Inflation Can Easily Turn Into Hyperinflation


According to Gonzalo Lira of Strategic Planning Group:

“Here is the mistake I believe will happen: Once consumer price inflation begins, it will not be possible to rein it in, the way Chairman Paul Volcker did in 1980 following the inflation brought by the Iranian Oil Shock of ‘79.

The Fed will not want to rein it in, as they will see it as a sign that the economy is improving. And once inflation reaches double digits—as it did just before Volcker slammed the brakes hard via 22% interest rates—the Federal Reserve under Janet Yellen will not have either the room-to-maneuver or the inclination to raise rates to fight inflation.”

“Inflation can easily spiral out of control.
For example, in South America—Chile, Argentina, Brazil.
Once that genie is out of the bottle—and once a central bank proves itself unwilling to apply the strong medicine necessary to stop it—inflation will accelerate and blow up.”

“We are already seeing excessive asset price inflation due to the Federal Reserve’s QE and ZIRP policies: Equities are at historic highs while being completely divorced from fundamentals, bonds are yielding historic lows.You have heard inflation reduced to the phrase, “too much money chasing too few goods.” It is an overly narrow definition. Inflation is too much money.

Commodities are what you want to keep your eye on. Even as production and manufacturing slow down—as they currently are slowing to a crawl—you will see industrial commodities maintain their prices. Look at copper: $3.34 a pound, even as construction in China, the world’s largest consumer of copper, has virtually stopped. As to precious metals, the lows we are seeing now are likely the calm before the storm.”

Hyperinflation is generally thought to be an extension of inflation, i.e., inflation that has “gone too far.”

The danger in perceiving hyperinflation in this way is that it suggests that all a government needs do is turn off the money tap—diminish the amount of currency pouring into the system—and hyperinflation can be controlled and therefore avoided.

This is not the case. Hyperinflation is not an expansion of inflation; it is a separate condition. The finest description of hyperinflation I have yet encountered was penned by Harry Schulz and published in his HSL newsletter in September of 2010:

“Hyperinflation is the loss of faith in the currency.
Prices rise in a hyperinflationary environment
just like in an inflationary environment,
but they rise not because people want more money for their labor or for commodities, but because people are trying to
get out of the currency. It’s not that they want more money;
they want less of the currency: So they will pay anything for goods, which are not the currency.”

You should buy gold now, while the price is low.
When it goes higher, it may be hard to get, if not impossible.

hyperinflation-gramsgold.comMen Would Wheel Cartloads of Money To Buy Goods

In understanding Harry’s description, it is helpful to recall Weimar Germany, in November 1923, when a loaf of bread was valued at between three billion and twenty billion marks.

At that time in Germany, it became normal for factory workers to be paid their wages twice or more daily.

They would then immediately leave work and rush to buy goods from the shops, because, if they waited until the end of the day, the prices would have increased substantially from since the middle of the day.

All very interesting, but of what importance is the above to us today?

The importance lies in the understanding that, while governments may indeed be able to control inflation to some degree, they cannot control hyperinflation.

Hyperinflation occurs in the people of a country. It is their reaction to a fear of the government and its depreciating currency.

The greater the inflation, the greater the fear, the greater the desire to be rid of the currency, in favor of virtually anything of actual, tangible worth.

hyperinflation-gramsgold.comChildren playing with worthless money

Governments always believe that they can control hyperinflation, just as they control inflation. This is an economic given that has remained true throughout the ages. As governments misunderstand the nature of hyperinflation, they fail to prevent it and then fail to address it in a meaningful way once it sets in.

Should there be a crash in, say, the bond market and/or stock market, the principle governments of the world will most assuredly create inflation in order to avoid deflation.

At some point, as the prices of commodities rise dramatically, the citizens realize that the depreciating currency is a growing liability.

Once this occurs, it’s too late for any government (even a responsible one) to attempt to reverse the condition.

Think about that statement. As the prices rise, people realize they want to get out of the currency.

They realize that their $200 buys them MUCH less, and they see that if they owned gold, they could buy many more goods than with dollars.

Then people want to exchange their money into gold. At that point, the demand for gold becomes much higher, as more and more people see that gold is holding it’s purchasing power.

Remember, gold has held it’s purchasing power for thousands of years. It is not a new game in town.

But there is a finite amount of gold. Not to mention that China is buying almost all of it as we speak. So when there is a low supply coupled with a high demand, that is a recipe for higher prices. That’s why you should buy gold now, while the prices are low.

Because once the pressure cooker pops on this Federal Reserve Ponzi scheme, the jig is up. Everyone will want out of dollars. Do you want to be caught in that feeding frenzy?

What to Do?

First, you should definitely buy some gold. If you can’t afford 1 oz. for $1,300,then buy a gram at a time. It will pay off down the road. Karatbars specializes in 1 gram 24K gold, encased in authenticated cards.

Also, buy extra canned foods and toilet paper and things you would need in a hurricane situation. Then-fasten your seat belt, because we are in for a bumpy ride!

Article authored by Carol Serpa. You can find the original story right here.