Finance

Protecting your assets

 

by Carlo Vogels

 

 

 

 

Inflation is a sustained increase in the aggregate price level. Hyperinflation is very high inflation. Although the threshold is arbitrary, economists generally reserve the term “hyperinflation” to describe episodes when the monthly inflation rate is greater than 50 percent. At a monthly rate of 50 percent, an item that cost $1 on January 1 would cost $130 on January 1 of the following year.


 

Hyperinflation is largely a twentieth-century phenomenon. The most widely studied hyperinflation occurred in Germany after World War I. The ratio of the German price index in November 1923 to the price index in August 1922—just fifteen months earlier—was 1.02 × 1010. This huge number amounts to a monthly inflation rate of 322 percent. On average, prices quadrupled each month during the sixteen months of hyperinflation

While the German hyperinflation is better known, a much larger hyperinflation occurred in Hungary after World War II. Between August 1945 and July 1946 the general level of prices rose at the astounding rate of more than 19,000 percent per month, or 19 percent per day.

Even these very large numbers understate the rates of inflation experienced during the worst days of the hyperinflations. In October 1923, German prices rose at the rate of 41 percent per day. And in July 1946, Hungarian prices more than tripled each day.

What causes hyperinflations? No single shock, no matter how severe, can explain sustained, continuously rapid growth in prices. The world wars themselves did not cause the hyperinflations in Germany and Hungary. The destruction of resources during the wars can explain why prices in Germany and Hungary would be higher after the wars than before. But the wars themselves cannot explain why prices would continuously rise at rapid rates during hyperinflation periods.

Hyperinflations are caused by extremely rapid growth in the supply of “paper” money. They occur when the monetary and fiscal authorities of a nation regularly issue large quantities of money to pay for a large stream of government expenditures. In effect, inflation is a form of taxation in which the government gains at the expense of those who hold money while its value is declining. Hyperinflations are very large taxation schemes.

During the German hyperinflation the number of German marks in circulation increased by a factor of 7.32 × 109. In Hungary, the comparable increase in the money supply was 1.19 × 1025. These numbers are smaller than those given earlier for the growth in prices. What does it mean when prices increase more rapidly than the supply of money?

Economists use a concept called the “real quantity of money” to discuss what happens to people’s money-holding behavior when prices grow rapidly. The real quantity of money, sometimes called the “purchasing power of money,” is the ratio of the amount of money held to the price level. Imagine that the typical household consumes a certain bundle of goods. The real quantity of money measures the number of bundles a household could buy with the money it holds. In low-inflation periods, a household will maintain a high real money balance because it is convenient to do so. In high-inflation periods, a household will maintain a lower real money balance to avoid the inflation “tax.” They avoid the inflation tax by holding more of their wealth in the form of physical commodities. As they buy these commodities, prices rise higher and inflation increases. Figure 1 shows real money balances and inflation for Germany from the beginning of 1919 until April 1923. The graph indicates that Germans lowered real balances as inflation increased. The last months of the German hyperinflation are not pictured in the figure because the inflation rate was too high to preserve the scale of the graph.

Hyperinflations tend to be self-perpetuating. Suppose a government is committed to financing its expenditures by issuing money and begins by raising the money stock by 10 percent per month. Soon the rate of inflation will increase, say, to 10 percent per month. The government will observe that it can no longer buy as much with the money it is issuing and is likely to respond by raising money growth even further. The hyperinflation cycle has begun. During the hyperinflation there will be a continuing tug-of-war between the public and the government. The public is trying to spend the money it receives quickly in order to avoid the inflation tax; the government responds to higher inflation with even higher rates of money issue.

Most economists agree that inflation lowers economic welfare even when allowing for revenue from the inflation tax and the distortion that would be created by alternative taxes that raise the same revenue.

How do hyperinflations end? The standard answer is that governments have to make a credible commitment to halting the rapid growth in the stock of money. Proponents of this view consider the end of the German hyperinflation to be a case in point. In late 1923, Germany undertook a monetary reform, creating a new unit of currency called the rentenmark. The German government promised that the new currency could be converted on demand into a bond having a certain value in gold. Proponents of the standard answer argue that the guarantee of convertibility is properly viewed as a promise to cease the rapid issue of money.
 


 

 

  • Deflation, Inflation, Stagflation, Mass inflation, Hyperinflation, Which One Will Get Us?

  • How to protect your portfolio when inflation is on the rise 

  • Protect Your Wealth from the Coming Hyper-Inflation!

  • How To Protect Your Wealth From Hyperinflation. But much of the problem will depend on whether hyperinflation hits only the US or whether, as a result of US economic force, the rest of the world is forced to hyperinflate (I mean, literally, coerced beyond their will) with the US. If hyperinflation goes global, this would be a disaster and almost all bets are off. I think China would still stand to rebuild in a better position after a scenario like this, and the resource-rich countries will still have their resources. We know that much. Gold might still be good to hold, but if global regulations are put in place regarding its possession or sale, it might not be of any use. I’d want to put my money in something that will still have SOME value no matter what new currency system is put in place. A company like BHP Billiton, the world’s largest miner, is still going to be around, no matter what currency it is denominated in, because the world will continue to mine even after any potential economic apocalypse. Hyperinflation won’t happen overnight (if it happens at all).  It can be a long process.  Just as the Sept. 2008 financial crash didn’t really happen just on September 15th.  Most people could see it coming already with Bear Stearns back in March 2008.  And some of us were reading about it long before that, even long before the August 2007 “real estate bubble” crash.

  • US Hyperinflation or Global Hyperinflation? I’m not really worried about US hyperinflation, because that will be easy enough to protect your wealth from. I’m worried about the US forcing the rest of the world to hyperinflate with it.

  • A Hyperinflation Could Devaluate the Money Soon. The classic instruments to protect assets against inflation are investments in gold or real estate. These are proven and simple ways to preserve the value of the assets. The market outlook for gold is favorable. Real estate prices decrease worldwide because of the financial crisis. This offers an opportunity to purchase an own home before the inflation starts.

  • So what should we do? Put it in Euros? Aussie? Yuan? Skeptic doesn't really trust currencies as they are all fiat money rather than backed by some gold standard. Whenever you have something based on faith like some property bubble, things would eventually start to unravel.

  • Those are inflation protected bonds that adjust your principle according to inflation and pay you coupons(interest) on top of your inflation protected principle.

  • What will hyperinflation look like? With fiat money there is almost a gurantee of hyperinflation given enough time. To defend yourself buy things with intrinsic value (e.g. food, shelter, gold, silver, land). Things with inherent worth will always be worth something. The same can’t be said for paper money.

  • Federal Reserve sets stage for Weimar-style Hyperinflation

  • Global Hyper-Inflation Ahead: We Are All Zimbabweans Now. European financial and political leaders agreed late Sunday to a plan that would inject billions of euros into their banks in a bid to restore confidence to the teetering financial system.

  • A blue chip stock is the stock of a well-established company having stable earnings and no extensive liabilities.

  • Dr.Ron Paul -German hyperinflation. First Hyperinflation and than Global War?

  • Bank of Korea indicates global hyperinflation and record rise in rates all over the world – a global depression imminent

  • India's inflation has hit its highest level in more than 7 years, data showed Friday [13 Jun 2008]. The widely-followed Wholesale Price Index rose to 8.75% for the week ended May 31, the highest since February 2001, driven by food, vegetables and manufactured goods. With this rise in the wholesale inflation index, India is jumping right into the global hyperinflation race together with the entire Asian and emerging market regions.

  • Food prices are rocketing all over Europe. Just like Weimar Germany, first people will cut down their consumption and switch their shopping habits. Once consumers realize that ALL things are going up in price permanently, the real hoarding starts. "Why would the baker sell his bread at one euro if he knows that at 1.2 euros he will sell as many?" asks Jocelyn Lohezic, a 39-year-old who makes around 1,000 baguettes every Saturday. "Prices will keep rising, that's for sure."

  • Why the Global Hyperinflation in Food Prices?

  • First Deflation, Then Hyperinflation: The Economy Needs a Global 'New Deal'

  • “Paper money will ruin commerce, oppress the honest and open the door to every species of fraud and injustice”
    — George Washington

  • “It is well enough that the people of the nation do not understand our banking and monetary system for, if they did, I believe there would be a revolution before tomorrow morning.” — Henry Ford

  • The inevitable collapse of the dollar

     

 


Angola 1991-1995
Argentina 1975-1991
Austria 1921-1922
Belarus 1994-2002
Bolivia 1984-1986
Bosnia-Herzegovina 1992-1993
Brazil 1986-1994
Bulgaria 1996
Chile 1971-1973
China 1948-1949
Free City of Danzig 1922-1923
Georgia 1993-1995
Germany 1922-1923
Greece 1942-1944
Hungary 1945-1946
Israel 1970-1971
Japan 1948-1951
Krajina 1992-1993
Madagascar 2004-2005
Mozambique 1977-1992
Nicaragua 1987-1990
Peru 1988-1990
Philippines 1942-1944
Poland 1989-1991
Romania 1998-2005
Russia 1921-1922 and 1992-1999
Turkey 1990-1995
Ukraine 1993-1995
United States 1861-1865
Yugoslavia 1989-1994
Zaire 1989-1996
Zimbabwe 2004-2009
List of countries which experienced hyperinflation

 

FROM THE NEWS SECTION: ECONOMY, BANKS, MONEY AND GOLD

  • Iceland banks' fraud trails 'lead to UK'

  • China is now a net SELLER of U.S. Treasury notes and bonds!

  • Insiders sell like there's no tomorrow

  • Iceland plans to capitalise new banks

  • Gold: Economies - civilizations themselves - cannot function on simulated money, money that is fraudulent

  • Russian President Dmitry Medvedev pulls new world currency from his pocket. Yes, it's gold! Here is a picture.

  • Swiss gold vaults run out of room

  • Weak U.S. 5-year debt auction raises worries

  • World Prepares to Dump the Dollar

  • Gold at record high after Bernanke says recession is over

  • The Plot To Destroy The US Dollar

  • Mainstream Media Economic Recovery Propaganda

  • Bernanke go into Panic Mode Over Congressman Ron Paul's Bill to Audit the Federal Reserve System?

  • Can America be Fixed?

  • The End of National Currency

  • The Deeper Origins of the Economic Crisis

  • UBS warns stock market rally is not a sign the worst is over for global economy

  • Peter Schiff - Wall Street Unspun and more

  • Brussels sees UK economy contracting 3.8%

  • Britain falls from top 10 in international prosperity league

  • Many profitable companies are using the opportunity presented by the financial crisis to boost their coffers and slash jobs

  • JP Morgan profit climbed 36%

  • Banks are weak link between capital and enterprise, so why not eliminate them?

  • Business closures exceeded the number of new company formations for first time since 2003

  • Joe Saluzzi talks on Bloomberg and explains how machine trading is distorting the financial markets

  • Is there any gold inside Fort Knox, the world's most secure vault?

  • A Short History of the Gold Cartel

  • Gold futures build on gains as investors see inflation signs

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  • Lloyds Banking Group warns of surge in bad debts

  • Bernanke wants to be your banker

  • U.S. Jobless Rate Hits 8.9%, but Pace Eases. Real Unemployment at 15.8%: Highest Level

  • General Motors to temporarily shut parts plants across U.S. for several weeks

  • House prices continue to plummet

  • GM spots bankruptcy in the rear-view mirror as it burns up tankful of cash

  • Economic casualties pile into tent cities

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  • US banks thought to need $55bn in capital

  • Stress tests show 10 big banks must raise a total of $75 billion

  • Tax ‘will have to rise by 8p’ to get UK out of red

  • US Dollar Decline is Accelerating

  • Bernanke sees signs of recovery (but where?)

  • America: 'Sold Out' for $5.2 Billion

  • Ron Paul: Why We Can’t Reinflate The Bubble

  • Many Predict US Financial Collapse in September

  • Big Banks Don't Want California's IOUs

  • France joins China, India and Russia in calling for a new reserve currency on the eve of the G8 summit

  • US To Trade Gold Reserves For Cash Through Cash4Gold.com

  • American bonds seized at Chiasso real or fake. Still between a wall of silence and a flow of disinformation

  • True unemployment rate already at 20%

  • CIA seeks laid-off bankers in N.Y. recruitment drive

  • California unemployment rate hits 11.5 percent

  • Insiders Selling At A Furious Pace

  • A Depression Is Unavoidable

  • Peter Schiff Vlog Report 29 May 2009  01 june 2009

  • Obama Selling Military Secrets To China For Debt Forgiveness?

  • US taxpayers may be on the hook for as much as $23.7 trillion

  • How to Understand The Derivatives Market

  • Rising Unemployment Accelerates Foreclosure Crisis

  • Regulators on Friday shut two banks in California and two smaller banks in Georgia and South Dakota

  • Scotland Yard officers are suspected of defrauding taxpayers of millions

  • IDA chief who urged lower pay won't cut own wage

  • This epochal crisis requires us to resolve the paradox of capitalism

  • Is Anyone Minding the Store at the Federal Reserve?

  • The Dollar Collapses

  • Banks triple profit margin on mortgages, despite low interest rates

  • Historic Swiss Bank Says 'Farewell America'

  • Gold investors warned to liquidate after 'buying frenzy'

  • The 100 Top Brands

  • China has issued what amounts to the “Beijing Put” on gold. You can make a lot of money, but you really can’t lose

  • A year after financial crisis, the consumer economy is dead

  • The Lehman bankruptcy is widely considered to be the watershed event that changed the rules of the game for those Wall Street banks considered “too big to fail." Fuld maintained that the 158 year old bank was brought down by unsubstantiated rumors and illegal naked short selling.

  • How to Prepare For China's Coming Derivative Default

  • US economy will take 'years' to return to pre-recession level, Paul Volcker, a former Federal Reserve chairman and adviser to President Obama, warns

  • Barclays has been accused of "banking by sleight of hand" after creating a new company to take over its most toxic assets and ringfence future losses.

  • The ongoing tumble of the dollar – the US currency index is at a 12-month low

  • Taoiseach Brian Cowen has again rejected suggestions the National Asset Management Agency (Nama) is a bail-out for bankers and developers.

  • Revealed: The ghost fleet of the recession anchored just east of Singapore.

  • Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation.

  • Bankers in charge of our economies makes as much sense as candy makers being in charge of our diets

  • But I Thought It Was Just A "Panic"?

  • Bank executives at Wells Fargo, Bank of America and JP Morgan Chase are benefiting financially from the deaths of their employees, according to a shocking report in The Wall Street Journal. Banks Use Life Insurance to Fund Bonuses.

  • Wall Street Pursues Profit in Bundles of Life Insurance

  • Gold and Systemic Crisis

  • China pushes silver and gold investment to the masses

  • Capitalism and the Jews by Milton Friedman

  • Desperate children feeling the pressures of the credit crunch are making calls a week to a helpline.

  • TARP bank CEOs Make More Money Than Almost Everyone Else

  • Regional banks are now in deep trouble

  • Beijing is drawing up plans to prohibit or restrict exports of rare earth metals that are produced only in China and play a vital role in cutting edge technology, from hybrid cars and catalytic converters, to superconductors, and precision-guided weapons. A draft report by China’s Ministry of Industry and Information Technology has called for a total ban on foreign shipments of terbium, dysprosium, yttrium, thulium, and lutetium. Other metals such as neodymium, europium, cerium, and lanthanum will be restricted to a combined export quota of 35,000 tonnes a year, far below global needs. Blackberries, iPods, mobile phones, plams TVs, navigation systems, and air defense missiles all use a sprinkling of rare earth metals.

  • Shadow Inventory Proof and Banks Delaying Losses for another Day. Banks Employing the Stick Your Head in the Sand Solution for the Financial Crisis.

  • Commercial Mortgage Defaults Jump for U.S. Banks

  • Goldman Sachs Wrong on Economic Recovery, Macro Hedge Funds Say

  • How does $9000 Gold Sound?

  • Europe's age crisis begins to bite

  • Riots across Europe fuelled by economic crisis

  • Tenacious Rally Inspires Hope That Worst May Be Behind Us

  • Senate Refuses to Let Judges Fix Mortgages in Bankruptcy

  • Study reveals true extent of 'old boys network' between Government and banks

  • How Bad Could It Get?

  • BILLIONAIRE investment guru Warren Buffett told shareholders yesterday that the world had been hit by a “financial hurricane”

  • Hiding the fact that the banks are insolvent

  • A leading bankruptcy attorney representing hedge funds and money managers told ABC News Saturday that Steve Rattner, the leader of the Obama administration's Auto Industry Task Force, threatened one of the firms, an investment bank, that if it continued to oppose the administration's Chrysler bankruptcy plan, the White House would use the White House press corps to destroy its reputation.

  • Cash-strapped nations raise heat on rich

  • Chinese ordered to smoke more to boost economy

  • The World Bank's shameful record

  • European central banks $40bn poorer after decade of gold sales. European banks sold about 3,800 tonnes of gold, reaping about $56bn

  • Average worker pays £7.27 an hour in tax

  • The European Commission has revised economic forecasts sharply downwards and pushed recovery predictions out to the second half of 2010 in the face of the "deepest and most widespread recession in the post-war era".

  • The Bank of Japan expects growth to contract by a significantly greater margin than it forecast

  • Germany contracts 6pc as eurozone bank deposits fall at fastest rate since Depression

  • Chrysler declares itself bankrupt

  • Bust businesses up 56% amid record bankruptcies

  • Bankers have been accused of making an "astonishing mess" of the financial system, in a report by Treasury Select Committee.

  • In nominal prices, average UK home prices have risen 350 times over...going from £545 just before the Second World War to some £190,000 this month. Gold Prices, in contrast, have risen some 140-fold to stand near £610 an ounce at today's London close.

  • Do Economists Understand the Causes and Consequences of the Crisis?

  • The end of consumerism

  • Gold isn't going to $2,000 an ounce

  • They forced banks to make BAD LOANS

  • PLANS by President Nicolas Sarkozy to build a “Greater Paris”

  • Derivatives Market Declines for First Time on Record

  • The Fed may inherit some SEC functions. The Fed is private owned.

  • Japan Economy Shrinks Record 15.2% as Exports, Spending Plunge

  • http://www.usdebtclock.org/

  • A PARADIGM SHIFT HAS BEGUN, WITH BANKING POWER SHIFTING TO THE CREDITOR NATIONS AS THE USDOLLAR IS SUPPLANTED, MADE POSSIBLE BY SEVERAL NEW INSTITUTIONAL PILLARS AS WELL AS NEWLY FORGED ALLIANCES.

  • Numerous Countries Drop Dollar as Reserve Currency

  • In the past couple of years, the following countries have stopped using the dollar as their reserve currency or have dropped their currency’s peg against the dollar: China, Japan, Kuwait, Syria, Iran, Libya, Russia, Malaysia, Brazil, Argentina, Ecuador, Switzerland, Norway and some other Scandinavian countries, Some Balkan countries, Many East European currencies.

  • Gold: Does Gordon Brown's regret selling half of Britains' gold reserves 10 years ago?

  • Bank of England braced for third wave of financial crisis

  • ANOTHER LOOK AT THE WEIMAR HYPERINFLATION

  • Inflation or deflation - GOLD WILL BE KING...

  • Federal Reserve puzzled by yield curve steepening. Is The Bond Market Saying "GAME OVER"?

  • Western economies poised to account for less than 50pc of world GDP

  • US calls for China to have greater say in world economic affairs

  • Brazil and China boost oil investment

  • Eurozone unemployment hits 10-year high

  • IMF tells Russia to assess extent of bad loans

  • Sacrifices are needed to save GM, Obama tells Americans

  • Top Irish banker pelted with eggs

  • California will run out of cash in 14 days

  • Goodbye, GM ...by Michael Moore and Greg Palast

  • Who is going to come out of the economic crisis stronger and with the whip hand - China or America, asks Niall Ferguson.

  • More Sausage Hiding: Banks

  • MM back to the gold standard (James Bond - Goldfinger)

  • Gold Buying Opportunity of a Lifetime  http://www.drschoon.com/articles%5CGold%20Buying%20Opportunity%20Of%20A%20Lifetime.pdf


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