Hyper inflation

[corn18]

Where do you invest in a hyper-inflated economy? I'm curious because my grandfather in law did very well in the late 70's early 80's era of hyper-inflation. He was earning 17% on 5 year CD's and had a lot of money in them in the ladder scheme. While he made a lot of interest, the 15% inflation in 1980 gave him a real return of only 2%, comparable to today's rates. But he still had those CD's locked in at 17% when the inflation rate quickly dropped back down to 2% by 1983-84. So his effective rate for CD's he got locked in 1980 @ 17% for 5 years was very high in 1983-1985. He made very big gains on those. He was also debt free, so he didn't have any of the 16% mortgages or 20% car loans of the time.

I expect the gynormous national debt will get to the point that our credit is downgraded and I think hyper-inflation will creep back into our economy. What's the quickest way to get rid of the national debt? Inflate our way out of it. Won't be on purpose, it'll just be the natural course of things.

So how should we respond? No debt would be a good thing. If you have a mortgage, make sure it's fixed rate. But what to do with your savings? Seems like you would want to be liquid going into a period of hyper-inflation and locked in when it comes back down. Ride it out and get as much long term fixed rate returns as possible like my grandfather in law did?

Just a thought problem I was thinking about today without an answer.

Tom

[humandraydel]

Seems like you would want to be liquid going into a period of hyper-inflation and locked in when it comes back down.

Theoretically, this is what you'd want. Inflation and interest rates are difficult to predict though - people have been warning that inflation is coming since 2008. When will it get here? And how high will it go? Should you lock in rates at 6%? 8%? 12%? 15%?

That's why a lot of people suggest inflation-linked bonds such as I-bonds or TIPS. Granted, you don't really lock in rates that way, but they would at least keep up with inflation.

[corn18]

Theoretically, this is what you'd want. Inflation and interest rates are difficult to predict though - people have been warning that inflation is coming since 2008. When will it get here? And how high will it go? Should you lock in rates at 6%? 8%? 12%? 15%?

That's why a lot of people suggest inflation-linked bonds such as I-bonds or TIPS. Granted, you don't really lock in rates that way, but they would at least keep up with inflation.

I did some research on the interweb and it seems a well balanced portfolio that includes some precious metals is just fine. Cash is bad. Variable rate loans are bad. Needing additional debt is bad. So, steady as she goes.

Tom

[97guns]

i remember my mom getting 15% back then, she was doing really good with that kind of interest.

problem now is with the deficit so high even if they raise interest rates 1% we will not be able to service our debt, they only way the usa does not default is keeping the rates low

people in countries that have and are experiencing hyperinflation use precious metals to protect their savings

[corn18]

people in countries that have and are experiencing hyperinflation use precious metals to protect their savings

For some reason I have this itch to own a 1kg bar of gold. Completely impractical and expensive, but I want it.

[GrimJack]

I would like to point out that what happened in the 1980s was not hyper-inflation; it was not even close to hyper-inflation. Hyper-inflation is getting paid 2 times per day so that you can buy food before the price doubles. The US is not anyway near H-I and will probably never get there. Will the US credit be downgraded? Sure, if the debt-ceiling not be raised. Would a US credit downgrade cause hyper-inflation? No. Is gold a surefire hedge against even regular inflation? That is more of a political/personal question. The price of gold per gram is about $40.00 currently - I don't know if that is what you pay for it or what someone will pay you for it but how do you make change? What does owning gold do for you? What can you do with 2.2 pounds of gold? Can you scrape a couple dollars worth off to use as barter?

[97guns]

inflation in venezuela is on the verge of going hyper right now, their dollar is toast.
investors in cyprus lost 1/2 their wealth through the bank "bail in", dont think
it cant happen here

yeah but those are tiny countries, usa is too big, our economy is turning around,
gdp numbers are up and unemployment is down, cant happen here, to me

[feh]

Just a thought problem I was thinking about today without an answer.

Your crystal ball seems to be much clearer than mine.

There's no way to know what inflation will be in the coming years. Create an investing plan (that doesn't include guesses about future economic conditions) and stick with it.

[97guns]

http://www.youtube.com/watch?v=z4ugsBYTdQI&feature=youtu.be

[danielhermann]

For years, people have tried various avenues of investment in order that they may have a comfortable future. It has worked for some, whereas in other cases, it has proved woefully inadequate. Even today, people are struggling with the question as to what and how to save. The fact remains that the time value of money always decreases because of inflation. Therefore you may land up in the same boat as today even after 20 years of savings. However if you can maintain your lifestyle with that money, you are good. Hyperinflation is at present an academic discussion.

[adalinaabella]

Extremely improving expenses will be the beast that requires in all of our useful money current, cause globally economical methods to unable, and once again, just like despression signs era countries of past periods that designed.

Thanks!
paysoftintern

[97guns]

This Is A Food Line In Venezuela, consumer prices have risen 56% since Nicolas Maduro took power in 2013.

http://finance.yahoo.com/news/food-line-venezuela-now-181451026.html

[mortgagereport]

Not sure if 17% is hyperinflation...

True hyperinflation seems like the sort of black swan event that there's no point in worrying about. If you fail to predict it, you're screwed. If you predict it successfully, you're probably still screwed. Maybe hyperinflation isn't the best example since you probably can diversify and hedge away some of that risk, but this is why I don't lose any sleep worrying about catastrophic financial meltdowns. Is there a good counterargument to this logic? lol