Everyone is feeling higher gas prices at the pump and bigger bills at the checkout line. But when does painful inflation turn to hyper-inflation?
If the signs are there, how do you prepare now?
What is Hyperinflation?
Inflation measures how fast the price of goods and services are rising over time. A typical year would see a modest 2% rise in prices for things you buy every day.
If inflation rises more than 50% in a month, that’s called hyper-inflation. Think excessive. Think out-of-control. Think extremely rapid.
On an annual basis, that could be a rise in prices of over 1000%.
Imagine a set of mobile headphones that cost $10 today, suddenly costing $10,000 to buy tomorrow!
A coffee could cost $5 in the morning and $6 in the afternoon.
If you know your history, you’ll know this threat is very real if an economy is mismanaged.
Germany, Zimbabwe and Venezuela are examples in the 20th century that suffered crippling hyperinflation due to a combination of bad leadership, bad timing and bad luck.
Venezuela hit an incredible 65,000% price rise in 2018. Zimbabwe saw its prices doubling every day by 2009. Incredible!
That’s not the way America is supposed to be. Americans have come to enjoy a certain stability in their currency and what it buys over time, though most of us accept that things get a little more expensive every year.
Hyperinflation is something altogether different, and like nothing any American has experienced in their lifetime.
This is why having all your retirement assets denominated in dollars or any other fiat currency is a risk you shouldn’t be taking.
What Causes Hyperinflation?
When the government increases the money supply, by say… sending checks to every American, that means the dollars already in circulation are not worth as much. This is known to the old-school people as “printing money.”
Gold and silver are scarce natural resources that can’t be created out of thin air. They are intensely difficult to find and unearth.
The other kind of inflation comes from a surge in demand that can’t be met by supply. The USA has had a lot of that since 2020. The supply chain has been clogged physically all over the world.
Trying to adjust to an ever-shifting political landscape during a major pandemic created disruption everywhere. War in eastern Europe does the same thing.
That means higher prices.
When consumers see prices rising, they tend to buy faster… for a while. When they run out of excess cash, the demand crashes fast. Then a new area of mismatched supply/demand occurs.
What Happens When Hyperinflation Hits?
Everybody starts to act differently in an inflation bubble.
Hoarding becomes a big problem. Remember the toilet paper shortages of 2020? The baby formula shortages of 2022? Everyone hoards milk, bread, formula, diapers, toilet paper and more when things start to get pricey.
That is only a preview of what could be ahead for a wide range of basic human needs.
Cash Is Trash When Hyperinflation Strikes
Seniors and retirees are always in for a serious blow when hyperinflation comes calling.
Savings in anything like dollar cash loses value quickly. If you are on a fixed income (or will be soon), this is a chilling thought.
Nobody wants to outlive their savings in this cold, cruel world.
The next stage can be really ugly.
Elderly lose their homes and are driven to relatives or shelters. People lose savings. Banks go belly up as loans crater in value. The fiat currency drops in value on global currency exchanges. Jobs evaporate. Tax collection drops and revenue isn’t there to support government programs. If the government tries to run the printing presses, inflation just jumps more and more.
It’s a vicious cycle waiting to happen.
Gold Has Been Valuable Throughout Human History
Unlike any other store of value through time, nothing has equalled the trust and heritage of gold and silver precious metals.
There has never been a fiat currency that has lasted anywhere near as long as gold.
The US Dollar alone has only been in circulation as a global reserve currency for about 100 years. Since 1500, no fiat currency has survived more than 110 years.
Gold and silver have never been worth zero.
Hyperinflation is a real concept that you should take really seriously. What is your plan to protect your retirement plan from the ravages of inflation?
Further Reading on Hyperinflation
• The Balance