I have a sense that readers think I am exaggerating how bad hyperinflation is. Venezuela, which is the main hyperinflation in the world today, has seen its GDP fall 40% since 2013. The people are starving literally. 64% of respondents to a survey there said they lost 25 pounds in 2017.
This is why I say you must get out of a hyperinflated country if you find yourself in one. That requires a little preparation before the ’flation hits the fan. Preparation that is quite easy if you do it in time. But near impossible if you wait too long.
Is America Venezuela? In some respects, not. I have said it would likely last six to 24 months in the US. It ends because it is simply intolerable. Why has it not stopped in Venezuela years ago because it surely has been intolerable years?
I have never been to Venezuela. I was in Colombia, it’s next door neighbor, in January. My guess is there are too many true believers in socialism in Latin America. The government has some resources and their supporters get more food than non-supporters. And the supporters still support. I see no such majority or even large group of socialists in the US.
But don’t tell me hyperinflation cannot happen here. We already had it in the Revolutionary War era (“not worth a Continental”) and the Civil War (“I don’t give a damn about a Greenback Dollar, spend it fast as I can”). We had inflation high enough to screw the country up big time after World War I and in the late 1970s and early 1980s. I lived through that as a thirty-something.
Perhaps the main new thing I learned in graduate business school was that size does not matter. Ratios do.
Is America the biggest national economy in the world? Yes. Does that prevent us from having hyperinflation? No. Hyperinflation comes from “printing” too much money which comes from too much government deficit spending. That too much is measured by a ratio, not the amount. In 1933, the U.S. government national debt was 17% of GDP. Quite healthy and no danger of hyperinflation. It is now 105%, almost double the max allowed if you want to join the EU.
And there is a greater danger now than in most past inflations. They used to be caused by war spending—which caused the federal government to adopt a price is no object mindset. Wars end, which is a blessing for those who know enough to be scared about high debt-to-GDP ratios.
But this time, it is NOT a war. It is entitlements, which like wars, make people think that they simply cannot be cut back no matter what. Monetary catastrophe is inevitable. People are being misled by the calm before the storm, but not those in Venezuela.
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