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Why has the U.S. not yet had hyperinflation since the post 1980 debt run up has occurred?

Posted by John T. Reed on

  • One of my Facebook and hyperinflation book readers asked “just wondering how we have gone this far without disaster yet?” I have addressed that although not recently. I do not know.
  • One theory I suggested was that the world was grading the USD on the curve and on the past. By on the curve, I mean that they see other major currencies as awful like the yen, pound, euro, and yuan. I agree. Those ARE awful. But they figure the USD has been the beacon of monetary stability since around 1915, so they give it extra credit for that.
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    My recommended currencies—AUD, CAD, CHF, DKK, NSD, and SEK—are all second tier. The world is probably rejecting them on that basis: too small of a market share.
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    Grading on the curve is a bad idea in general. A currency must be good in an absolute sense, not just better than a bunch of other crappy ones. It is possible that all the first-tier currencies I listed above will fall off the wagon and hyperinflate simultaneously.
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    I wrote about some interesting possibilities from that like trading houses with a eurozone resident. If I and the EZ resident each had uninflated currencies, we could live like kings in each other’s country because we would be foreigners in each other’s country. That would mean we would be exempt from each nation’s capital controls. In our OWN countries, mere possession of the uninflated currency, would be illegal for us.
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    Size does not matter. Ratios do. And similarly, past currency strength does not matter. It stemmed from better ratios, not being the land of the free and the home of the brave.
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    My analysis is simple: America now has a record-breaking debt-to-GDP ratio. That means greatly increased risk of extreme inflation. But it could also turn into deflation, like in the great depression. I cannot tell which might happen.
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    That is why my book is titled How to Protect Your Life Savings From Hyperinflation & Depression. Am I sure either will happen? No. Am I sure each would be devastating if it did? Yes.
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    So I did not pick one of the two as probable and tell readers to bet their life savings on it. To bet on hyperinflation, you would borrow as much as possible and put it all into hard assets, or maybe just one: gold. To bet on deflation, you would sell everything and put the proceeds into cash. If you bet on the wrong side, you would be in extremely bad shape if the other happened.
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    But I did not ever consider such advice.
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    Instead of a betting approach, I took an insurance approach. Insurance is low cost and low risk. Homeowners insurance is an example. You buy it because your home could burn down in the next year, which would be financially devastating, and the premium is pretty cheap.
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    And if your house does not burn down, you do not commit suicide over the premium that is gone for nothing. If you say you are going to buy homeowners insurance, your friends and relatives do not think you are crazy.
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    Preparing for hyperinflation or deflation is no big deal. It is akin to buying home, life, or car insurance. Experiencing hyperinflation or deflation is the biggest deal of your life—maybe like your house actually burning to the ground. “Insuring” against it is no big deal. Failure to insure against it could be the biggest mistake of your life.
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    This is a Harvard MBA way of thinking—not universal among them—but identifying the core issues and figuring out how to insure or hedge against them in a free form way in a society where no institutions like homeowners insurance have arisen to make dealing with them common. It is funny to me that friends and readers of my book readers think they have lost their minds when they take steps to follow my advice.
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    They are naifs who know not what risks they are ignoring. The risks are hard to explain to the point where trying to do so is probably a waste of time. It is kind of a perfect subject for me. I offer the analysis and advice. Most reject it. I shrug. After 37 similar books, I understand that I write for a small audience of people who can follow the analysis and make use of it.

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