Protect against USD hyperinflation

The US Government and Federal Reserve have started "printing" hundreds of billions of dollars every day in US and Europe to stanch the credit crisis. If and when the banks stop hoarding cash and start making loans (say a couple of years from now) the money supply will shoot through the roof.

A hyperinflationary depression cannot be ruled out. For those like me who don't have real estate (and don't want to buy in this falling RE prices environment) and don't want to risk holding physical gold (and don't trust companies that sell paper gold) the only available hedge against USD hyperinflation seems to be to open a swiss bank account and keep some of my cash in CHF which is historically the most stable of all the unstable paper/fiat currencies.

There is also a real risk that the US Government may be forced to impose controls on how much money can be taken out of the country.

I would appreciate thoughts and comments from others who may be aware of these risks and taking steps to protect themselves.

I still feel that the near term will remain deflationary. But hyperinflation is a real possibility in the medium term given that the government is now being forced to create hundreds of billions of high-powered money every day. Today it created 900 billion dollars of high-powered money. If the banks were lending as usual that would have increased the money supply by about 9 trillion dollars! And that's just today.

For those who were going to point out that the Fed hasn't been creating new money and instead simply been exchanging ABS/MBS/CDOs/etc for treasury bills; yes that was what it was doing till August. Since September-beginning it has been creating new (high-powered) money like there is no tomorrow.

Anakin

HAHAHA... My brother and I were talking about the same thing... We are not the only doomsday crazies... =) good to know there are other members...

Hello mttatkns,

I am not an econ wiz but the debt creation has to be bought by someone. It is akin to buying a stock on margin. The government is borrowing money to buy mortgages (hopefully) cheap enough to make a profit. This debt would financed by someone, some foreign entity perhaps? If not and we are just printing money then it is akin to shareholder dilution when a company is forced to raise equity.

Just my 2 cents.

We were heading in this direction for a while. Government spending has been > than government income.

It has come to the point where we need to:
a) raise taxes
b) lower government spending
c) print more money

Swiss franc is actually trading near its lows of the year. The swiss economy is not immune.
Maybe time to buy the Aussie or New Zealand dollar. They're trading near multi year lows.

mttatkns said: Washington is stupid but I don't think they're stupid enough to allow hyperinflation to become a reality. A big difference between the current situation and historical examples (e.g. Germany in the 1920's) is that now the printed money is going to domestic institutions versus paying off foreign war debts or other loans (yes, China owns a lot of our debt today, but this is not what the money is being created for). Additionally, you would think that they'd learn from mistakes of the past (after all, that's what the bailout was intended to do, prevent a larger financial crisis). Then again when your government is run by everyone who graduated at the bottom of their class you never know...

You would think this, wouldn't you...

ardentazn said: HAHAHA... My brother and I were talking about the same thing... We are not the only doomsday crazies... =) good to know there are other members...

Doomsday crazies!?! Us!?!

Never! But then again, I have been looking at this little cabin in the Montana backwoods...
If I buy a cow and some chickens, plant a few crops, store some guns and ammo to protect myself....

nycll said: Time to bring in some competence to whitehouse. Morons can do so much damage it stopped being funny 6 years ago.

If only there were competence to bring in.

anakinskywalker said: The US Government and Federal Reserve have started "printing" hundreds of billions of dollars every day in US and Europe to stanch the credit crisis. If and when the banks stop hoarding cash and start making loans (say a couple of years from now) the money supply will shoot through the roof.

A hyperinflationary depression cannot be ruled out. For those like me who don't have real estate (and don't want to buy in this falling RE prices environment) and don't want to risk holding physical gold (and don't trust companies that sell paper gold) the only available hedge against USD hyperinflation seems to be to open a swiss bank account and keep some of my cash in CHF which is historically the most stable of all the unstable paper/fiat currencies.

There is also a real risk that the US Government may be forced to impose controls on how much money can be taken out of the country.

I would appreciate thoughts and comments from others who may be aware of these risks and taking steps to protect themselves.

I still feel that the near term will remain deflationary. But hyperinflation is a real possibility in the medium term given that the government is now being forced to create hundreds of billions of high-powered money every day. Today it created 900 billion dollars of high-powered money. If the banks were lending as usual that would have increased the money supply by about 9 trillion dollars! And that's just today.

For those who were going to point out that the Fed hasn't been creating new money and instead simply been exchanging ABS/MBS/CDOs/etc for treasury bills; yes that was what it was doing till August. Since September-beginning it has been creating new (high-powered) money like there is no tomorrow.

Anakin
Some clarifications to your post might help answer your question. For example, contrary to popular belief the US government does not expand the money supply by printing money. Instead, the Fed uses open market operations -- mostly buying and selling government bonds -- to control the supply of money. New banknotes are printed only to replace old ones.

Also, the bailout mostly consists of loan guarantees and purchases of securities which may, in the future, be sold back on the market. To be clear, I don't like the idea of bureaucrats making such buy and sell decisions, nor to I like the moral hazard of a bailout. But it is an oversimplification to say that the government is simply injecting money into the economy.

Lastly, hyperinflation is unlikely because while the US uses a fiat money, so does every other country. So yes, US dollars will lose value over time ... but so will every other country's currency, some much faster than others. In you are really concerned about inflation, buy fixed asses like a house or gold.

romeo15 said: ardentazn said: HAHAHA... My brother and I were talking about the same thing... We are not the only doomsday crazies... =) good to know there are other members...

Doomsday crazies!?! Us!?!

Never! But then again, I have been looking at this little cabin in the Montana backwoods...
If I buy a cow and some chickens, plant a few crops, store some guns and ammo to protect myself....

Hey... now livestocks might be the commodity we've been searching for

ardentazn said: mttatkns said: Washington is stupid but I don't think they're stupid enough to allow hyperinflation to become a reality. A big difference between the current situation and historical examples (e.g. Germany in the 1920's) is that now the printed money is going to domestic institutions versus paying off foreign war debts or other loans (yes, China owns a lot of our debt today, but this is not what the money is being created for). Additionally, you would think that they'd learn from mistakes of the past (after all, that's what the bailout was intended to do, prevent a larger financial crisis). Then again when your government is run by everyone who graduated at the bottom of their class you never know...

Your claim would be valid except for a couple false assumptions...

1.) Washington is NOT Stupid...
2.) They learn from mistakes of the past...

HAHAHAA.. this is the US... have you seen how our government(state/fed) agencies work (DMV, SSA, etc..)??? hahahaha, those are examples contrary to your assumptions...

OH MY GOD! Washington smart?

The natural progression is ALWAYS towards inflation and with our debt getting out of control it is inevetible.

PolarDude said: Swiss franc is actually trading near its lows of the year. The swiss economy is not immune.
Maybe time to buy the Aussie or New Zealand dollar. They're trading near multi year lows.
Nothing is immune, my friend. In this global economy, it is contagious. Maybe the embargoed countries like Cuba and Iran, yes? hahahaha. But they are monopolized by CIA, so it is untouchable.

To protect against hyperinflation, buy gold.

However, I think you should more concerned about deflation at this point.

I have heard of TIPS but THIPS that's a new one on me.

win333 said: ardentazn said: mttatkns said: Washington is stupid but I don't think they're stupid enough to allow hyperinflation to become a reality. A big difference between the current situation and historical examples (e.g. Germany in the 1920's) is that now the printed money is going to domestic institutions versus paying off foreign war debts or other loans (yes, China owns a lot of our debt today, but this is not what the money is being created for). Additionally, you would think that they'd learn from mistakes of the past (after all, that's what the bailout was intended to do, prevent a larger financial crisis). Then again when your government is run by everyone who graduated at the bottom of their class you never know...

Your claim would be valid except for a couple false assumptions...

1.) Washington is NOT Stupid...
2.) They learn from mistakes of the past...

HAHAHAA.. this is the US... have you seen how our government(state/fed) agencies work (DMV, SSA, etc..)??? hahahaha, those are examples contrary to your assumptions...

OH MY GOD! Washington smart?

The natural progression is ALWAYS towards inflation and with our debt getting out of control it is inevetible.Oh, please. "The natural progression is ALWAYS towards inflation..."??? You make it sound like some sort of Darwinian inevtibility. Look at history. Sheerly for the sake of discussion, start your "look" at about 1945 (you can go back further if you like - your choice). Clearly you see no statistically significant "progression" towards inflation... You see periods of high inflation (the 70's, early 80's), less inflation (later 80's, 90's) still less (1st part of this decade), etc. During the last few years you see increased inflation only recently. Think about why that might be. To summarize, there is no magical "natural progession" at work here. Think about why Reagan had a farily high increase in natinal debt, but yet relatively low inflation. You'll have your answer.

fw9999 said: talljay said: Buy THIPS!

(Treasury HyperInflation Protected Securities)To paraphrase Jerry Maguire, Show me the link! Meaning, I'm willing to bet, solely on the basis of the semi-tongue-in-cheek nature of the name itself, that there is in fact NO SUCH REAL ENTITY. Perhaps you should have done PR for Lehman - before last month, anyway.

Tips would be thips, they are the same thing.

But yes, he made it up.

win333: I was making two different statements; I should have made that clearer.

To answer the OP's question, I was recommending gold.

To insert my humble and snotty-nosed opinion, I think that the OP should be more concerned about deflation at this point than inflation - and is asking the wrong question. The question should be - in these uncertain times, how can you protect your wealth against whatever might be coming?

Gold will do well whenever a fiat currency gets in trouble, either up or down.

therivler1 said: win333: I was making two different statements; I should have made that clearer.

To answer the OP's question, I was recommending gold.

To insert my humble and snotty-nosed opinion, I think that the OP should be more concerned about deflation at this point than inflation - and is asking the wrong question. The question should be - in these uncertain times, how can you protect your wealth against whatever might be coming?

Gold will do well whenever a fiat currency gets in trouble, either up or down.

I do agree, I was just pointing out that the medacine was the same.

jayK said: anakinskywalker said: A hyperinflationary depression cannot be ruled out.Unless the US government is overthrown in a military coup, hyperinflation (which is usually defined as 50%+ inflation per month) can be safely ruled out.

I would be more worried about high inflation similar to what we saw in the 70s and 80s (on the order of 10% annually) or, even worse, deflation.

the government is now being forced to create hundreds of billions of high-powered money every dayThis is only true for incorrect definitions of "every day".

Hyperinflation has occurred in Russia, Germany, Zimbabwe, and many other countries without the government having been overthrown in a military coup.

And yes, the Fed created 900 billion high-powered USD in USA on Monday, and simultaneously created an additional 300 billion USD in Europe on the same day. That USD 1.2 trillion of new high-powered money created on a single day. I know it is hard to believe, but if you'd been following the news you'd know.

Creation of new money has been happening all through September. Helicopter Ben and Bazooka Hank are in full swing.

Anakin

Kanosh said: anakinskywalker said: The US Government and Federal Reserve have started "printing" hundreds of billions of dollars every day in US and Europe to stanch the credit crisis. If and when the banks stop hoarding cash and start making loans (say a couple of years from now) the money supply will shoot through the roof.

A hyperinflationary depression cannot be ruled out. For those like me who don't have real estate (and don't want to buy in this falling RE prices environment) and don't want to risk holding physical gold (and don't trust companies that sell paper gold) the only available hedge against USD hyperinflation seems to be to open a swiss bank account and keep some of my cash in CHF which is historically the most stable of all the unstable paper/fiat currencies.

There is also a real risk that the US Government may be forced to impose controls on how much money can be taken out of the country.

I would appreciate thoughts and comments from others who may be aware of these risks and taking steps to protect themselves.

I still feel that the near term will remain deflationary. But hyperinflation is a real possibility in the medium term given that the government is now being forced to create hundreds of billions of high-powered money every day. Today it created 900 billion dollars of high-powered money. If the banks were lending as usual that would have increased the money supply by about 9 trillion dollars! And that's just today.

For those who were going to point out that the Fed hasn't been creating new money and instead simply been exchanging ABS/MBS/CDOs/etc for treasury bills; yes that was what it was doing till August. Since September-beginning it has been creating new (high-powered) money like there is no tomorrow.

Anakin
Some clarifications to your post might help answer your question. For example, contrary to popular belief the US government does not expand the money supply by printing money. Instead, the Fed uses open market operations -- mostly buying and selling government bonds -- to control the supply of money. New banknotes are printed only to replace old ones.

Also, the bailout mostly consists of loan guarantees and purchases of securities which may, in the future, be sold back on the market. To be clear, I don't like the idea of bureaucrats making such buy and sell decisions, nor to I like the moral hazard of a bailout. But it is an oversimplification to say that the government is simply injecting money into the economy.

Lastly, hyperinflation is unlikely because while the US uses a fiat money, so does every other country. So yes, US dollars will lose value over time ... but so will every other country's currency, some much faster than others. In you are really concerned about inflation, buy fixed asses like a house or gold.

I'm not talking about the bailout. I'm not talking about the AIG loan. I'm not talking about the money given to Fannie or Freddie or the loan to JP Morgan.

I'm talking about the liquidity injections the Fed has been doing since the beginning of September. The Fed has been injecting about a trillion dollars into European and US banking systems every week for the last month. None of the US and European banks had a trillion dollars of Government bonds to sell to the Fed for this money. These are not a regular open market operations; this is creation of new high-powered money. Please read the news.

Anakin

edited to add: also please note I use double-quotes in "printing". "Printing" does not mean physically printing. Changing the number on a computer (the balance of a member bank with the Fed) is "printing" too.

And banknotes are printed by the Bureau of Engraving and Printing of the Dept of the Treasury whenever the Fed wants, not necessarily just to replace old notes. If Fed asks for more physical money the Treasury reduces the Fed's account balance with the Treasury and delivers Fed notes of the same amount to the Fed. Quantity of physical cash is minuscule and does not matter anyway; it's the amount of virtual cash that matters.

some people seem to be wondering why we are talking about hyperinflation here and are pointing out that deflation is more immediate concern; that "deflation is coming".

Yes, we know that very well. Deflation is not just "coming"; it has already been here for a while. The massive drop in prices of assets of all kinds (stocks, commodities, housing, gold, etc) is exactly what deflation is all about. Asset prices have already collapsed; now the money supply will collapse too, and that is what will officially be called deflation. But it is all part of the same cause-effect couple.

We have successfully anticipated deflation and positioned ourselves accordingly. We did that over the last few years, when the housing boom was still going on and well before the credit crunch started.

Now we need to anticipate and plan out steps necessary to protect ourselves from what is going to be coming next, after the coming and ongoing deflation gets over.

This thread is for people who want to stay ahead of the curve. Those who want to talk about deflation now are kind of behind the curve. And being behind the curve is kind of unprofitable. We don't want to lose our hard-earned money to unprofitable actions taken by being behind the curve. Let's help each other stay or get ahead, both of the curve, as well as financially.

Anakin