Greetings! What a tremendous response to Martin’s article on his personal experience living through hyperinflation on Friday. I am so glad so many of you have “emptied your cup” and are willing to entertain the possibility of that happening here in the U.S…..heck, many of you think it’s only a matter of time, thanks to Bernanke and his magical printing press!
I read an interesting article today on CNBC of all places (I know, I know, but it was an interview with Kyle Bass, whom I always listen to), and Kyle said,
“We had a hyper-leveraged economy and world going into the financial crisis,” Bass said. “We lost trillions and trillions of dollars because of that leverage. The first several trillion dollars that were printed just replaced what was lost” and had no net effect on global money supply.
But subsequent printing, which is where we are today, starts to affect the economy, Bass said, pointing to rising inflation in Southern Europe and slowing economic growth. Bass also had little confidence U.S. and European politicians would be able to solve their respective debt issues.”
(For those of you who don’t know, Kyle Bass famously made a fortune by shorting the subprime market before the housing market collapse.)
Here on Kung Fu Finance we often debate whether or not we will experience deflation, rampant inflation, or both, although with Bernanke’s last announcement it seems ever more probable that rampant inflation will be forthcoming, current oil prices notwithstanding.
And they are currently experiencing hyperinflation today in Iran! A recent Business Insider article entitled, HYPERINFLATION: Iran’s Currency Is In A State Of Total Collapse (the title says it all…) reports:
“The Iranian rial plunged today against the U.S. dollar as western sanctions against the state’s oil exports are really starting to up the pressure on Iran.
Earlier today, the rial was down 7 percent against the dollar, meaning it had lost a quarter of its value in just the past week.
However, it continued to drop throughout the day, losing more than 13 percent, according to the Jerusalem Post. Israeli finance minister Yuval Steinitz said the Iranian economy is now ‘on the verge of collapse.’”
The Iranian rial has lost more than 40% of its value over the past week — here is a chart of the U.S. dollar against the rial over the last 70 days (note that it’s the year 1391 on the Persian calendar):
You can also read a great report on the 56 worst hyperinflations of all time recently put out by the Cato Institute (or the Cliff’s Notes version of the 9 worst hyperinflations here).
It’s definitely not an anomaly…hyperinflations have occurred countless times throughout history (at least 56!) and I believe unfortunately, yes, it couldhappen here.
So what can you do?
Kyle Bass believes you should own productive assets (I do, too), including apartment buildings, oil wells, and gas wells…and gold (I do, too!).
If you’ve been reading for awhile you know that I am a founding member of something called the Hard Assets Alliance, a new program that allows you to buy and store physical precious metals in fully-allocated non-bank storage vaults internationally, with ease.
Now, if you simply want to purchase a few coins or bars to store at home, I would recommend just visiting your local coin dealer, and if you don’t foresee ever needing to take delivery of your metals, you can use a service like GoldMoney.
However, if you’d like to easily store your precious metals overseas with the option of taking delivery at any time at any registered address, then I highly recommend you check out the Hard Assets Alliance (I have an account with them and have been very happy so far, as have several subscribers).
And in light of all of this hyperinflation talk, I want to share with you an article by the Hard Asset Alliance’s Doug Hornig, on one more hyperinflation…the one in Vietnam.
Robert Kiyosaki has written extensively about his own personal experience with the Vietnamese hyperinflation in his books, and this is another great account….take it away Doug!
By Doug Hornig, Hard Assets Alliance
They sewed the gold into their clothing, grabbed only what they could carry, and hoped they weren’t caught…
Vietnam 1975: As the Communists marched south, countless terrified Vietnamese – mainly middle-class business families who were ideologically
opposite to the approaching forces – fled for their lives.
The well-to-do, the well-informed, and the well-prepared had seen the writing on the wall earlier than most. They arranged safe passage and had already moved themselves and their assets out of harm’s way.
Now though, as their country looked set to fall to communism, it was the middle classes who feared imprisonment, torture, and execution if they stayed in their
They were pouring out of the country in any way they could.
Many left had to be airlifted out – 125,000 of them in the spring of 1975, just prior to the fall of Saigon.
Before they left, those with possessions of worth – primarily the middle-class business community in Saigon – sold everything they had.
Every vehicle, every stick of furniture, piece of art, and family heirloom. Sold.
Even their clothing, save what they wore or could stuff into a single suitcase, was sold at whatever price they could get.
Because owning gold, while making them a target, also meant escape and survival, while those around them perished.
They let everything go. They knew they were not coming back.
Of course, they didn’t want local currency. They realized it would have been senseless to expatriate with bags of the local paper currency that had no worth
Nor did they want stacks of US dollars that were bulky, easily damaged, difficult to conceal, and effortlessly stolen or confiscated.
They needed something that was light to carry, easy to hide, and would have significant value regardless of where they resettled.
They wanted gold.
Gold is portable. That’s important, because you can carry your wealth with you in an emergency.
An emergency such as war, like Vietnam’s… a natural disaster… or a financial meltdown in your home currency. If you own gold, it’s more likely that you will
survive where others perish.
In Vietnam, as the middle classes prepared to leave, they exchanged all their worldly goods for kim thanh – small gold “leaves” of about 1.2 troy ounces
that are commonly traded in the Far East.
They sewed thin, leafed gold into their clothing, they took what they could carry, and hoped for the best.
Gold means security, even as the most life-changing events overtake you.
To the Vietnamese, gold meant not arriving in an unfamiliar land utterly impoverished. It meant having the means to start a new life.
When owning gold meant a new beginning
The middle-class Vietnamese who arrived in the US with the tangible assets to begin again have done well.
For the most part, they have become middle-class Americans.
They’ve prospered in places like Orange County, California and Silicon Valley, starting businesses, sending their children to college, and gaining political
It’s a subculture built initially on the back of gold bullion.
America hasn’t experienced the kind of civil strife these Vietnamese faced at home in nearly 150 years.
But disasters come in many forms, including economic ones. And the US has had its share of those.
You’ll already know, of course, that in times of economic crisis, people turn to gold just as much as they do when they are fleeing the devastation of war.
That’s precisely what happened during the recent financial sector meltdown in 2007-’08.
At that time, demand rose so much that scarcity became the order of the day.
Buyers were forced to pay between 9-15% over spot to buy coins… if they could find them. And not all had the right sources of information to buy gold at the time
they needed it.
Shipping delays of one to two months were the norm, and lags of as much as four months were not uncommon.
There were days when dealers were being told simply, “don’t sell” by their suppliers, because no one could promise when, or even if, orders might be filled.
Many dealers got squeezed hard at what should have been their most profitable time ever, as demand went through the roof.
But they couldn’t sell what they didn’t have.
Much of the supply shortage, according to dealers, was caused by large-scale buyers in the $1+ million category.
When dark clouds are in the skies, wealthy people bolt from paper currencies to gold, quickly taking big lots of physical metal off the market.
Had the financial system not stabilized when it did, however shakily, gold might well have become unavailable and almost unaffordable.
And these buyers don’t want any of the paper substitutes, either.
Even at the depth of the Wall Street catastrophe, there was no problem buying paper gold in the form of ETFs or “metal” in unallocated accounts… which tells you all you need to know about the relative desirability of paper versus physical gold.
The historical lesson could not be more clear.
Understanding how to invest in gold bullion remains a key part of wise investing, simply because gold remains a storehouse of value when the worth of paper money hits the skids.
Consider the precarious nature of the fiat-currency system the world over.
The widespread, massive money-printing and the concurrent currency dilution means the likely eruption of high inflation or even hyperinflation. Both are a
Consider too the shaky foundation of many large banks and their financial products.
We are never more than a step or two from the next crisis. And the next one is expected to be worse than the last.
The wrong way to buy gold. For protection from impending crisis, many investors – unsure of how to purchase and store physical precious metals – are
turning to paper gold and silver.
There’s a right way and a wrong way to buy gold. That’s the wrong way to do it.
Many confuse an ETF with physical holdings.
Rather than providing protection from financial collapse, ETFs (like GLD) expose investors to a lot of risk.
So it is more critical than ever to have exposure to physical gold and silver that is under your direct control.
Buying and storing precious metals can be as easy as logging on to your computer.
To find out how to do it with the same convenience as an ETF but without their inherent risks, read our free report, Precious Metals Breakthrough Takes Down GLD.
At some point, it will be too late to buy precious metals, for all practical purposes. You can’t buy insurance to cover losses after the flood has already happened.
And you probably won’t be able to even find gold for sale after the next financial crisis.
Kung Fu Girl back again….thank you, Doug!
Now, this is not at all a “doom and gloom” blog and I certainly don’t mean to scare you by publishing two hyperinflation-related articles in a row. I don’t believe the world will end tomorrow (although the Mayan end of the world is supposedly coming up in a few months…I plan to throw a gigantic party on that day!) 🙂 but they are rioting in Iran right now and I do think it is smart, as both Martin and Robert Kiyosaki advise, to “prepare for bad times and you will only know good times”.
Whether you go the Hard Assets Alliance route or simply buy a coin or two to file away at home somewhere safe, I do think owning a bit of gold is prudent, and if you can, physical always trumps ETF’s (although some, like the Central Fund of Canada, CEF, are better than others, like the awful GLD!).
What do you think about the hyperinflation in Iran? And about buying gold and other more productive assets to ward off inflation here in the U.S.? Please let me know in the comments!
Thanks very much for being an awesome Kung Fu Finance subscriber!
To your financial success,
— Kung Fu Girl
P.S. Yes, those are affiliate links to the Hard Assets Alliance above– as a founding member I will receive a small (very small…) affiliate commission if you choose to open and fund an account (trust me, it will barely keep the lights on here at KFF, but thank you in advance!) 🙂