Sol Palha: Financial & Economic Insights Hyperinflation and the changes it is going to generate Part 1

Hyperinflation and the changes it is going to generate Part 1

The evils of inflation is that it can turn into Hyperinflation 

Evils of inflation

Next to inflation, majority rule is the most ingenious scheme ever contrived by government. Most people have never dared to question the basic morality or logic in the assumption that the majority should have power over the minority. A majority of the people in the South once believed in black slavery. Did that make it moral? A lynch mob is majority rule stripped of its fancy trappings and its facade of respectability.

In a community where homosexuals outnumber heterosexuals, should the majority have the right to outlaw sex between married partners of the opposite sex? In a community where atheists outnumber non– atheists, should the majority have the right to outlaw the practice of religion? … a dictatorship allows only a small number of people to interfere with the rights of others, a democracy makes it possible for great numbers of people to impose their will on others — through the force of government. Is an act of aggression more right if carried out by the majority than by a dictator? Since approximately half the eligible voters vote this means that approximately 75% of the people are ruled by 25% of the people.  Robert J. Ringer, American Writer

The Evils of Inflation are that it robs the poorest of the poor and benefits the richest of the rich 

This article by no means deals with all the events that could, might or should unfold if and when we enter a period of hyperinflation; one could literally write a book if one dealt with all the potential scenarios.  Our intention is to deal more with the remedy than spending endless time talking about the problem.

We knew that inflation would strike all we were waiting for was a clear-cut signal, and we have finally received that signal. What is this signal you ask?

The Fed’s decision to invest in treasuries to loosen up tight credit markets, they have openly stated they plan on pumping 1 trillion dollars into this dumb and idiotic venture. This is called monetization of the debt, one branch prints treasury certificates and the other branch buys these certificates due to lack of outside demand. Countries that are in trouble usually take this route.  For example, Zimbabwe and before that Argentina.  Zimbabwe gave up and adopted the dollar but the new player on the block is Venezuela.

The markets greeted this news with joy, and so did the bond markets, but note that bonds have not been able to even trade past 130, let alone test their recent highs in the 142 ranges. In the short-term it is even possible that bonds go on to put in new highs, but it will slowly dawn on long-term investors that the US dollar is being diluted at an incredibly rapid rate, and they will then start to sell their long-term holdings (20 year treasury notes and 30 year bonds), this will in turn force the feds to increase rates as this will be the only way to keep these investors happy- hence a vicious cycle will suddenly come into play.

For a long time now, we have advised our subscribers to have some of their money in another country for it never pays to have all one’s eggs in one basket. If you have not done so, then it would be a good time to consider doing so now. For example, one can open up offshore accounts, and they can be denominated in multiple currencies. The main idea though is to have some money outside and in an account that allows you to easily switch between currencies.

For those who absolutely cannot travel, then the last option is to open an account with pay pal and activate the currency option in the account. Pay Pal allows you to invest in several currencies for a small fee; so far, you can invest in the Pound, Swiss Franc, Japanese Yen, Euro, etc. Another last option strategy would be to invest equal portions in the currency ETF’s that have recently hit the markets such as FXY, FXE, FXF, etc., We will provide recommendations via our currency and bullion portfolio when the time is right.

Why is this hyperinflationary cycle going to be different?

Prices of commodities and anything that needs to be grown or dug out of the ground is going to increase in price significantly, but at the same time this credit crunch has destroyed the economies of many nations and the net result is that millions of individuals have lost their jobs on a worldwide basis; the overall job outlook in not going to improve.

While we are going to have inflationary forces kicking into full gear in the commodities sector, deflationary forces will kick in (at least at the beginning) in terms of salaries (reason too many workers, too few jobs). This means that those that did not prepare are going to be in for extremely painful experience; it also means that those that were prepared are going to be able to pick up incredible bargains in terms of luxury cars, painting, houses, etc; again this will be the initial stage, once we enter the hyperinflationary stage, expect everything to rise in value. We will not be surprised one day if used cars start to sell for more than their original sticker value; this often occurs in third world countries due to inflation.

Certain sectors will offer lucrative employment.

Anything to do with nuclear energy will pay very well in the years to come. Also, the alternative energy sector will provide a pretty good source of employment; we think the two best sub-sectors that will perform well are solar and geothermal power.

Medical sector

This sector as we have already stated is going to implode; hospitals and doctors are simply charging way too much for mediocre to crappy services. In the end the United States despite al its high tech medical gadgetry, it is still one of the sickest nations in the world. In the US individuals are now doing what the rest of the world has been doing for a long time, they are finally gravitating towards preventative and natural medicine in contrast to brute force medicine, a field that is controlled and dominated by the drug manufacturers.

Drug companies are the real drug dealers in this world; they have a legal licence to create and sell toxic matter to the public. Before this sector crumbles and falls to pieces, the government will deploy billions and possibly trillions of dollars trying to save it and in the process drive us into the hyperinflationary phase even faster.

Commercial real estate

A few weeks ago we briefly mentioned this topic; over 500 billion dollars in mortgages are going to reset to market rates. Corporations purchased these mortgages at teaser rates and just like the residential sector imploded when the mortgages there started to reset to market rates in 2006 and 2007, the same will occur here. Supermalls could be a thing of the past, and many so-called franchises will have to seriously scale down as they over leveraged themselves during so-called boom times. Once again, the government will try to come to the rescue and in doing, so they will create even more money; they might have to create another trillion dollars to deal with all the after effects from this sector.


We will continue with this next week and culminate with several suggestions as to how one can best position oneself so that one is, for the most part, insulated from the side effects of this upcoming disaster. This disaster is going to happen whether you keep your eyes open or closed. It would be far better to keep your eyes open and prepare for it, so when it hits you are ready and waiting and not sitting down with your trousers on the floor and your rear exposed to hot flames.

Remember that a disaster is nothing but an unprecedented opportunity in disguise, the trick is to keep your eyes open and not flee to the mountains with your eyes closed and driven by panic.

Hyperinflation Part 2 of the series

It is impossible to calculate the moral mischief, if I may so express it, that mental lying has produced in society. When a man has so far corrupted and prostituted the chastity of his mind as to subscribe his professional belief to things he does not believe he has prepared himself for the commission of every other crime.

Thomas Paine1737-1809, Anglo-American Political Theorist, Writer

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Other articles of interest:

Technical Analysis

Why Mechanical and Technical Analysis Systems Fail

The Limitations of Trend Lines

Contrarian Investment Guidelines

Inductive Versus Deductive reasoning

Mass Psychology Introduction

Hyperinflation and the changes it is going to generate Part 1