If we get hyperinflation, you MUST leave the US. The alternative is starvation.
Posted by John T. Reed on
On Facbook, I said if and when we get hyperinflation, you need to leave the country.
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A reader said that is “unrealistic” and ruled it totally out. He is going to live off a stockpile out in the boondocks.
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I would like to hear the proof that leaving the US is unrealistic. I spent years analyzing this including analyzing his solution and the leave solution. I have written I think 39 how-to books. Writing unrealistic how-to books is the equivalent of medical malpractice.
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I think the reader’s issue is that he does not want to leave the country.
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People in hell want ice water, too, but that does not mean they are going to get it.
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When hyperinflation hits, Congress will pass the Five Bad Laws.
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• capital controls
• price controls
• rationing
• anti-hoarding laws
• financial repression laws
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Stockpiles violate anti-hoarding laws. The anti-hoarding law prohibits possession of more stuff than your ration coupon entitles you to buy. Legally, stockpilers will be considered criminals.
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We saw this recently with PPE. Rumors, maybe true, were that some who had PPE were stockpiling them for their own later use rather than sharing with others who needed them now. Trump and maybe others sent law enforcement out searching for “hoards” of PPE.
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In her diary of Austrian hyperinflation in 1922—Blockade, Anna Eisenmenger told of having a stockpile of coal—the main heating fuel of the time. She was wealthy and had some domestic help and lived in an expensive townhouse in Vienna.
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The coal was in its usual place, the basement. She heard that inspectors were going around looking for excess stuff like coal. So she and her relatives and domestic—females and a disabled WW I vet—frantically carried the coal to the top floor—fourth I think. This was extremely arduous work and when they finally finished, they all ended up in bed to recover from the physical ordeal of all that stair climbing and coal carrying.
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The next day, the government inspectors came looking for the stockpile. They looked in the basement, found a small amount that was allowed, and left. Anna had to share the coal hoard thereafter with her domestics.
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The average Venezuelan adult under their hyperinflation recently lost 24 pounds. If you have a large enough stockpile during US hyperinflation, you are likely to stand out as the only one in town who is fat and happy.
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That, in turn, will attract government inspectors and/or burglars and robbers. This is not theory. This is what is in the histories of actual hyperinflation. When you start to acquire your stockpile, you must keep it secret from people who do not live in your house. That mean friends, relatives, domestics, workmen, people who sell you the stockpile items. This was known in the 50s when people built fall-out shelters. You needed to somehow prevent your neighbors from knowing you were doing that.
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Barter will be the main way of acquiring necessities within the US. But the only workable barter goods the vast majority of people have are guns, cars, musical instruments, silverware, jewelry metal value. You may think you have other stuff you can barter. Try it tomorrow, see how much cash you can get from other things you can sell on eBay or Craig’s list. Ask an estate selling expert what goods in your house can be sold for cash.
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When you try to barter, you can do it with friends and relatives, but that probably ends in weeks. Everyone is trying to convert household items to food and gasoline. After a few weeks, they will no longer have what you want or want what you have to barter.
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When you have tapped out your friends and relatives for barter, you must go to the black market. These transactions will be illegal. Physically, you need to make an appointment with a criminal. You need to tell him what you want to buy and what you will bring to pay for it.
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He or she may tell another criminal about the transaction so that after you turn over your barter item, a robber will steal the thing you bought back for the criminal to sell again.
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The more transactions you have with the black market, the more the black marketeers will consider that burglarizing you or robbing you is a more efficient way to profit from the relationship.
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Ultimately, food is at the farms. Gasoline will be seized by the government as it was in 1973 and 1979 which I lived through. We had rationing and anti-hoarding laws then.
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Anna Eisenmenger of 1922 Vienna hyperinflation ended up buying rabbits and egg-laying hens which she raised in her basement for food. I believe that was illegal. To the extent that it was successful, again, it needed to be kept secret to avoid robbers and burglars.
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In hyperinflation, store shelves will be empty. Farms will stop producing in the same quantities because the price controls will prevent making a profit. The store shelves will stay empty.
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If you have barter items like nickels or junk silver or silverware, you can trade them for something, but when the store shelves are empty, where are you going to go for food? With whom are you going to barter when everyone is starving?
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Leave the country.
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My FB reader says it is unrealistic. Here are the details. You drive to Canada. (covid is a complication now. I cannot comment on that. It was not in my research, although the Spanish Flu in 1918 was a couple years before the hyperinflation.)
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To get into Canada, you need a US passport that will not expire with 90 days. You will also have to prove that you can support yourself there. You can do that by having a significant-balance bank account there in Canadian currency or an ATM card from another non-hyperinflated nation with a non-USD currency.
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Where do you stay in Canada? Rent a short term apartment, BNB, extended-stay hotel, short term apartment, RV. I will likely try initially to live in a US town near the Canadian border and just shop in Canada.
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If we have hyperinflation and Canada does not, living there will be like living here before hyperinflation hit. Normal. I will spend my CAD to pay my expenses and probably spend my days trying to help my family back in the Bay Area and my son in NYC.
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If I move to Canada, I cannot stay more than 90 days. I am not sure of what then. Either I have to touch base in the US then return to Canada or I have to leave for a longer time.
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So where would I go? Maybe a town near the Canadian border. I would still be allowed into Canada for shopping.
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If I needed to leave Canada and not go back, I could go to any non-hyperinflated nation anywhere in the world. I could save some money-moving transaction costs by going to Australia or New Zealand, but I would have to incur the travel costs of going there. They also limit your visit to 90 days (most countries do).
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If I needed to leave Canada and not go back, I could go to any non-hyperinflated nation anywhere in the world. I could save some money-moving transaction costs by going to Australia or New Zealand, but I would have to incur the travel costs of going there. They also limit your visit to 90 days (most countries do).
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I could go to almost any nation other than Canada until I was allowed to go back to Canada—Europe, Bermuda, Singapore (but high cost of living), Japan (ditto), Uruguay. During my 90 days there, I would need to support myself by using an ATM card or SWIFT wires to access my AUD, CAD, or NZD in those nations.
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Every 90 days, I would have to leave the nation in question. I could, for example, just switch from Australia to New Zealand and repeat with an occasional vacation to Fiji to add up to two 90-day periods in each country with another five days in Fiji or Singapore to add up to 365 days. Could I do that continuously for two years? Sure. Why not?
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How much would that cost? Well, you could go to the lowest rent place or accommodations you could find in Canada. Like where? I am not poor enough that I needed to find that answer, but maybe in the exurbs of Abbotsford, Canada in the part of Canada I am most familiar with: BC.
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Living on the US near the border could probably be made cheap—the rent on your WA apartment would be rent controlled during hyperinflation—and you would not need to move in 90 days. There are national forests in NW WA state near the Canadian border. Last I heard you can live in an RV in them for free.
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You can find the lowest cost of living places in the world in web sites like Numbeo. Basically, it costs the same to live abroad as it does to live in the US. Some places like Singapore are much more expensive, just like NYC is more expensive here. And some places like Toowomba, Australia are cheaper.
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How much does it cost to live in Toowoomba per month? The total cost of living is around $1,567 in Toowoomba. The average rent in Toowoomba for a one-bedroom apartment in the city centre is approximately $957 per month, and utilities cost around $153 a month. I am not saying that is the cheapest place in Australia. An Australian friend of mine mentioned it as relatively cheap to me.
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What is unrealistic? Shopping in stores with empty shelves is unrealistic. If you were to ask a Venezuelan if it would be unrealistic to leave that country during their recent hyperinflation, I expect they would laugh and say the alternative was starvation. The average adult there lost 24 pounds. THAT is not realistic. People who lost more than the average probably starved to death. Disabled people are probably at the most risk.
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A FB reader wrote the following:
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Based on a previous thread a couple days ago about staying put in the USA vs. fleeing the country during hyperinflation, wouldn't it make more sense to convert home equity now into foreign currency, rather than jump through the hoops waiting to attempt these mini-mortgages after the fact? I'm not trying to be a smart a$$, but based on our previous thread my take-away was there really isn't a good scenario for staying home if you have any other options, so converting that equity now would be priority #1. Not so much that you end up house poor or unable to pay your bills, but maybe a HELOC in 2nd position which is fairly easy to do and convert something like $50,000 - $100,000 into foreign currency, keeping the total LTV of primary and secondary loans under 70%.
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Regarding foreigners or stores giving currency or goods in exchange for a lien: like you, I can't predict if that would become common practice or not. One major problem is convincing a stranger in a foreign country or a merchant locally to give you their stable currency or goods for fractional ownership of a piece of real estate in a country that's in turmoil. If I were that foreigner or local merchant, I would be worried that people are trying to flee their native country and go elsewhere. Who will stay put and guard the asset that secured my lien from theft, vandalism, and just routine maintenance to ensure the property retains its value? I bet they'd want a significant discount of cash paid for the lien received. I'd see that as a strategy of last resort if you're stuck and can't leave.
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My answer:
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My answer:
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Selling tiny bits of equity is a theoretical solution. When you think about a US with empty store shelves and people tapped out after a couple weeks on personal property barter, using tiny deeds would enable the economy to come back. One would think there would be a lot of pressure to facilitate anything that would cause that to happen.
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The current practical problems would be that a recipient of a deed would want to record it. At present, that is a pain and they do not have enough staff at the recorders office for the increased volume and each such transaction could trigger a capital gain tax and withholding and so on.
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You suggest preemptive sale of your whole home and converting the proceeds to foreign currency. I just did exactly that.
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We sold the condo we jointly owned with our son Mike and immediately wired one third of it to Canada and converted it to CAD, one third to Australia in AUD, and one third to New Zealand in NZD.
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We sold the condo we jointly owned with our son Mike and immediately wired one third of it to Canada and converted it to CAD, one third to Australia in AUD, and one third to New Zealand in NZD.
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But I am not happy because foreign currency also has risks namely currency risk (decline in value vis a vis with USD—which HAS happened since 2012 regarding AUD, CAD, NZD—they are all worth less in USD than I paid) and inflation risk. Foreign currency can also inflate.
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There should not be a contagion as there is with recessions and depressions, but inflation can happen in other countries simultaneously and coincidentally. It need not be caused by US hyperinflation. I am anxious to get the proceeds from the condo sale into another US home for Mike.
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There should not be a contagion as there is with recessions and depressions, but inflation can happen in other countries simultaneously and coincidentally. It need not be caused by US hyperinflation. I am anxious to get the proceeds from the condo sale into another US home for Mike.
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Your second ¶ gets into a whole other area.
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1. Hyperinflation in the US will last about two years top in my estimate.
2. Average foreigners may not want to buy in a country in turmoil, but my wife and I have been in the Harvard MBA world since 1975. Those types would see the turmoil as a great buying opportunity, and correctly so.
3. Who will stay and guard the house? I already discussed this a while ago. I will go to Canada or NW WA immediately—alone. I have a wife, two sons, and a daughter-in-law who will remain here and the house will not be vacant. Over time we will make mid-course corrections as events and government policies unfold.
4. You are worried about your $200 lien on my house? So you expect that the house and the land under it might not be worth $200? In the debt-collection business, that would be considered a rather good asset. When a house is sold, the title company pays off all such liens.
5. I have written about house swapping. That is now going on and has been for decades. I researched it and wrote an article about it.
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Say both the US and Germany get hyperinflation. We have an HBS German friend and his wife whom we visited there in August 2019. We could swap houses with him. He moves into ours and we move into his and each uses the cars left behind.
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We would both have to have access to non-hyperinflated currency. We have CHF, DKK, and SEK. Say my German friend has CHF.
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Americans cannot have foreign currency in the US during hyperinflation due to capital controls. Ditto Germans in Germany if they have the same situation. But foreigners who are in the US or in Germany CAN have a use foreign currency. Indeed, such foreigners are treated like kings.
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Is that paradoxical? Welcome to the counterintuitive world of hyperinflation and international trade.
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If the store shelves are empty, where would the foreigner go to shop in the hyperinflated nation? It would be like the Soviet Union back in the day. They had special “dollar stores” where government big shots and foreigners like diplomats and foreign businessmen can find full shelves and use their non-hyperinflated currency.
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One example: In 1922, relatively poor British retired lower class workers moved to Germany and lived in five-star hotels. How? They had British pound pensions to spend and were treated like kings as a consequence.
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Anna Eisenmenger and a fictional movie (The Joyless Street) starring Greta Garbo about the hyperinflation in Vienna had an American Army officer stationed in Vienna to secure US aid to the nation from robbers renting a room in their house. His USD rent payments saved their lives by giving them foreign currency that they were allowed to spend.
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I do not hold or recommend euros because they also have been engaging in monstrous deficit spending. So it is possible that the EUR and USD could hyperinflate at the same time. Or maybe Canada might hyperinflate at the same time. In Canada, I would be a foreigner there with AUD, CHF, DKK, NZD and SEK to spend.
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House swaps need not be with friends. They are usually done with strangers.
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You are not receiving cash for a tiny fractional interest. It would be barter goods not cash that you would be receiving. You say the vendor would demand a huge discount. You seem to be saying that merchants in the US would be picky as if you were suffering from hyperinflation but they were not. How do you figure that?
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I read a lot about hyperinflation in recent years in Argentina. One of the great difficulties for business is they need multiple sets of books. Not to be dishonest, but because of multiple prices for everything:
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• The current hyperinflated USD market price
• The pre-hyperinflation market price in USD
• The official price based on the US government official exchange rate (a BS number but required for taxes and such)
• The black market exchange rate for the USD and other currencies being used illegally
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So you figure that in the midst of all that, a merchant who is having enormous difficulty getting inventory and selling it to citizens who are having to barter, is gonna drive a hard bargain on you deeding part of your home to him?
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Back to my message, if there is hyperinflation in the US, leave the country. To do that, you must make sure you have a passport that is not about to expire, foreign currency that is outside of the US, and the knowledge of how, that you get here and from my book and blogs. I do not care for leaving the country being described as “not realistic” or impossible (“stuck and can’t leave”).
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YOU MUST NOT BE STUCK AND NOT ABLE TO LEAVE! You could die from that situation. Do what you need to do now or ASAP to be able to leave the country.
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When I first advocated foreign bank accounts I got a ton of inertia resistance. When I finally just gave the names and contact info of my banker in Canada and Australia, a bunch of readers got it done.
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Just do it. Get it done.
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Opening a bank account in Canada or Australia or New Zealand is almost identical to opening a bank account here. When I visited NZ in 2013, I already had one bank account there. We just walked into two other banks and opened accounts there, too. If you are going to lock up like a deer caught in headlights at the unfamiliar—foreign currency or foreign bank account—solely because you have not done it before, shake it off and get moving.
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Just do it. Get it done.
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Opening a bank account in Canada or Australia or New Zealand is almost identical to opening a bank account here. When I visited NZ in 2013, I already had one bank account there. We just walked into two other banks and opened accounts there, too. If you are going to lock up like a deer caught in headlights at the unfamiliar—foreign currency or foreign bank account—solely because you have not done it before, shake it off and get moving.
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I have a number of readers here who I suspect are nodding as they read all the stuff I am writing about all this. Why are they nodding? They are FROM the places where this happened.
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Frank Welch, a high school classmate of mine, wrote here recently. He went to Brazil in the Peace Corps, married a Brazilian and settled there. But he recently moved to PA, because of crime, not hyperinflation, although he also experienced hyperinflation there.
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Frank Welch, a high school classmate of mine, wrote here recently. He went to Brazil in the Peace Corps, married a Brazilian and settled there. But he recently moved to PA, because of crime, not hyperinflation, although he also experienced hyperinflation there.
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This is not a time for being paralyzed at merely having to do an unfamiliar thing. This is extremely serious s***.
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