Hyperinflation

I was intending to go on with some more political arguments, but given the recent news that America and Europe are printing more money, I thought this would be a more timely topic to cover, after all we have another year until Labour get kicked out of power.

What is Hyperinflation?

Hyperinflation occurs when a country experiences very high and usually accelerating inflation. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases rapidly as the functional or internal currency, as opposed to a foreign currency, loses its real value very quickly, normally at an accelerating rate


In plain English - Hyperinflation means paper money is worthless. Why because in itself, paper money has no real value. It only has imaginary value that society has assigned to it. i.e. I choose to accept your $5 note for a loaf of bread, but the real value of that bread is not the $5 but the time and effort you have put into making it, so instead of $5 you could instead accept 1/2 an hours labour or material goods.


We all seen the photos - one of the most famous being the lady burning banknotes in Germany in the 1920's


In recent times this has occurred more often than you may realise, with nearly 50 countries suffering from hyperinflation in this century.  One of the most recent being Zimbabwe, from where I have $100,000,000,000,000 note which was worth about $1 U.S. at the time

So what does it mean for you:

During hyperinflation the cost of goods can rise by 10% to 10000% per day.  So the money you earn in the morning is worthless that night. Hence the lady in the photo burning the notes as they weren't enough for a loaf of bread.

What can you do:

During hyperinflation only real goods have any value.  You can be prepared for hyperinflation by having actual goods, such as Gold, Silver, Food and other commodities.

Other goods are Toothpaste, Medical Supplies, Seeds.  Coins are also good as they hold an intrinsic value based on the metal content, an old coins are better, with pre-1956 coins containing up to 10g of Silver.

Why I am mentioning this now

I am mentioning this now, because a precurser to hyperinflation, is governments printing money, which the U.S. and Europe did last, governments buying their own bonds, which the U.S. is also doing and the price of precious commodities like gold increasing, which increased 6% last week due to America and Europe printing money.

That's right - Gold went up $100 last week alone.


Why do we need inflation

We don't actually need inflation.  There is no reason the cost of the goods needs to change at all, besides basic supply and demand.

We have inflation because of Governments as a government that borrows money wants inflation as it means they have to pay back less.

In basic terms if a government borrows $1m at 1.5% for 10 years, they have to pay back $1.14m, but if inflation has been running at 3% then the $1m is worth $1.3m.  Meaning the government doesn't have to pay back as much.

Or another way to put it is that the bond holders lose as the real value of their money has decreased.


The motto here is - be prepared.  www.survivalblog.com


Looking forward to your feedback

David Schulze