Hyperinflation is inevitable: How you can prepare

By Aaren Humpherys

For the Deseret News

Published: Tuesday, Aug. 16 2011 6:31 p.m. MDT

I can remember like it was yesterday.

Eight years ago, my wife and I survived a direct hit from Hurricane Isabelle — a Category 5 hurricane that was the costliest in Virginia’s history. It sustained winds of 165 mph and left 1.8 million people without power. We didn’t know if our house was going to survive the night, nor did we know if our nerves were going to survive the howling winds and rattling windows.

Just when I thought it couldn’t get worse, the next morning I found myself at a gas station in a long line waiting to buy ice. People were running around grabbing anything and everything they could get their hands on. It was complete chaos. We needed ice to keep our food in our fridge from thawing because that’s all we had. The thought of running out of food, fighting the mobs to survive, no electricity, no transportation and no water stabbed me in the heart.

We were not prepared. I promised myself that I would never be caught unprepared again.

We knew the hurricane was coming. The signs were obvious, but we were caught unprepared and suffered the consequences. The U.S. is now in the path of an even more destructive force than a hurricane — hyperinflation. The signs are everywhere and the effects are even more deadly than a Category 5 hurricane.

Hyperinflation happens when prices shoot through the roof. It’s like squeezing the last 80-year period of 3 percent annual inflation into just a few months. Prices skyrocket and uncertainty in the future worth of the currency causes people to panic, leaving in its wake a collapsed currency, bankruptcy for almost everyone, a lifetime of savings wiped out.

So what are the causes of hyperinflation, can it really happen, and how can you prepare your family?

One of the root causes of hyperinflation is the rapid expansion of the money supply. The government doubled the money supply overnight by simply printing money out of thin air, taking us from $800 billion in mid-2008 to $1.7 trillion by December 2008. And now in 2011 we’re at $2.5 trillion. Inflation usually lags monetary increases by about two to three years. We are sitting right at 2.5 years from the doubling of the money supply.

There have been 30 cases of hyperinflation in the last 100 years — In Germany’s Weimar Republic in the early 1920s and most recently in the Zimbabwe in 2008. A lifetime of saving was wiped out overnight. That’s why it’s so important to have food storage.

Many economists predict hyperinflation by 2015, and some say as early as 2012. It’s unpredictable, but everyone agrees it’s inevitable. Increased inflation is already showing its ugly head in commodity prices with a 46-percent increase in the average commodity price in 2010.

Just as there are five stages to a hurricane, there are five stages that a country goes through before hitting hyperinflation.

1. The Gold Standard

The government starts out using fiat money (paper money) that is backed by gold.

2. Social programs increase; military spending soars

As a country develops economically and socially, it begins to take on more and more economic burdens adding layer upon layer of public works projects and social programs, like food stamps. Currently in the United States, 44 million people are on food stamps. When Medicare was created, the projected annual cost was only $40 billion a year; now it costs more than $400 billion a year.

The military starts to expand and exercise its influence in the world. Then spending dramatically increases to fund wars (WWI, WWII, Cold War, Korean, Vietnam, Desert Storm, war on terrorism). The U.S. spends twice as much on military than every other country combined.

3. Gold Standard abolished

In order to fund military spending and social programs, President Nixon took the U.S. off the Gold Standard in 1971 so the government could print money.

4. Steady inflation

This has occurred since the creation of the Federal Reserve in 1913. However, the expansion of the currency supply by the printing of money to fund military, social programs and deficit spending starts to be felt by the population as severe consumer price inflation triggering a loss of faith in the currency.

5. Hyperinflation

The final stage is a massive movement out of the currency into precious metals and commodities and other tangible assets and the currency collapses.

The U.S. is sitting right between stages four and five, but there are sign everywhere that we are approaching stage five quickly. What are those signs? Consider the following:

Government printing money — In 2008 and 2009 the money supply doubled because the government printed $1.6 trillion (and we pay 6 percent interest to the Federal Reserve on all printed money). In June 2009, The Wall Street Journal reported, Get ready for inflation and higher interest rates. The unprecedented expansion of the money supply could make the '70s look benign.

The '70s saw 14 percent inflation and 20 percent interest rates.

Deficit spending — The U.S. currently holds more than $14 trillion in debt and an annual $4.3 trillion budget deficit. Combine this with the unfunded liabilities of Medicare, Social Security and Medicaid, total U.S. debt obligations total $76 trillion, which is five times greater than Gross Domestic Product. In February, the U.S. had a $228 billion budget deficit, which was more in that one month than the entire budget deficit of 2007.

Reaching the tipping point — Every paper currency in the world has collapsed when government spending reaches the tipping point. Thats when the government borrows 40 percent to fund spending. The U.S. is now at 41 percent.

Major suppliers announce price increases — Colgate-Palmolive, Proctor & Gamble, General Mills, Kellogg, and Supervalu say they're feeling the crunch of higher ingredient costs and are raising prices in 2011 to cope — upwards of 15 percent.

Wal-Mart announced in March they would increase prices to cope with higher costs. Major providers of food storage commodities have already increased prices by an average 25 percent.

China — In March China announced that by the end of 2011 it will no longer transaction international trade in U.S. dollars, thereby competing against the dollar as the worlds reserve currency. This drives down the value of the dollar.

The U.S. passed peak consumer spending in 2010 — In 1990, Japans deflationary lost decade was caused by Japan passing peak consumer spending. Age 48 is the year in which consumers peak in spending and the last baby boomer just turned 48 in 2010. The U.S. government is printing money (called Quantitative Easing) to prevent another 1930s Great Depression and to avoid a prolonged deflationary period like Japan, but printing money has severe hyperinflationary effects.

How can hyperinflation affect your family?

Food could be so expensive that you cant buy it or have to sacrifice other things to afford it (it will be too late to build up food storage).

Everything could become expensive, especially the price of anything made outside the U.S.

More businesses could fail. Surviving stores would likely sell fewer items, a smaller selection, and only the cheapest quality.

Riots could occur over food prices, energy shortages and unemployment.

Interest rates could skyrocket.

Cash savings could lose all of its value.

What do you need to do now to prepare?

First and foremost, obtain a three-month supply of food you eat regularly. Whenever a disaster hits you go through added stress and shock. The last thing you want to do is eat what you wouldnt normally eat because it shocks your body.

Store two weeks of drinking water for each family member. A 55-gallon barrel of water is about the minimum for 2 people.

Have emergency money. Have some of your savings in the form of precious metals and tangible assets, not entirely in U.S. dollars.

Store one year's worth of long-term food (i.e. grains, legumes).

Be self-reliant in every way possible and be prepared to live simply.

Grow your own garden.

Get out of debt, especially consumer debt, as soon as possible.

Be ready to barter using canned food and other necessities as currency.

Rely on what you already have stored and what we can grow.

Be prepared to stay at home and protect yourself.

Hyperinflation is a super fast rise in the price of everything. One of the main causes is government spending, heavily funded by printing money and borrowing, which essentially causes the currency to collapse. Hyperinflation is also caused by a dramatic decrease in international demand for that currency, such as from Chinas announcement that by the end of this year, it will no longer trade internationally using the U.S. dollar.

But will it really happen? Its not a matter of if; its a matter of when.

Alan Greenspan, former Fed chairman, said that by 2012 inflation will become our next greatest challenge. Many foreign investors believe that the value of the U.S. dollar will dramatically fall in the next one to five years, causing prices to rise. Weve already seen an average 46 percent increase in commodity prices in 2010 alone. We are already experiencing the beginning of hyperinflation.

In his book Priceless, author Dave Ramsey said, An ounce of preparation outweighs a pound of regret.

Aaren Humpherys graduated from Brigham Young University in 2001, is a CPA, emergency preparedness expert and father of three. Contact him at alhumpherys@gmail.com or visit www.colonypointe.org

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