Preparing For Hyperinflation
Planning for Hyperinflation or a dollar collapse is becoming increasingly common in the USA. Many fear that hyperinflation here might render their life savings worthless, as many in Germany's Weimar Republic found that their hard earned life savings would not buy a postage stamp.[1]
The Obama administration recently added over a trillion in new money into circulation in an effort to bail out numerous private companies, and stimulate the economy.[2] This is roughly equal to the total amount of money ever issued by the US Treasury.[3] Doubling the amount of money in circulation in a very short time is a recipe for severe inflation, if not hyperinflation. History tells us that new money added to circulation takes about 2 years to produce its inflationary effects, so we probably won't see much action until people forget about the threat, but it could happen sooner. A trillion is a lot of money, and many fear this act alone is enough to bring about an economic collapse.[4]
Once high rates of inflation are apparent, foreign governments will see the value of their US bonds falling and will have a strong incentive to begin dumping their holdings of dollars, thus accelerating hyperinflation. Once the cost of basic necessities in the USA is skyrocketing, the government will not be able to collect taxes fast enough, and it will have to resort to printing even more money (as happened in Germany about 100 years ago when 99% of their government spending was with printed money and only 1% from tax receipts[5]) further speeding up the destructive effects of hyperinflation.
History indicates that new money added to circulation can take several years to produce its inflationary effects, so the USA may not see a dollar crash for a few years, but it may also happen sooner. Adding over 1 trillion will certainly not go without effects, especially when one considers that the TARP funds roughly doubled the amount of US dollars in circulation overnight.[6] Money, like everything else, is subject to the law of supply and demand.
Buying gold is an effective wealth preservation strategy, but it is nearly impossible to earn any interest on gold, and it will only preserve your purchasing power until it has been entirely exhausted. It can be likened to be like living off a savings account and getting no interest, that is, until word gets out that you have gold. Then those with gold better be ready to either leave town or deal with a desperate mob.
Real estate should lose value due to the hyperinflationary effect on the mortgage industry, as banks will hesitate to lend money for 30 years when inflation is running in the 4 digit range, although property will appear to increase in value when compared with the hyperinflating currency. Exchanging the property for money or collecting any meaningful rent would be difficult.
Some advocate purchasing land so they can produce enough food for the needs of their household. While this might result in some success, during hyperinflation in Germany's Weimar Republic angry mobs left the city and looted farms in the German countryside.[7]
Hyperinflation is a local event; a dollar crash would not affect currencies in foreign countries, and may even help their economies via shifting purchasing power to unaffected countries.
In today's world stashing money in a foreign country in a foreign currency is the best protection, according to http://offshorebanking.wix.com/account-list, a site that offers help setting up offshore bank and brokerage accounts. It is possible to earn some interest on savings, or even invest money outside of the USA, & earn a profit outside of the influence of hyperinflation. With modern ATMs and point of sale credit and debit card readers, a foreign currency holder could function in a hyperinflation environment while avoiding nearly all of the effects.[8] Purchases can be made with purchase cards issued by a foreign bank, and the money spent would not be converted into the hyperinflating currency until the instant of the sale.
References
1, http://www.usagold.com/germannightmare.html "The Nightmare German Inflation" USA Gold
2. http://www.washingtonpost.com/wp-dyn/content/article/2009/03/18/AR2009031802283.html "Fed to Pump $1.2 Trillion Into Markets" The Washington Post
3. http://www.marketoracle.co.uk/Article15412.html "Federal Reserve Allowing Bailed Out TARP Banks To Restrict Commercial Lending" The Market Oracle
4. http://research.stlouisfed.org/fred2/series/BASE?cid=124 "Adjusted Monetary Basis" St. Louis Federal Reserve
5. http://www.usagold.com/germannightmare.html "The Nightmare German Inflation" USA Gold
6. http://www.ronpaul.com/on-the-issues/fiat-money-inflation-federal-reserve/ "Sound Money" Ronpaul.com
7. http://www.usagold.com/germannightmare.html "The Nightmare German Inflation" USA Gold
8. http://offshorebanking.wix.com/account-list "Offshore Bank Account & Foreign Brokerage Account List"