Originally posted by Bryan Hancock:
Originally posted by Jad Allen:
Will the country collapse? I don’t think so, but Americans will be forced to accept a much lower living standard.Hyperinflation is a very real threat and anyone who says otherwise is just sticking their head in the sand.
Jad...Welcome to BP. You make some good points...a rarity in this post. I do disagree that hyperinflation is a very real thread as is stated above. However, let's take it as a given for now so as not to belabor the point. What will you do or are you doing to prepare for hyperinflation? Please elaborate.
A couple of things. I do not have the inclination or the time to respond to most of the misconceptions made in this thread. The best response to most of this thread is to tell others to read a book in fact several books about Austrian economics. Also, I realize it is very unlikely for anyone to change their mind or opinion based on any posts I make ( as I am unlikely to change my view point) so I will not try.
With that said here is how I view things and some of the current actions I am taking. I do not think my thoughts are fool proof, nor do I believe I can tell the future. I just acknowledge what may happen. I look at all the countries who are facing real devaluation of their currencies Greece, Ireland, Portugal, and Spain to name a few and realize that it can also happen here. The difference between them and us is that they can be bailed out by other countries. Who would or is even capable of bailing out the United States?
China. They'll buy American assets like the Japanese did in the 1980's
So with that here you go. Ways that I am hedging in case the dollar does face a period of rapid devaluing.
- I have shifted the focus of my current stock holdings. Where I used to have 85-90% of my holdings in US companies many of which were based on consumer goods I have begun moving towards more foreign holdings. I have an ultimate goal of getting to a 50% USA and a 50% foreign holding. As for the companies I am buying I look for large multinational companies. I am also trying to accumulate companies whose products are 'needs' not 'want' products. Some examples are large multinational drug companies (people don't want to die), oil companies (people still need to get around), fertilizer companies (people will still be hungry), and energy companies (no one likes being cold) to name a few. I also am also holding more mining and natural resource companies.
I've been doing this for the last 10 years. Not because I believe in hyperinflation, but because we're a global economy and America being 5% of the world's population who consumes and controls 25% of the worlds assets is not sustainable
- I am also not considering buying CD's or any municipal bonds. If the economy does not turn around quick you will start to see defaults on the local and state levels. The Federal government will bail out as many of these as they can but eventually the Feds will be overwhelmed. If a devaluing of the dollar were to happen I believe this would be the first domino to fall.
I park my cash in money markets waiting for opportunites. But it's not a long term investment vehicle, nor should it be for anyone(aside for an emergency fund), hyperinflation or not.
- Real estate
I imagine this is one that is of the most interest on this board. I plan to continue purchasing real estate. However, I do not believe that now is the time to max up leverage. ( this could be more due to my conservative nature). Now let me clarify.
I think it is very much in the interest of investor to use leverage I just think it is wise to give yourself more cushion than before. Example instead of holding 5-6 loans with 20% equity, the more prudent move would be to hold 2-3 loans with 40-50% equity. The reason this added cushion is now necessary is many people will be irrational during the run up in inflation. Real estate investors may not be able to pass along added costs to renters ( I am not involved in commercial so I will leave that subject to people more qualified to comment on ) immediately. However, eventually renters will have to pay what is the fair adjusted rate for inflation.
Right now the average renter spends about 30-42% of their income on housing. If hyper inflation occurs the availability of consumer goods will drop/ become less affordable, as will the cost of repair and maintenance for landlords. I would bet that the average renter will have to devote 50-65% of their inflated incomes to their housing costs. This will happen because employers will not raise wages at the same rate of inflation, and people in general are slow to react to changes. So, as a landlord I believe I need to be prepared for this by having a large cushion between my rents and my mortgages.
One upside to hyper inflation will be the amount of debt owed on real estate properties will be much easier to pay off as the renters accept the increased housing expenses.
In the end if hyperinflation were to occur all Americans will have to accept a lower standard of living. However, by being cautious now I believe I will be will be well positioned in comparison to most other Americans. With all of this said, I really hope that America (the government and people) will make the necessary changes in the coming future to avoid this, because it is completely avoidable.
