What happens to employees in hyperinflation?
Posted by John T. Reed on
One of my sons wondered if he was going to lose his job due to hyperinflation. I need to address that. It is in my book but not a focus.
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During hyperinflation or just plain high inflation which we Americans got a belly full in the late 1970s and early 1980s, people still work. Indeed, they get raises. Duh.
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I often tell of the factory workers in Germany getting paid twice a day—at lunch and at end of day—and they had to let them off work after lunch for an hour or so so they could sped the money they just received before it lost purchasing power.
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But they STILL HAD THEIR JOBS!
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Initially, factories did great. Sales exploded. Because when the purchasing power of the dollar plummets, they need to spend it ASAP, and they do. On what? Everything. One businessman in German sent word to his managers to buy stuff with the business’s cash they had. “Like what?” they asked. “Anything!” he said back.
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You’ve heard the expression “Spending like the money is burning a hole in your pocket?” That is exactly how people behave in hyperinflation. Is that good for sellers of goods? Of course. Another duh.
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Now there are some things that disappear. For example, credit, bonds, loans (which are bonds). If you are in the business of extending credit as in credit cards and lines of credit, I predict you will lose your job. Why? No one is his right mind will lend money in hyperinflation.
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No mortgages, no credit cards, no lines of credit. Debit cards will live on. Banks would cease to make income from interest. They would have to become fee based. Inflation in the 1970s and early 1980 essentially wiped the S&L industry off the face of the earth. Both their trade association (U.S. League of Savings Institutions) and their regulator FSLIC closed. Those people DID lose their jobs.
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So all credit jobs can be expected to disappear for the duration.
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I would expect the US Mint to shut down. In hyperinflation, by definition, the $100 bill becomes the new penny. At present, pennies and nickels and even dimes hav no use other than as change. You can no longer buy anything for a penny, nickel or dime.
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When I was a kid, we had penny candy, a Coke at a soda fountain cost a nickel as did candy bars and a dime bought you a comic book or, famously, a cup of coffee. My dad was a 5¢ & 10¢ store manager. Now you have dollar general as a sort of bargain basement version of that.
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Retail clerks will have trouble staying employed because of price controls emptying store shelves. Producers like farmers, ranchers, manufacturers, fishermen, will continue to have demand for their products although the government will be getting in their way a lot. But they will also be getting out of their way a lot because of screaming from the producers and their customers.
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One of my sons is in K-12 online education. That has been booming due to covid 19. It would likely still be important during a financial crisis.
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Export and import will NOT have price controls because the free market is unavoidable at the border. Any attempts to control the prices of imports or experts will disintegrate on enactment by definition. So people in those businesses should do well.
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Incoming tourism should survive but those tourists must be provided with travel necessities like food. Serving them is essentially an export of service. Incoming tourists, unlike Americans, will be allowed to have and spend non-hyperinflated foreign currency. Americans will be prohibited from possessing foreign currency.
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Outgoing tourism—Americans traveling abroad as tourists—should dry up.
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Generally, any business with foreigners is a great thing in a hyperinflated country.
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And what about the other end of financial hard times: paying your bills? Your main living expense is your mortgage if you are a home owner or rent if you are a tenant.
But your mortgage, assuming it is a fixed-rate, will not inflate. At present, your mortgage payment is likely enough money to buy a computer. During hyperinflation, it will not inflate and will become like the price of a candy bar. Hardly anyone goes bankrupt in hyperinflation because the real (adjusted for inflation) amount of the loan payments and balances falls to near zero.
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If you get COLA pay raises to keep you even with inflation, you might see your pay, say, double. If your pay doubles and your mortgage payment does not move up one penny, you are not going to have trouble paying the mortgage.
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Same goes for rent because politicians will slap rent controls on all rents more or less as they have recently due to covid 19. So your pay will increase due to COLA raises, but your rent will hardly increase due to rent control.
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Real estate should still sell, largely to foreigners. During German hyperinflation, German immigrants to America and other non-Germans were buying German real estate because it was exceedingly cheap if you were spending foreign currency.
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My other two sons are in enterprise software for marketing and revenue management. That applies to all businesses and although they would have to help clients with the added complication of inflation, businesses will still need software and expertise on how to use it if it produces increased revenue.
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Feel better now?
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Oh, you’re a mortgage loan officer?
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Update your resume and start looking for another job yesterday.
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