10,000% inflation in USA?

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flawlessmicro
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10,000% inflation in USA?

Post by flawlessmicro » Wed May 15, 2019 4:05 pm

Hi bogleheads,

Venezuela had 60,000% annual inflation in 2018, and is projected to suffer 1,000,000% to 10,000,000% inflation this year.

I’m not making this up.

This doesn’t even sound real, but it’s what I’m seeing. You can google this.

And Venezuela used to be a very prosperous country before this. They were really a middle class type economy.

The feds have historically tried to have a 2% annual inflation target here in the USA.

Ok. Now that I have presented the facts and reality and gravity of the situation...

What are some hedges you guys have in place to counteract something like this happening in the USA or any other mature economies?

I understand that the chances of this happening is slim to none. But that’s not what I’m aiming to discuss.

It’s a black swan type event. Like a 20-30 year japan n recession deflation/stagflation situation. It likely won’t occur.

That said, we can’t rule this out. Because it’s a possibility.

Any thoughts?

This type of situation is what scares me the most. Double digit hyper inflation is crazy enough, let alone 10,000%+

By then it wouldn’t matter if you have $2 million in a 3 fund portfolio and you’re taking about between 3-4% a year to live on thinking you were safe.

Your nest egg would be obliterated in less than a year’s time. And a milk of carton would cost a year’s worth of income.

I think minimum wage in Venezuela is something like 15,000 bolivars a month. A McDonald’s bigmac used to cost 27 bolivars. Today it costs something like 30,000 bolivars. So two months of income to buy a burger.

Thoughts? And what are you currently doing to hedge against this type of extreme scenario happening?

gclancer
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Re: 10,000% inflation in USA?

Post by gclancer » Wed May 15, 2019 4:12 pm

A 30 year fixed rate mortgage (or a few) would be a nice commodity to have. You’d be able to pay off a property you acquired for a quarter of a million dollars for the cost of a nice dinner out. Of course 10,000% inflation doesn’t occur overnight - I imagine those mortgages would be harder to come by once inflation started running at 25% annually let alone hundreds or thousands percent per annum.

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TheTimeLord
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Re: 10,000% inflation in USA?

Post by TheTimeLord » Wed May 15, 2019 4:13 pm

flawlessmicro wrote:
Wed May 15, 2019 4:05 pm
Any thoughts?
To me dwelling on stuff like this is a depressing, counter-productive game of what if. I prefer to focus my energies and planning on the likely scenarios and accept there are things that are out of my control that would be catastrophic if they came to pass.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

thefirst100k
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Re: 10,000% inflation in USA?

Post by thefirst100k » Wed May 15, 2019 4:14 pm

If you don't invest, you lose 3% each year. So you gotta invest in something. I don't let theoretical hyperinflation keep me from investing. If it happens, I'll have bigger problems to deal with than money.

One thing you can do is invest in an international fund to hedge against the risk of something like this happening in the US. Or land, firearms and canned food.

Day9
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Re: 10,000% inflation in USA?

Post by Day9 » Wed May 15, 2019 4:15 pm

I bonds still offer 0.5% real yield which is the highest rate in over 10 years, and the spread between I bonds and TIPS is also historically in favor of I bonds.
I'm just a fan of the person I got my user name from

Silk McCue
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Re: 10,000% inflation in USA?

Post by Silk McCue » Wed May 15, 2019 4:18 pm

flawlessmicro wrote:
Wed May 15, 2019 4:05 pm
Thoughts? And what are you currently doing to hedge against this type of extreme scenario happening?
Nothing. Even thinking about it is a waste of my time.

Cheers

ohai
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Re: 10,000% inflation in USA?

Post by ohai » Wed May 15, 2019 4:21 pm

Hedge inflation? Buy land, gold, guns, euros and so on.

US situation is incomparable to Venezuela. On the base level, rapid devaluation of USD will destroy the balance sheets of all countries and likely cause rapid devaluation in those countries as well. This will naturally reduce prices of imports to the US.

Furthermore, the cause of Venezuela's crisis are not the same as in US. They doubled down on the oil economy, took over all goods distributors, and socialized all services. So, when government institutions failed, you cannot buy goods, since no private entities can import them.

Venezuela also has a completely undemocratic and unmoving government that resists solutions to the crisis.

So, I'm not saying US cannot become like Venezuela. However, the probability is quite remote such that hyperinflation might not be worth hedging. You could suffer all sorts of weird demises, like meteor falling on your house or escaped lion from the zoo eats you. However, hedging every scenario is quite difficult and you wouldn't bother buying specific insurance for all these cases.

Dottie57
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Re: 10,000% inflation in USA?

Post by Dottie57 » Wed May 15, 2019 4:23 pm

TheTimeLord wrote:
Wed May 15, 2019 4:13 pm
flawlessmicro wrote:
Wed May 15, 2019 4:05 pm
Any thoughts?
To me dwelling on stuff like this is a depressing, counter-productive game of what if. I prefer to focus my energies and planning on the likely scenarios and accept there are things that are out of my control that would be catastrophic if they came to pass.
+1

Thesaints
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Re: 10,000% inflation in USA?

Post by Thesaints » Wed May 15, 2019 4:26 pm

There are two types of inflation: when there are too few goods on the market and when there is too much money available.
Which one do you have in mind ?

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mrspock
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Re: 10,000% inflation in USA?

Post by mrspock » Wed May 15, 2019 4:58 pm

Yes actually I can rule it out. Done. Life is too short to worry about this sort of nonsense.

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Kenkat
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Re: 10,000% inflation in USA?

Post by Kenkat » Wed May 15, 2019 5:03 pm

Unlikely to happen and would generate tremendous upheaval and turmoil but good hedges would be hard assets (gold, silver) and commodities as a start.

TN_Boy
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Re: 10,000% inflation in USA?

Post by TN_Boy » Wed May 15, 2019 5:08 pm

flawlessmicro wrote:
Wed May 15, 2019 4:05 pm
Hi bogleheads,

Venezuela had 60,000% annual inflation in 2018, and is projected to suffer 1,000,000% to 10,000,000% inflation this year.

Much stuff deleted ....

Thoughts? And what are you currently doing to hedge against this type of extreme scenario happening?
The US is not Venezuela. The differences between the two countries are immense. The US is also not Germany in the 1920s.

I do absolutely nothing to hedge against this scenario. (I do wonder what would happen to my foreign equity funds, since they would presumably surge given a catastrophic loss of value in the US dollar; we have a portfolio that is widely diversified internationally).

That said, the thing to do, if one someone had a strong belief that hyperinflation was about to happen in the US, the correct response is to get yourself and your money out of the country as fast as possible. Because the country infrastructure would more or less collapse. Given that the US is the world's largest economy, there might not be a whole lot of places to go to. The key would be to try and flee early ....

6Pack
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Re: 10,000% inflation in USA?

Post by 6Pack » Wed May 15, 2019 5:19 pm

If you study history, you’ll see that hyperinflation is not a new thing. Look at the Weimar Republic in the 1920s and 1930s. I don’t have the rate handy, but it’s my understanding a few million Marks would buy a gallon of milk (before the hyper inflation, 1 Mark was approximately $4 USD).

If you are worried about it, watch some Doomsday Prepper reruns.

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RickBoglehead
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Re: 10,000% inflation in USA?

Post by RickBoglehead » Wed May 15, 2019 5:24 pm

TheTimeLord wrote:
Wed May 15, 2019 4:13 pm
flawlessmicro wrote:
Wed May 15, 2019 4:05 pm
Any thoughts?
To me dwelling on stuff like this is a depressing, counter-productive game of what if. I prefer to focus my energies and planning on the likely scenarios and accept there are things that are out of my control that would be catastrophic if they came to pass.
Agree.
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DonIce
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Re: 10,000% inflation in USA?

Post by DonIce » Wed May 15, 2019 5:28 pm

flawlessmicro wrote:
Wed May 15, 2019 4:05 pm
Hi bogleheads,

Venezuela had 60,000% annual inflation in 2018, and is projected to suffer 1,000,000% to 10,000,000% inflation this year.

I’m not making this up.

This doesn’t even sound real, but it’s what I’m seeing. You can google this.

And Venezuela used to be a very prosperous country before this. They were really a middle class type economy.

The feds have historically tried to have a 2% annual inflation target here in the USA.

Ok. Now that I have presented the facts and reality and gravity of the situation...

What are some hedges you guys have in place to counteract something like this happening in the USA or any other mature economies?

I understand that the chances of this happening is slim to none. But that’s not what I’m aiming to discuss.

It’s a black swan type event. Like a 20-30 year japan n recession deflation/stagflation situation. It likely won’t occur.

That said, we can’t rule this out. Because it’s a possibility.

Any thoughts?
Yes, we have these threads once a month or so. It's simple, 10,000% inflation isn't just a financial/monetary phenomenon. Rather, it is indicative of complete economic collapse of a country or civilization. Any typical "hedges" that would be good in "normal high inflation" scenarios (such as say double digits per year) are completely irrelevant in the scenario of societal collapse. 10,000% inflation in the US would be associated with mass starvation, violence, no electricity, no internet, no functioning banking system, etc.

There are many useful hedges against typical high inflation, like foreign assets, real estate, inflation-protected bonds, gold, commodities, and even equities do ok. There are no useful hedges against hyperinflation except stockpiled food, weapons, and a reliable escape route. Unless you want to go full prepper, there is no way to be ready for a hyperinflation scenario.
Last edited by DonIce on Wed May 15, 2019 5:28 pm, edited 1 time in total.

Starfish
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Re: 10,000% inflation in USA?

Post by Starfish » Wed May 15, 2019 5:28 pm

flawlessmicro wrote:
Wed May 15, 2019 4:05 pm

What are some hedges you guys have in place to counteract something like this happening in the USA or any other mature economies?
extreme scenario happening?
Fixed interest long term loans (mortgage + other RE). I pay the minimum necessary and refinance when I can.
I grew up in a country with a lot of inflation in the 90s. It came to the point where a used low end car was an excellent investment because it maintained the value (also many other things starting with stable currency).
I don't like gold much. If poverty strikes, nobody cares abut gold anymore, they want basic stuff. Gold is maybe ok for moderate inflation, but I doubt it's effectiveness in a high inflation scenario with the entire world affected.

DB2
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Re: 10,000% inflation in USA?

Post by DB2 » Wed May 15, 2019 5:33 pm

ohai wrote:
Wed May 15, 2019 4:21 pm

Furthermore, the cause of Venezuela's crisis are not the same as in US. They doubled down on the oil economy, took over all goods distributors, and socialized all services. So, when government institutions failed, you cannot buy goods, since no private entities can import them.

Yet a growing number people in the U.S. want to do some of these things. But yeah, I will flee before if it gets anywhere near that bad here. It's also another reason I believe in having some international diversification - and not only just because of something as extreme as this. I don't like to bet 100% on any one country for long term investing.

Starfish
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Re: 10,000% inflation in USA?

Post by Starfish » Wed May 15, 2019 5:37 pm

DonIce wrote:
Wed May 15, 2019 5:28 pm
flawlessmicro wrote:
Wed May 15, 2019 4:05 pm
Hi bogleheads,

Venezuela had 60,000% annual inflation in 2018, and is projected to suffer 1,000,000% to 10,000,000% inflation this year.

I’m not making this up.

This doesn’t even sound real, but it’s what I’m seeing. You can google this.

And Venezuela used to be a very prosperous country before this. They were really a middle class type economy.

The feds have historically tried to have a 2% annual inflation target here in the USA.

Ok. Now that I have presented the facts and reality and gravity of the situation...

What are some hedges you guys have in place to counteract something like this happening in the USA or any other mature economies?

I understand that the chances of this happening is slim to none. But that’s not what I’m aiming to discuss.

It’s a black swan type event. Like a 20-30 year japan n recession deflation/stagflation situation. It likely won’t occur.

That said, we can’t rule this out. Because it’s a possibility.

Any thoughts?
Yes, we have these threads once a month or so. It's simple, 10,000% inflation isn't just a financial/monetary phenomenon. Rather, it is indicative of complete economic collapse of a country or civilization.
Not really.
My country (and the entire Eastern block) went through a decade of high inflation. When it ended they cut 4 zeros and came but to the original currency value. So that is 10,000%X10,000%.
There was no collapse. I had a very happy life at that time. Although we did not have money we had things people don't have in US NOW. There was very low crime rate and the country was very safe.
Meanwhile things changed a lot. It is still a 2nd world country but it's developing quick. The average income increased by 10X between 2000 and now (in real terms). I was stuck in a traffic jam on the highway last year and we counted millions of $ in care value in very short time, basically all the cars around where high end German cars.
If I had money in the 90s to invest, I would've gotten eye watering rates of return in less than 10 years.

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permport
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Re: 10,000% inflation in USA?

Post by permport » Wed May 15, 2019 5:38 pm

Most people in this forum don't believe it will or even can happen.

That's reflected in the portfolio allocations that are typically recommended.

1) There's a strong belief that U.S. Treasury securities have unquestioned quality and robustness.

2) There's a strong belief that it's fine to be 100% in U.S. equities.

3) There's a strong belief that alternative classes of investments outside of stocks and bonds aren't even necessary.

The crux of the OP's query lies in whether you agree with the above.
Buy right and hold tight.

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Re: 10,000% inflation in USA?

Post by LadyGeek » Wed May 15, 2019 5:39 pm

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