The one note of caution I must add is that Lira looks beyond a coming crisis for America and expects things to return to a new better normal, as it did in Chile. This may or may not occur in the United States and may take years or decades if it does return to a new normal. The real point to keep in mind is that things could be very different for the economy, very soon. Learn as much you can about volatile economies, especially those that suffered under hyper inflation, so that you have some kind of edge if such a period hits the U.S.Lira ultimately feels optimistic that hyperinflations don't last long and that things soon return to normal, but we really don't know whether that would be the case here, nor do we know the particular factors that lead to a new normal. Presumably, conditions in a hyperinflation force the economy into new solutions. Chile had the "advantage" of a right-wing coup, which I rather doubt would happen here.
One other point, during hyperinflations asset prices including stocks tend to go up. The drop in the stocks in Chile during the hyperinflation is likely the result of a great fear the companies were going to be nationalized.
[Adventures in Reaction]
Monday, August 30, 2010
A Note on Hyperinflation
Robert Wenzel of Economic Policy Journal recommends Gonzalo Lira's excellent piece on hyperinflation, which we discussed here. Wenzel points out a couple of things he believes could be different in a U.S. hyperinflation as compared to that which Chile suffered.
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Lira says assets drop in value because people are selling their stuff to buy food and gas, but it's hard to take advantage of that if you're selling your stuff to eat too. If you have room in the garage maybe stocking up on food would be a good idea.
ReplyDeleteAs for the right-wing coup, I'm guessing many people in Chile are alive who would otherwise not be, including many who would style themselves bitter opponents of it. The same could be said for Argentina or any country that suffered an attempted communist takeover but repelled it through harsh measures. Whatever else you might say about Latin Americans, they know how to deal with communists.
ReplyDeleteCould be wrong, but in past hypers I think Uncle Sam was there to swoop in for the rescue.
ReplyDeleteThe scenario changes if we are the rescuee and there is no rescuer.
Still, when no one will the currency, the hyperinflation is over. The colonists abandoned the Continental for Spanish silver dollars without government saying boo.
Again, people got out of the Chilean stock market because there was somewhere to go -- into the dollar and into the US stock market (or perhaps European or Japanese markets). If you sell your US stock, what currency will you buy? What stock market will you invest in?
ReplyDeleteAlso, in terms of the Chilean stock market, I am sure a lot of people sold because they intended to get out of Chile not just financially but physically. Where can Americans go if America sucks?
Lastly, if the drop in the stocks in Chile during the hyperinflation was the result of a great fear the companies were going to be nationalized... that is not an unreasonable fear here, either. Only a fool would buy GM stock now, since it is effectively nationalized and all you're doing in buying stock is not "investing" but funding greedy-ass union worker's retirement programs. We can expect more of that as things get worse. Every company will scream for its own pension bailout.
I wanted to thank everyone for their kind comments.
ReplyDeleteMangan, you haven't dropped me an e-mail—please do, I'd love to hear from you.
I'll be posting something new, tomorrow Tuesday in the afternoon—it's called "A Termite-Riddled House: Treasury Bonds".
You know what happens to a termite-riddled house, right? Eventually, it collapses.
Hope to you enjoy the piece.
GL
Once again:
ReplyDeletePrecious metals
Long term shelf-life foods
Firearms and ammo
Barter items
People who think and are prepared/preparing like you
PS: US break-up, unpleasant civil unrest and/or a second Civil War a possibility. Plan accordingly.
Add to that list anon, homebrew beer, under "barter items" perhaps. People will always want a drink so it can generate revenue and at least keep your costs down. Not to mention the communal activity that brewing and drinking beer is of its very nature.
ReplyDeleteI'll be planting my first hops garden this spring/summer to get my own ball rolling.
Not sure if tobacco growing is feasable but it's worth a look. It's a very tradeable commodity is the cigarette, though it may attract the criminal element if you spread the resource far and wide.
With plenty of grog and enough lung busters to last a lifetime I'd be looking forward to Armageddon.
According to the book "Tobacco" by Iain Gately, tobacco can be grown just about anywhere, including places like England and Sweden. I agree, Pat, that it would be a very tradeable commodity - it works in prisons all the time.
ReplyDeleteMr. Hannagan and Mr. Mangan,
ReplyDeleteTobacco can be grown just about anywhere. I'd get the still going as well. Just saying...
"I'd get the still going as well. Just saying..."
ReplyDeleteRather than reg'lar tobakky I was wondering 'bout the wacky kind.
After the collapse, it's a reasonable assumption that DEA will be short of funds.
According to Wikipedia, hemp makes good fiber for cloth; hemp oil has the proper 3-1 ratio for Omega 6 -3 fatty acids and makes a good feedstock to burn in your diesel engine; and THC makes a good anti-nausea medicine. Plus, being a weed, it's easy to grow -- but I've only heard that said, of course. I wouldn't know from first-hand experience.
If I were the rebellious sort, which I'm not, I'd look for a source to make discrete inquiries about soil and water requirements for grass -- the Kentucky Bluegrass lawn kind, I mean, of course.