muses of the moment

Hyperinflationary Depression

Groovygirl follows John Williams at shadowstats.com and firmly believes, as John does, that the US will experience a hyperinflationary great depression in the next 4-5 years (this page was written in 2010). Leading up to that time, we will experience higher and higher inflation and lower and lower economic growth, together with extremely volatile markets.

As defined by John Williams, a hyperinflationary depression is an extreme increase in inflation in expenses and consumables (i.e. food, gas, energy) and an extreme deflation in debt (i.e. no growth in debt creation and a collapse of what already exists). This combination sets up an economic depression, defined as a contraction in economic growth of 25% from tip to trough.

So what should you expect?

This is a valid question since the United States has not experienced a hyperinflationary depression since the Civil War and hasn’t experienced a Great Depression of any kind since the 1930′s.

Most people currently living and working in the US have known nothing but continued growth, with minor recessions. The vast majority of people have a limited skill-set and mental attitude to handle what is surely coming straight at us. This fact makes the coming hyperinflationary depression all the more dangerous and concerning. Unprepared people (and governments) panic, and panicked people make unwise decisions.

So, what will happen in a hyperinflationary depression:

Prices for everything will get higher and higher as credit continues to dry up/freeze and the US dollar continues being devalued. You can expect your monthly expenses to first double in a years’ time, but at the apex of the hyperinflationary time, it will double every 1-2 months. Those on a fixed income will be the first to be hit. This is already happening.

You will have to choose between food and all other expenses. Rents will go down as the percentage of income that people must devote to food rises and rises. At the apex of the Weimar Republic’s historic hyperinflationary depression, people were spending 95% of their monthly income on food.

Unemployment will rise. Businesses will lay off more and more employees because they can not afford basic business expenses since they are too expensive. Consumers will be too concerned with affording food to purchase anything beyond that, further depressing business activity. John Williams is predicting at least a 30% real unemployment rate during this time. It could climb higher.

Business activity will slow and at the apex of the hyperinflationary event, it could stop completely. John Williams’ predicts a 25% contraction in economic activity at the worst of the crisis.

This means a high likelihood of shortages, disruptions,  rations, or just no availability at all of food, auto gas, medicines, and energy.

A high likelihood of social unrest and/or increased crime in large cities and towns where people are unable to get the basic necessities for living either because they can not afford them or they are not available at all.

If commerce completely breaks down, gold and silver, not paper money will be used for transactions. And an underground black market and upperground barter system will develop for basic needs.

The US dollar will lose half of its current value. It will completely collapse, no one will want dollars.

International trade will be extremely slow or stop completely. Just think of all the things we get from outside our borders? Oil. Those things will be completely unavailable, experience intermittent availability or skyrocket in price.

Regular government services at the federal, state, and local level will be severely reduced. At the apex of the hyperinflationary event, it is possible that only emergency hospital, fire, and police services are available. That means everything from the court system to the social security office could be temporarily closed.

The banking system collapses. There is a very high likelihood that either before or after the dollar crashes, what I call the hyperinflationary event, the banking system will collapse as well. This will mean a bank holiday of some kind.

Since the banking system will either collapse or be extremely stressed for a long period of time, debt will not be available. The real estate market will continue to decline. Prices of houses in inflation-adjusted dollars will continue to decline. No one will be able to get a loan or mortgage. Do not count on selling your house and living off the profits during a hyperinflationary depression. You will sell at a real loss and the money you get will not go that far. During the Weimar Republic, all real estate collapsed. Owners couldn’t collect rent, let alone get or pay a mortgage.

So, groovygirl, what kind of timeline are we looking at for the hyperinflationary depression?

That is the billion-dollar question. John Williams believes that this process is starting right now and will last until a collapse in the dollar sometime between 2014-2016. That point will include or start a time of great depression. Martin Armstrong is not calling for a hyperinflationary depression per se, but he is calling for a waterfall effect (a fall off the cliff) in economic activity around 2015.

During the infamous Weimar Republic’s hyperinflationary collapse of 1923, the inflation rate really started gathering steam about fours years earlier. At the worst of the inflation, about the last four months, the rate was doubling every few days. The most important thing to understand about a hyperinflationary depression is the exponential equation. Inflation rises exponentially, doubles upon itself. Therefore, it occurs in a very short period of time and takes many by surprise, and then collapses upon itself. In Germany, the collapse of the currency was followed by a great depression that lasted about 10 years.

Since Germany’s currency collapse was in the age of the actual printing of paper money. It is possible that the US will experience something much faster with the electronic currency system that we have today. Or, it could be that the government will discourage and then outlaw cash transactions in hopes of slowing down a collapsing dollar. That will not solve the problem, but may alter the timeline. Could make it much worse, who knows? The point is that no one will want dollars, not China, not England, not your local gas station, not your next door neighbor. This is about a complete loss of confidence in the dollar.

The hyperinflationary depression is brought about by a complete loss of confidence in the currency as a medium of exchange or store of value. We are already encountering the loss of confidence in the dollar as a store of value for the long-term. That is why gold and silver are going up.

So, groovygirl, how bad will the coming hyperinflationary depression be?

Again, I just don’t know.

Based on what I have studied, researched, and read, these are my thoughts:

Best case scenario:

US dollar continues to be devalued, unemployment rises, economy contracts, and we experience a hyperinflationary event where the dollar collapses. However, the government has a plan and reform policies ready to go and issues in a new currency based on the restructure of all debt so that although your savings may be wiped out, banking doesn’t collapse completely. We have a depression in economic activity, but life doesn’t stop, it just slows to a crawl for several years. At this point in time, there is nothing to lead anyone to believe that the government has any plan or any thoughts about a plan such as this.

Moderate case scenario:

US Dollar collapses and there is a major disruption in banking, economic, and major services in several major cities. These disruptions last only one to four months as the government gets its act together quickly to restructure the dollar and get banking and the economy moving forward for basic services to everyone. We still have a depression for several years once the banking system is restored.

Worst case scenario:

US dollar collapses and all economic activity stops dead national wide. The government is completely unprepared and all major cities are severely effected. The government moves in the military for temporary control as they work slowly to get all basic systems moving again.

This will be similar to Katrina. Where it took a good two to six months to get basic living resources  up and running to everyone and required martial law until those basics were back. If there is rioting in big cities, it may be that the government tries to evacuate people to other areas. Make sure you have a non-government, non-military-controlled place to go in such a situation.

Now, the hyperinflationary event will not be like a hurricane, where people only have 3 days to figure out what they will do or where they can go. The time before the collapse will be clear to all roughly 4-6 months, maybe even a year. But the resources and money to get prepared will become harder and harder to get as we get closer. So, the key to preparation is to prepare early.

So, a hyperinflationary depression is an extreme increase in prices and an extreme decrease in debt availability that eventually causes a total collapse in the currency and a time of economic depression. The depression will probably be a great depression which is characterized by at least a 30% unemployment rate and at least a 25% contraction of economic activity from tip to trough.

So, how can I prepare for a hyperinflationary depression?

Buy physical gold and silver to protect your savings from a collapse in the purchasing power of the US dollar and any other fiat currency.

Have some cash on hand in case there is a bank holiday.

Have some food, water, and basic necessities on hand in case of disruptions in the distribution channels for basic needs. Have anywhere from 1 month to 1 years’ supply. This depends on the best or worst case scenarios listed above.

Have items that you can barter for other necessities that you can’t store long-term such as auto gas and prescription medication. Liquor is a good barter item as are food, water, guns and ammo.

Get a gun and learn how to use it. Groovygirl is a non-violent person, but the likelihood of violence in some area of the nation in this coming collapse is very high. You do not want to learn how to obtain, load and shoot a gun during an emergency situation. You want to learn before hand, have a good understanding of what you are doing and be prepared.

Have a community of people who you can rely on.

Have a plan of action to communicate with your family, children, parents, and friends if communications are down.

How would you keep warm if electricity/gas was disrupted for a few days or month? How would you cook?

Groovygirl’s final thoughts:

Don’t panic, start planning. I don’t know how bad it will be, but it will be much worse if you don’t prepare at all.

It will seem as if the economy is growing when inflation first starts, this will deceive many people. For instance, the stock market could reach record highs in dollar terms, but be falling in real purchasing power (as it is right now).

The government will not announce to you that a hyperinflationary event could or is happening. They will print money and then deny any economic collapse. They are doing that right now. If they should declare martial law, it will be for any other reason than the collapse of the dollar. Of course, they will never admit that there is looting because people can not afford/obtain food through normal channels.

The media will probably not see this coming or be too influenced by the government, so you will have to gather your own information about how things are really progressing. If things get really bad in certain parts of the country, there could be media blackouts. Then rumors, not truth, start to fly. This can be dangerous.

The time line leading up to the collapse of the dollar will be quick in comparison to the following great depression.

The probability that the government will be behind the eight ball on this situation is high, therefore the hyperinflationary event and following depression will be much worse than need be or much longer than need be.

The likelihood that there will be a major war during this depression is becoming increasingly likely. This will be a war for resources and a source of distraction from the real issue…..the US dollar has collapsed, the US government is bankrupt, and the American Empire is dead.

If you are wealthy…leave the country now. If you are poor, still have your passport up to date, you never know.

Things will get more stressful, people will get more stressful around you. Start now organizing and downsizing your life. Find little ways to reduce your stress. Rest.

This time of depression will not last forever. Thousands of people have lived through depressions, you will too. It is just a cycle, a contraction after years of unsustainable expansion.

The change needed in your mental attitude will be the hardest part of this event. This is a paradigm shift on every level of our society. Some people will handle this better than others. The better you mentally prepare, the better off you will be.

Pray.

“We need enthusiasm, imagination and the ability to face facts, even unpleasant ones, bravely. We need to correct, by drastic means if necessary, the faults in our economic system from which we now suffer. We need the courage of the young.” Franklin Delano Roosevelt May 1932

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