Transitory Hyperinflation

Transitory hyperinflation is not a pleasant subject to discuss, but one that people need to be made aware of. It is one which although bad we can prepare for and mitigate the outcome as best we can.

We are so afraid of the current health threat that it is becoming increasingly likely that we will create an even larger health crisis. Not that there wasn’t a crisis on the horizon. For those that are in the know, it has been in the making for decades.

However, the health crisis has hastened it and made things much worse. How is this possible you ask? With hyperinflation, which would be a horrible outcome for entire populations.

What is Inflation?

For those that do not know; inflation is the increase in money supply which results in an increase in everyday prices. To clarify it is the fall of the currency against everyday items, where the currency value keeps decreasing. Hyperinflation is when there is more than 50% inflation per month and it has to occur for 30 days straight in a month.

Money printing is done by central banks. Central banks were printing money before, but in 2020 central banks went into overdrive, blaming the health crisis. You can have a look at the chart below which is important for everyone around the world to take note of. This is because all worldwide currencies are tied to the dollar so if the dollar falls in value all other currencies around the world go down with it.

Federal government spending in America

This chart is taken from Fitsnews

Notice how in 2020 government spending skyrocketed at an alarming rate. In April 2020 alone the government spent $1Trillion in a month. This kind as spending has consequences.

Transitory Hyperinflation

For the first time ever there is acknowledgement of “’transitory’ hyper-inflation” by Bank of America, a mainstream bank. Before there was only talk amongst some Austrian economists and the like about hyperinflation. There is definitely a wind of change all of a sudden.

The statement by BofA says:

‘Inflation trends running hot as margins hit record highs.
We noted during Week2, that mentions of inflation quadrupled YoY; after last week, mentioned have jumped nearly 800% YoY (Exhibit 10). On an absolute basis, mentions skyrocketed to near record highs from 2011, pointing at the very least, “transitory” hyper-inflation ahead. Inflation risk was most prevalent in Materials, Consumers sectors and Industrials (Exhibit 13). By category, mentions of pricing (+36%) and transportation (+35%) rose most…’

For the time being inflation being quoted in articles is focusing on the prices of materials. However we all know that groceries went up last year. Certainly when everyone was flocking to the supermarkets and panic buying all they could get their hands on. Other things such as real estate in certain countries have gone up also. Prices of containers for shipment of goods have also gone up.

Selling hyperinflation as transitory and temporary is misguided. Like everything that can be charted nothing goes up in a straight line but has ups and downs. Transitory hyperinflation will be a small speed bump in the road that will lead to more hyperinflation.

The End Game of Hyperinflation

Hyperinflation is a destructive force. It destroys economies and health bringing despair and death for those that are unprepared. Like the small group of economists that were talking about hyperinflation a long time ago, now there is talk, in again a small group, of how bad it can get.

Michael Burry featured in the movie The Big Short who predicted the crisis in 2008 is also warning about how bad it can get. They are mentioning a Weimar Republic style hyperinflation.

Hyperinflation in Weimar happened between 1913 and 1923 in Germany. The German Mark at the time became worthless especially towards the end. As a results as people received money they spent it straight away. The money was like a hot potato that nobody wanted to keep. Instead people wanted to have things that kept some sort of value to use, consume or barter with.

It caused a large scale health crisis. There was a lack of food, people were starving and collapsing in the street out of weakness. There was disease. Children were 2 years underdeveloped physically and mentally. The population was anxious, desperate, angry and confused. They had no idea what was truly happening. This is probably the worst part of it. All the population could see is that basic essentials were increasingly becoming expensive and harder to find.

The situation was dire. It is historically documented in Adam Fergusson’s book When money dies: The nightmare of deficit spending, devaluation, and hyperinflation in Weimar Germany.

How to Prepare

There is nothing much we can do about governments who continue to print money. The only thing we can control is our response. The cryptocurrency community has realised that a long time ago. Most certainly the first adopters were ideological adopters and not speculators in Bitcoin and other cryptocurrencies. They knew things had been off for a while, especially the millennials who have largely been disenfranchised.

Ideological cryptocurrency adopters have learned that when a society is not tied to any sound form of money governments will print money as they need it. The problem is that money printing results in inflation which is a hidden tax. It continues to devalue the currency taking wealth away from the population.

Bitcoin and other cryptocurrencies can be used as one of the solutions to prepare for inflation or hyperinflation. This is because unlike currencies which will continue to fall in value, Bitcoin keeps on rising because it is a form of sound money. True, Bitcoin is highly volatile it goes up and down quickly with large percentage moves, but the trendline is up.

As Max Keiser an entrepreneur and television host with an extensive financial background has said “everything is in hyperinflationary collapse against Bitcoin”. This could certainly be the case. 

None of this is financial advice and we recommend investing no more than you can afford to lose. If you consider buying Bitcoin or any other cryptocurrencies there are some exchanges you could consider listed here.

Of course there are also other options you could look into which are covered in the article how to protect yourself against inflation.