A really interesting read today on how hyperinflation will play out here in the US, courtesy of ‘Tyler Durden’, who actually lived through the hyperinflation that the Marxist Salvador Allende brought crashing down upon his native Chile:
Very quickly, a black market in goods and staples arose. At first, these black markets accepted escudos. But with each passing month, more and more escudos were printed into circulation by the Allende government, until by late ’72, black marketeers were no longer accepting escudos. Their mantra became, “Sólo dólares”: Only dollars.
Hyperinflation had arrived in Chile.
(Most Chileans, myself included, find ourselves both amused and irritated, whenever Americans self-righteously claim that Nixon ruined Chile’s economy, and thereby derailed Allende’s “Socialist dream”. Yes, according to Kissinger’s memoirs, Nixon did in fact tell the CIA that he wanted Chile’s economy to “scream”—but Allende did such a bang-up job of fucking up Chile’s economy all on his own that, by the time Richard Helms got around to implementing his pissant little plots against the Chilean economy, there was not much left to ruin.)
One of the effects of Chile’s hyperinflation was the collapse in asset prices.
This would seem counterintuitive. After all, if the prices of consumer goods and basic staples are rising in a hyperinflationary environment, then asset prices should rise as well—right? Equities should rise in price—since more money is chasing after the same number of stock. Real estate prices should rise also—and for the same reason. Right?
Actually, wrong—and for a simple reason: Once basic necessities are unmet, and remain unmet for a sustained period of time, any asset will be willingly and instantly sacrificed, in order to meet that basic need.
To put it in simple terms: If you were dying of thirst in the middle of the desert, would you give up your family heirloom diamonds, in exchange for a gallon of water? The answer is obvious—yes. You would sacrifice anything and everyting—instantly—in order to meet your basic needs, or those of your family.
So as the situation in Chile deteriorated in ’72 and into ’73, the stock market collapsed, the housing market collapsed—everything collapsed, as people either cashed out of their assets in order to buy basic goods and staples on the black market, or cashed out so as to leave the country altogether. No asset class was safe, from this sell-off—it was across-the-board, and total.
Now let’s return to the possibility of hyperinflation in the United States …
Obviously, you are going to want to read the whole thing, because Durden offers some pretty sound advice about how Americans can weather the coming storm; and do not kid yourself: it is not a matter of “if”, it is a matter of when.
Just consider the uncomfortable timing of this article; it comes out on the very day that Fed Chairman Ben Bernanke announced that the Fed will continue to buy up T-Bills in order to keep the Treasuries attractive to investors–in other words to make an already-inflated T-Bills bubble even larger; there is no way that a distorted, inflated view of the worth of our Treasuries can last–eventually the myth will collapse, the bubble will pop, and bingo: welcome to the Weimar Republic, courtesy of the Obama Administration. Someone will call our bluff, and when that happens it would pay to have some commodities handy, i.e. Gold, Silver and Oil.
This is a “must read” for anyone who cares about protecting their assets.