflation is possible, if not probable. Do you understand that hyperinflation, in effect, means that all your dollar-denominated assets would disappear? Unlike your house burning down, where you still have the ground under the house, when your money “burns down,” you have absolutely nothing left.

What are dollar-denominated assets?

Cash, bank accounts, certificates of deposit, Social Security, pensions, municipal bonds, U.S. government bonds, U.S. corporate bonds, leases where you are the landlord, mortgages that you took back when you sold property, mortgages you invested in, annuities, lottery winnings that you received in payments rather than a lump sum. Any dollars or situations where someone is supposed to pay you dollars in the future.

Hyperinflation would make all those worthless?


That might be worse than my house burning down.

Yep. So you have protected you home equity from fire which is possible not probable. Have you protected your currency-denominated assets from hyperinflation which is possible and maybe also probable at this point?

How can you do that?

It happens that I wrote a book about how to do that called How to Protect Your Life Savings from Hyperinflation & Depression. You ought to read it. There are many steps you can take, the cost of which is roughly comparable to the cost of insurance in relation to the amount of home value you are protecting. Best case, you can totally avoid being hurt by U.S. dollar hyperinflation at all. You can even profit from it—if you understand how it works and know what to do and do it.

You don’t have to take my word for it

I surmise that many people have heard nothing about pending hyperinflation in the U.S. and therefore assume that if I warn about it, I must be some sort of kook.

Actually, a whole bunch of people are saying it Barack Obama for example. He has often said, as has his Treasury Secretary, the former Treasury Secretary, the chairman ad the Federal Reserve and the former chairman of the Federal Reserve and a zillion others, that our present practice of running trillion-dollar deficits on top of our existing national debt of $16.3T is “unsustainable.”

He says that. He is on the record about it. He likes to be on the record on every side of everything so he can point to his winning bets when they occur, but nevertheless, he says our current borrowing and spending are “unsustainable.”

So what does that mean?

It means our current borrowing and spending will stop.

Then what?

Ah, now that is a question that Obama and Geithner and all those do not care to elaborate on. No problem. I wrote a book that elaborates on it. It’s called How to Protect Your Life Savings from Hyperinflation & Depression, 2nd edition. It is 320 pages and has a lot of detail.

For now let me just say the federal government will soon get its credit downgraded—again—and will find it hard to borrow that annual one trillion to pay for endless deficit spending. We can’t afford to pay higher interest rates because we have $16.3T of national debt.

In 1981, because of 13.5% inflation, our U.S. bonds had to pay 13.45% interest. If we had to pay 13.45% now that would mean a total annual interest bill of 13.45% x $16.3T = $2.2T per year. Since our total taxes collected per year is now $2.4T, having to use $2.2 T of it to pay just interest would mean about the only parts of government still operating would be the IRS, Treasury, Congress and the President—and the latter two would have nothing to do but make sure the tax revenue came in to pay that interest.

So the politicians will have to either cut spending—Social Security, Medicare, federal retiree pensions and health care, Medicaid—by 33% to 50%—or they will try to “print” money so they can keep spending $1 T more than they take in in taxes.

I predict they will “print” money. They have never cut spending since the end of World War II in 1945. They do not cut spending. They just talk about it a little.

No cuts = hyperinflation.

Here are some pertinent quotes from just today’s (12/12/12) Wall Street Journal:

Page 1 article “Inside the Risky Bets of Central Banks” (The U.S. central bank is the Federal Reserve Bank—it is in charge of creating or not creating hyperinflation. Lately, it is creating by “printing” U.S. dollars far in excess of business needs.)

The central bankers are, in effect conducting a high-stakes experiment…If they are wrong, they could kindle inflation…They are providing monetary stimulus [“printing” money] on a massive scale. These emergency measures could have undesirable effects if continued for too long.…Central banks control the spigot of the world’s money supply. When opened, the flow of new cash heats up economies, driving down interest rates and unemployment but risking inflation.…Mr. Dudley and Ms. Yellen [U.S. Federal Reserve executives] spent much of the meeting explaining the Fed’s actions [Quantitative Easing and other purchase of U.S. government bonds], as other central bankers raised worries the program would cause inflation…easy-money policies lack sufficient power to help economies and risk triggering runaway inflation or another financial bubble.…Athanasis Orphanides…recently finished a term as the head of the central bank of Cyprus [said that in the 1970s central banks] made the mistake of keeping interest rates too low for too long, he said, yielding inflation instead of full employment. If banks repeat the mistake of overestimating their ability to push unemployment lower, he said, “disaster will follow on the price front.” [a.k.a. hyperinflation] Mr. Bernanke [Chairman of the U.S. Federal Reserve Bank] sat quietly during the discussion. But he and the other major central bankers were already primed to launch a new monetary onslaught. [i.e., “print” lots more money] The B[ank] O[f] J[apan]… soon followed with news it was also expanding its bond-buying program.

The meeting of the world’s top central bankers discussed in the Journal article took place at the Bank for International Settlements (BIS) in Basel, Switzerland. That Bank was set up in 1930 to handle the reparation payments imposed on Germany and Austria after World War I.

Oh, really? Well, one of the things that has affected me the most in my research about this topic was reading Blockade, the Diary of an Austrian Middle-Class Woman 1914-1924 by Anna Eisenmenger. She, dear reader, was in the receiving end of the reparations imposed on Germany and Austria in the aftermath of World War I, which took place from 1914 to 1918. From 1919 to 1924, those two countries suffered hyperinflation as an indirect result of the financial impossibilities imposed by the reparations. He family members died in that war and afterward in the hyperinflation because of the war and hyperinflation.

This is not a coincidence. BIS in Basel was the Death Star source of those hyperinflation horrors in the early 1920s and appears not to have learned the appropriate lesson.

Not only is the U.S. central bank “printing” too much money. The central bank of Japan and some European Union countries and the Euro Central Bank are doing the same. This could be a perfect storm of hyperinflation simultaneously in Western Europe, Japan, and the U.S. No such thing has ever happened. Past hyperinflations were limited to a couple of usually medium or small countries here and there. The Journal article said the central bankers at this recent meeting represented three-quarters of the economic output of the entire world! If that much of the world goes into hyperinflation simultaneously, it will be a hell of a mess. Perhaps that will mean the governments will fix the problem faster. They can, you know, end hyperinflation overnight. They always do, by ending their country’s legal tender laws and allowing residents to use whatever currency they want. One problem there might be that the remaining currencies will be hard pressed to suddenly serve as the currencies of so many people and countries.

Now let’s turn to page A8 of that same 12/12/12 WSJ. “Risks Seen in Fed Bond Buying”

The Federal Reserve should stop buying bonds, even as the central bank is poised to purchase more, according to a narrow majority of economists surveyed by the Wall Street Journal.…The central bank currently buys about $85 billion a month [about $1 trillion a year] in Treasury bonds and [U.S. government backed] mortgage-backed securities and likely will…stick with that strategy into next year.…the risks of expanding the Fed’s portfolio of assets [bonds bought by “printing” money or conjuring it out of thin air] may outweigh the benefits to the economy.…Fed’s acquisition of long-term bonds is…distorting market prices and creating problems in the future.…the Fed’ expanding balance sheet could make it harder for the central bank to sell off its assets [un“printing’ money by selling the bonds they bought with “counterfeit” money to market buyers who must pay with real money] at a measured pace when the economy begins to improve. That could put the Fed in jeopardy of having less control over inflation…

Now let’s turn to page C4 of that same 12/12/12 WSJ “Dollar Falls Ahead of Fed Meeting”

The dollar weakened against most major currencies Tuesday on expectations for furtherer stimulus [“printing” of more dollars] from the Federal Reserve.…Fed easing floods the market with dollars and generally depreciates the dollar.

This is stated in terms used by those who trade foreign currencies. The dollar weakening means that when you use a U.S. dollar to buy foreign currencies like the Australian, Canadian, and New Zealand dollars and Swiss francs, you get fewer of them. For example, I paid $1.03 for Australian dollars in July. Now you would have to pay $1.05 to buy them. I paid 81¢ each New Zealand dollar I bought in July. Now you would have to pay 84¢ for each Kiwi dollar.

The same article says the Swiss franc went down in relation to the euro because Swiss bank UBS imposed deposit fees on franc bank accounts as Credit Suisse did the week before. That is the Swiss trying to stop people from buying their currency, which makes it hard for them to sell exports and attract tourists. Last June, I bought Swiss francs and took the unusual step of buying them in the form of cash and put the Swiss francs in a Canadian safe deposit box. That would be a little nutty in the case of inflation and decent bank account interest rates. But it is quite smart when the currency in question is deflating, as the Swiss franc has been off and on since 2009, and when the banks in the country in question charge negative interest rates or deposit fees as Swiss banks are now. My Swiss cash in the box gains in purchasing power due to Swiss deflation and I pay no negative interest.

If you are a low-information voter and a low-information observer of current events like monetary and fiscal policy, you might be able to convince yourself than when a Paul Revere like me penetrates your consciousness on the subject of hyperinflation that he is a kook, wingnut, lunatic right winger, lemming, Doomsday prepper. But I am actually a West Point graduate, Harvard MBA, former banker, 36-year real estate investment expert who has now spent 32 months studying what our monetary policy is, where it’s going, and what it means for us as individuals. My 320 page book does not “pick and choose facts.” It presents a ton of facts and quotes from all sorts of experts. Look at the book’s index at It is more than 30 pages long and each index entry generally represents facts. The history chapter contains a time line that starts in 4,000 BC and ends when the book was finished in September 2012 and runs 20 pages and contains hundreds of events—a comprehensive list of all the hyperinflation/depression events of human history, not a small list of “pick and choose” events.

As a professional how-to book author and former coach of 900 athletes, I long ago learned that you cannot educate the uneducable and you cannot coach the uncoachable. George W. Bush called his allies in the Iraq invasion the “coalition of the willing.” My reader are a coalition of the willing to listen and consider with an open mind. If you are not want of those, vaya con dios. If you have read my other books like Succeeding, you know better than to dismiss me as a kook or lunatic. Sorry to dis the presidential candidate you voted for, but most of my readers buy my books at least in part because they trust me to tell them the truth. I’ll be damned if I’m gonna start lying in a book related to federal government behavior to avoid pissing off supporters of various politicians.

Here my brief reviews of the generally rightist pundits the email writer attacked and said I was like:

O'Reilly—He is off base on gasoline prices, religion, bullies quasi-public figures like obscure judges, and does too much clowning around and entertaining for me. But his discussion of deficit spending and coming hyperinflation is actually pretty much on target. He keeps including the word “equities” [stocks] in a list of assets that will be killed by inflation. In fact, equities do not belong in that list. Their behavior during hyperinflation is unpredictable.

Hanity [sic]—Hannity is annoyingly repetitive, a sloppy researcher, biased, petty, whiney, and immature. But he is a bit of an idiot savant when it comes to basic freedom and free enterprise. He was the first to jump on a number of things that should have been jumped on like Reverend Jeremiah Wright. His basic instinct that so much debt is bad is correct. But he is a rather crude, blunt instrument for those who want fiscal responsibility. He needs to become more journalistic and more able to see and willing to report facts that do not fit his predetermined ideology. He apparently feels little need to get many of his facts straight like his oft-stated claim that Reagan cut taxes and tax revenue went up. If you check the actual numbers, there was no such pattern. The Laffer Curve is a correct theory, but the real world is messier than Hannity believes.

Savage—Heard of him. Don’t know him.

Limbaugh—He is a great man. Years ago, my wife put his show on in my car when we rode together. When she got out, I switched to my iPod. Now, I listen to him. He got better. He was a bit too “my side can do no wrong early on.. Now he seems to have much better researchers and seems to be principled but neutral with regard to political figures. He criticized McCain and Romney, praised Hillary once, and so on. His analysis is extremely good and he usually is very careful about his facts. He gets in trouble when he uses hyperbole or phraseology used more to shock than communicate like “I hope he fails” with regard to Obama. He is on my list of national treasures whom we do not appreciate enough. Once again, his analysis of headline news events and policies is one of the best on radio or TV.

Rove—He is a Michael Barone-like walking encyclopedia of nuts-and-bolts political knowledge and a superb analyst of politics.

I think the phrase “Doomsday prepper” is a contradiction in terms. See my prophets-of-doom articles.

The day the dollar dies will be a very bad day for owners of U.S. dollars, but it will not be doomsday. I believe it will be over in six months to two years. What will follow it in the U.S. I do not know. If Ameicans choose freedom and capitalism, it will get better fast. Otherwise…have another country in mind.

A reader sent me this email:

Dear John T. Reed,

In response to your recent posting titled "Am I a kook for warning
against hyperinflation?"

The term "Doomsday Prepper" is a reference to a TV show.

In one episode, a housewife preparing for hyperinflation is featured.

She is shown:
-Stockpiling food.
-Buying "Junk Silver"
-Training her children how to use weapons.

You can watch the segment here (begins a 2:20):

And here is my response:

I know. I have seen it. And probably not a one of them on that show could articulate any depiction of the hyperinflation danger or how it relates to prepping.

Stockpiling food for a year or two is cheap, wise, and recommended by many for many reasons. Our local governments and police and fire recently had an "Emergency Preparedeness Fair" and storing food for various emergencies was a prominent part of it. It is common here in the West to carry a backpack of emergency food, water, and other items in your car because although metro areas like my San Francisco area require no such thing, you can very quickly drive to nearby areas where you might need it.

I talk about junk silver in my book. It's great virtue is it comes in convenient denominations, as opposed to gold which is $1,700 an ounce. Also, junk silver requires no assay because it is very recognizable U.S. coins of a value that counterfeiters would generally not bother with. But the disadvantages of gold in my book also almost all apply to junk silver, for example, it is currently way overpriced compared to its historical average value in 2011 dollars.

Training children to use weapons is nuts. CA law appropriately requires that firearms be stored so children cannot get at them. If the prepper truly fears that their children will be in a firefight here in America, they should emigrate to another country.

I do recommend putting savings in bank accounts in selected foreign conutries, making sure you have unexpired U.S. passports for all your family members, and getting one or more citizenships in other countries so you can always leave the U.S. if necessary. But leaving is a plan C or D not appropriate action for right now.

As always with TV, the producers look for the most interesting, spectacular, way-out-there characters to use. The preppers and survivalists embarrass me, but so do the "We're not Greece" and throw-up-your-hands-and-do-nothing people at the other end of the spectrum.

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