How to Protect Your Life Savings from Hyperinflation and Depression, 2nd edition
324 pages, 8 1/2 x 11, paperback
This book tells you how to rearrange your assets and liabilities so that you are not devastated by the U.S. dollar hyperinflating or deflating. Each has happened in the past around the world and in the U.S.
My approach is an insurance one, not a gambling one. I do not tell you to bet on either inflation or deflation. Most other writers on the subject do tell you to bet. If it does not happen, or takes too long to happen, those bets will hurt you.
Rather, I tell you how to hedge or “insure” against hyperinflation and deflation in low-risk, low cost ways.
If you follow my advice and no monetary instability occurs, no harm done. But if the dollar does greatly inflate or deflate, you will be extremely glad you read the book and followed its advice.
What’s at stake in hyperinflation is that it would cause all of your dollar-denominated assets to become worthless. That means cash, bank accounts, bonds, annuities like social security and pensions all become worthless.
I can't express my gratitude enough for your book on hyperinflation – best money ever spent on a book; and perhaps the most important financial planning tool I've ever come across! Matt Heckard
If you think the government would never let that happen, you don’t understand hyperinflation. It is caused by the government. They want to spend more than they have so they have to “print” the money to keep spending. But “printing” money faster than the growth of the economy risks hyperinflation and the more you “print” and the longer you keep “printing,” the greater the likelihood and severity of the hyperinflation.
‘It could happen tomorrow.’
That's the first sentence in my book How to Protect Your Life Savings from Hyperinflation and Depression, 2nd Edition. I continuously write about the increasing crescendo of warning signals that hyperinflation is coming at my hyperinflation and depression blog.
When subprime loans began melting down in 2006, I started studying what happened to make sure I did not make such mistakes and to tell my readers how to avoid the mistakes.
When the Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, AIG, and the stock market crashed in 2008, I figured there was something bigger going on here. So I began to furiously research past financial crises. I wanted to see who won and who lost in each and figure out how I and my readers could protect ourselves.
A friend suggested I title this book How to Keep What You’ve Got. That is partly what my book is about. But when you explain risk management, you have to identify which risk you are managing. Each risk requires different protective steps. The main risk we face at present is what economists would call monetary instability. Consumers would call it inflation and depression. Depression is another word for deflation. The problem in each case is a radical change in the purchasing power of the dollar.
Federal government borrowing and spending is a runaway train
The verdict on recent and projected federal government borrowing and spending is universal:
Who says so? Everyone—Greenspan, Limbaugh, Bernanke, Geithner, Beck, Volcker, Obama. Everybody.
Okay. So what does “unsustainable” mean?
It means economics professor Herbert Stein (Ben’s father) was right when he promulgated Herbert Stein’s Law:
If something cannot go on forever, it will stop.
I hereby promulgate John T. Reed’s Law:
If something is unsustainable, it will not be sustained.
But what does it stopping mean?
Too horrible to mention
The politicians named above won’t tell you the truth, or they won’t tell you the whole truth. Because it’s ugly, illegal, and immoral. I’m talking default on the national debt, hyperinflation, draconian cuts in entitlements, order-of-magnitude tax increases, and forcing U.S. citizens to buy overpriced U.S. government bonds because no one will buy of their own free will.
What the federal government needs to do is obvious: eliminate Medicare and Obamacare entirely, turn Social Security and Medicaid into programs that only the truly destitute can qualify for, cut military and other federal retiree pensions and benefits down to the civilian level, “broaden the tax base” (that means making the lower and middle classes pay taxes again), eliminate the cabinet departments created since 1960 and their employees, etc.
In other words, the overspending has gotten ridiculous. We have to live within our means. Our means at present are tax revenues of $3 trillion (2014 revenues from all types of federal taxes) Our projected spending is around $4 trillion plus more to pay off U.S. government bonds coming due each year. That means we have to borrow. Where do we get that money? By selling U.S. government bonds or “printing” it.
No one bids on our bonds
What “it will stop” means is that the buyers of our federal bonds in the U.S. and around the world will eventually say, “No, thanks. Your U.S. national debt is so high in relation to your income that we no longer trust you to pay us back and keep the purchasing power of the dollar steady. We think you are either going to default or inflate the dollar or both.” When that happens, and it arguably already has, the U.S. government must stop paying all its bills or pay them by “printing” money. “Printing” money causes inflation. “Printing” lots of money causes hyperinflation.
If we cannot borrow those amounts, the government has to cut spending by huge amounts! That’s why they have to eliminate Medicare and so on as I said above. You say Medicare is too popular to cut? The bond market doesn’t care. And the politicians and voters squealing like stuck pigs doesn’t pay the bills. Only the bond market can pay the bills, and they are starting to complain about the amount of risk they are taking paying bills for Americans. Indeed, the bond market will tell you Medicare is one of the biggest parts of the problem. The bond market will not lend money to us until Medicare and other spending are reduced to reasonable levels. And reasonable levels are WAY below current levels.
Cannot tax our way out
Can we tax our way out of debt? No. The U.S. cannot double or triple its current tax levels.
Cannot grow our way out
Can the U.S. grow out of the debt problem as in the past? No. It’s too big. 3% annual growth would be extraordinary. That would be 3% x $16.8 trillion (U.S. Gross Domestic Product) = $500 billion increase in the U.S. economy. Since World War II, U.S. annual tax revenues have been about 18% of GDP no matter who has control of Congress and the White House. 18% of $500 billion is only $90 billion. It would take a long time to pay off a $19 trillion national debt at a rate of $90 billion per year—200 years to be exact. Furthermore, that $90 billion additional tax revenue would only go to paying down the debt if we starting running a $90 billion a year surplus and used every penny of it to pay down the debt. No one claims that will happen.
Politicians will cut spending—AFTER they try everything else—including hyperinflation
Are the President and Congress going to cut spending by hundreds of billions of dollars per year? No. What if Republicans take control of the White House and Congress? No. They did from 2017 to 2018—and increased deficits spending back up to the $1-T-a-year Obama level.
The politicians in Washington are going to keep the runaway train going until it crashes. Thus my new book How to Protect your Life Savings from Hyperinflation & Depression.
Get off the train track before you get run over by the federal deficit
This is going to happen. There is no political will to stop it. The public is too ignorant of finance to realize the catastrophe that may be about to happen. All we as individuals can do is “get off the train track.” How to Protect your Life Savings from Hyperinflation & Depression tells you, in detail, how to do that.
Why both hyperinflation and depression?
Because my research indicates that it is impossible to predict which we will get. Hyperinflation happens because the government deliberately “prints” too much money. They do that because they are afraid to cut spending or raise taxes enough to avoid it.
Depression/deflation, on the other hand, is a blunder by the government. It is mainly caused by the government waiting too long to “print” more money or by the government slamming on the brakes too hard to stop hyperinflation. It can also be caused by stupidity like protectionist laws, wage and price controls, tax increases, and so on—none of which are beyond our politicians.
Not gold or TIPS
Most somewhat informed people believe gold and/or Treasury Inflation Protected Securities protect you from inflation. That’s wrong. You have to read the fine print of the pertinent laws. When it comes to gold, if you think it’s a good inflation hedge, you must not know the history. There are a bunch of reasons why gold is not a good inflation hedge. With TIPs bonds, the reason why they are no good is the indexes adapt way too slowly. How to Protect your Life Savings from Hyperinflation & Depression covers gold in a chapter on “Gold and Other Commodities.” TIPs are covered in detail in the “Bonds” chapter.
Condemned to repeat it
Perhaps the greatest danger to Americans today with regard to hyperinflation and depression is the fact that very few have experienced and remember either hyperinflation or depression. So they do not fear it enough. Since they have not experienced it, they unconsciously believe it cannot happen.
Oh, yes it can. How to Protect your Life Savings from Hyperinflation & Depression takes care of that deficiency in your experience and memory with a detailed chapter on the human history of financial crises as well as historical examples all through the book.
Tax law is big in hyperinflation and deflation
Income and property tax law interact big time with hyperinflation and depression. How to Protect your Life Savings from Hyperinflation & Depression explains how. I am also the author of the book Aggressive Tax Avoidance for Real Estate Investors now in its 20th edition. As an expert on both the tax law and the history of financial crises, I recognize interactions that even the top tax lawyers might not recognize. One of the “trains” coming at you on the hyperinflation track is the income-tax law “train.”
Insurance, pension plans, college savings plans
The same is true of insurance, retirement accounts, and college savings plans. During German hyperinflation in the early 1920s, university endowments, annuitants, owners of insurance policies with cash value, and so on were completely wiped out. Deposit insurance did not exist then, but it would not have mattered because deposit insurance does not protect you from loss of purchasing power. Pension plans like IRAs, SEPs, and 401(k)s did not exist then either. Furthermore, they have never been tested in a real financial crisis. Depending upon the details, the right pension account can save you financially, or destroy you if we have hyperinflation or depression.
Government and institutional reaction is predictable
Generally, it’s impossible to forecast the future. But when it comes to the way government and banks and insurance companies and so on behave during financial crises, forecasting is possible. How so? There have been national financial crises since 301 A.D. Politicians, kings and dictators do not change their spots. Time and again, the leaders of governments and institutions did almost the same thing repeating the same mistakes initially, then finally doing the right thing when they had no other choice. But they will repeat the mistakes for many years before they are forced to do the right thing. If you get wiped out by the typical behavior of government and institutions before they finally do the right thing, their doing the right thing eventually won’t do you any good.
The Consumer Price Index? Forget about it.
The chapter on indices explains the limitations of the main official measure of inflation: the Bureau of Labor Statistics Consumer Price Index. In fact, it does not work for other than moderate inflation. In How to Protect your Life Savings from Hyperinflation & Depression I tell you about warp-speed, real-time market- rather than bureaucrat-based inflation indicators that you can use to try to deal with hyperinflation. Hyperinflation always ends and ends overnight. In theory, the CPI indexes will then catch up. But that would just start the hyperinflation all over. There is not enough money in the world to pay all the U.S. federal spending promises the politicians have made. So they will terminate the CPI indexing promises wherever they have been made. They must to end the problem. But that means CPI indexing has to be reneged upon and outlawed even by private parties.
Simple and complex
The list of solutions to How to Protect your Life Savings from Hyperinflation & Depression includes both simple and complex techniques. I am biased in favor of simple, few-links-in-the-chain solutions, but I also discuss the complex ones that involve institutions and financial engineering. Advance Purchase and Sale is one of the longest chapters and will take care of a great deal of the protection you need and do so in the simplest manner.
Barter is not a Plan A or even a Plan B. But I have to tell you about it as at least a Plan C. In the 1990s, many Argentinians, suffering hyperinflation, were saved from starvation only through barter. There are tricks to it. Tax laws apply to it. Read all about them in the Barter chapter.
Stocks, real estate, foreign currency, bonds, Swiss bank accounts, and all that
Will well-selected stocks, real estate, foreign currency and so on protect you? Stocks are a crap shoot. Depends on what’s on the financial statement of each corporation. Well-chosen foreign currencies are great. I have six and they have to be located outside of the U.S. Read any book on past hyperinflations and you will find the citizens spend almost all day every day trying to get foreign currencies with which they can buy food, fuel, medicine. The rest of their days are spent on barter, black markets, and evading authorities. I discuss those subjects mainly to convince you why their reputations for inflation protection are incomplete at best and wrong at worst.
The stuff you do not think about enough
Some of the most important chapters in How to Protect your Life Savings from Hyperinflation & Depression cover stuff you probably rarely think about. Like what? New forms of money that spring up during financial crises like scrip or warehouse receipts. Liquidity. Counterparty risk. Exchange risk. Depository institution risk. Bankruptcy risk.
How to Protect your Life Savings from Hyperinflation & Depression is a risk-management book. 99.99% of American have almost no clue about risk management. Yet they are currently marching like lemmings toward our unsustainable financial future blissful in their ignorance of hyperinflation risk, deflation risk, exchange risk, depository institution risk, counterparty risk, tax risk, political risk, index risk, model risk, currency risk, non-recourse mortgages, bankruptcy exemptions, correlated assets, and so on. In hyperinflation or depression, that sort of ignorance can kill you financially, and too often in the past, literally end your marriage, health, and even life. Wise up fast before it’s too late.
I also talk about risk management in my books Best Practices for the Intelligent Real Estate Investor and Distressed Real Estate times.
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I also talk about investment in my Succeeding book.
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