gmaynardkrebs wrote: ↑
Fri Mar 15, 2019 9:38 am
pward wrote: ↑
Fri Mar 15, 2019 9:06 am
gmaynardkrebs wrote: ↑
Fri Mar 15, 2019 8:56 am
KlangFool wrote: ↑
Fri Mar 15, 2019 8:08 am
gmaynardkrebs wrote: ↑
Thu Mar 14, 2019 9:57 pm
If I thought hyper-inflatio was a threat,
I'd own gold or possibly silver. For garden variety above-average inflation, TIPS would seem to be a much better choice.
You believe that hyperinflation is not possible. So, you do not own any gold. I know that I know nothing. As a result, I am prepared for hyperinflation by owning a few thousand in gold.
I would say virtually impossible. However, as it happens, I do have a few thousand in junk silver (pre-1965 halves quarters, and dimes) which I bought in the 1980s. Gold doesn't make sense to me for practical reasons. Buying a loaf of bread or a dozen eggs with a gold bar, a gold Eagle or even a 1/10 Eagle would be hard. The denominations are too large IMO. Some friends of mine buy the really slim gold "wafers" for that reason, but I could see those being rejected by some sellers. So while I think it is borderline nutty to protect yourself against hyperinflation in the USA, I still have my coins, so I must be borderline nutty still.
Improbable, yes. Impossible, no. Most developed country hyper-inflations (i.e. Weimar Germany) come as a result of losing a war and owing substantial amounts of reparations in foreign currency. It's something that could happen to the U.S. Unlikely, sure. But not impossible. Also, if we were to lose world reserve currency status, it could generate very high inflation though massive foreign selling of the dollar. It think this is much more likely, and is inevitable to happen at some point in time (whether that's in our lifetimes or not, who knows?). But even a brief run of the mill spike up to 5%+ inflation would be very painful for our country that has grown all too comfortable with non-existent inflation. I think that just that small jump in inflation would cause a lot of people to panic and send the price of gold way up.
That being said, in a hyper-inflation people don't always pay directly for things with gold or silver. They generally exchange some gold for the failing currency (or, if available, foreign currency), then spend that money on the goods they need ASAP before it loses too much value. I've posted this earlier in the thread, but this is a free pdf from Ray Dalio on debt crisis. They have a case study on Weimar Germany that is absolutely fascinating. To think that the amount of currency it took to buy a loaf of bread in 1923 was more than the entire amount of currency that existed 10 years earlier in 1913 is simply astounding. It just doesn't seem possible, especially in a developed country. It's definitely worth a read: https://www.bridgewater.com/big-debt-crises/
There's also a great Bergman(?) movie on hyperinflation (IIRC, Serpent's Egg?).
The question I have for you is what event would precipitate Weimar-type inflation in the US? Inflation is a purely monetary phenomenon, and if a central bank wants to stop hyperinflation, it can. Who do you think was printing all those Weimar DMs? "Massive" selling of the dollar could happen, but it would be hyper-inflationary only if the US central bank allowed it to be hyper-inflationary. Why would it ever do that? I may not always agree with our central bank, but I think they are, at the very least, competent.
Well, if you read the Bridgewater book I liked above you'll see what causes hyperinflation. The sad thing is it gets to a point where printing more money simply becomes the lesser of the evils. It becomes that or letting their society starve...
There are two cases I see where hyper, or at least very high, inflation could happen in the U.S. I'm going to try to say this as apolitically as possible so Lady doesn't yell at me, haha.
1) a case similar to Weimar Germany (very in depth case study in the Bridgewater book linked multiple times in my past comments), where we lose a war and wind up with a massive reparation bill that is denominated in a foreign currency. Since the debt is owed in a foreign currency, it can suffocate a country.
2) would be if the U.S. lost it's status as world reserve currency. Traditionally world reserve currencies have lasted ~50-100 years, so this is a real possibility. Also, there is growing populism worldwide, and part of that is a growing contention with the U.S. and our currency. Having reserve currency status is a great privilege, it means that we benefit from massive foreign investment inflows that no other country does. A lot of other countries don't see this as fair. If we lose world reserve currency status then there will be massive selling of dollars that already exist by foreign countries, which like any asset if there is mass selling of the dollar it will lose a substantial amount of value (i.e. inflation) and there would be limited things the Fed could do to fight it because the dollars are already in existence. And any way they could fight it would be very painful and could possibly be seen as the greater of the evils.
Now I'm not saying either of those things will happen, and I do not want to start a political debate on the subject, just want to highlight a couple possibilities that could happen, since you asked. Personally, I sleep well at night knowing I have some "insurance" in a gold allocation in my portfolio. Like any insurance the best possible scenario is that I pay my premium and never have to file a claim. But just in case, I have my insurance policy to protect my portfolio.