Mr. Rawles-
In response to “More predictions for 2009”, reader Jeff K writes, “There has never, ever been hyperinflation with deflating real estate prices.”. This is simply false, and a surprisingly common misperception. Zimbabwe is hardly a ‘red hot’ market for residential (or commercial) real estate, yet that country is an example of extreme hyperinflation. When Turkey went through its period of massive inflation it too suffered declining real estate values. South America, plagued with inflation during much of the past century was also a black hole for real estate investment. Ditto for [much of] Africa. Weimar Germany, a famous example of hyperinflation in a modern, western state was, similarly, anything but an appreciating property market.
What one may observe during a hyperinflationary event is the dramatically increasing cost of assets denominated in the hyperinflating currency. The real value of the domestic assets (such as real estate), however, is not increasing but rather decreasing as assets are constantly being revalued in terms of the inflating currency’s loss of value. This loss, counterintuitively, manifests as a “gain” in the form of more zeros on the notes. Similarly, real estate deflates in periods of hyperinflation even as its price “rises”. This is why super- or hyperinflation fails to attract real estate investors in states suffering such economic mismanagement. – Steven L
Dear J.R.,
A recent article from Bloomberg “Attali Warns of a’ Worldwide Weimar’ as Governments Print Money” will explain to your readers of how inflation and even hyperinflation can develop from a deflationary collapse.
As shortages of goods/supplies/services begin happening after manufacturing, transportation and supply systems break down in deflation; and with the abnormally increased money supply suddenly thrust into our economy working it’s out into the broader economy- the conditions for inflation begin. – M.M.
Hello Jim,
With regard to Jeff K.’s reply, calling Roger Wiegand a “huckster”, I’d like to point out some issues I have with his claims. Wiegand did correctly call the crash of the US Equity Markets, as Jeff states, but I could not readily locate anything about Wiegand being wrong on hyperinflation, since he isn’t calling for it until late 2009. As for a decoupling, Wiegand, again to the best of my knowledge, has spoken only (or at least, primarily) of a decoupling of gold from the Dow. No other decoupling mentioned. Foreign equities? Show me where Wiegand has suffered a “big flop” here. Same with commodities, where he continues to support gold, which is a long-term position and one with which I wholeheartedly concur as having huge upside potential, even more so for silver. And is Jeff K. investing in the S & P? He’s a braver soul than me, since I wouldn’t touch the S & P with a
26 1/2 ft. pole, nor any other Dollar-denominated asset.
Jeff K. says “FYI, there has never, ever been hyperinflation with deflating real estate prices. There has never, ever been hyperinflation when one’s debt is denominated in their own currency” Again, Wiegand hasn’t called for price hyperinflation until later and I think perhaps Wiegand’s timing could be off, but only the timing, not the inevitable event, since there is no example in recorded human history of a continually successful fiat currency, as they all eventually end, some catastrophically. Monetary supply increases are [presently] in full swing.
How did Jeff K. determine that Rodgers, Schiff and Wiegand have been wrong for thirty years? How can anyone be wrong for thirty years and maintain a growing number of satisfied clients? (Sure, some got burned, no one is perfect).Is he basing this on the fact that hyperinflation hasn’t arrived yet? While it may not be hyper, is a 98% loss in the purchasing power of the Dollar and Wiegand’s claim that it will get much worse, not enough to satisfy Jeff? Congressman Ron Paul, probably the most educated Congressman on the economy, with several related books written on the subject, also claims that inflation is all but guaranteed in our future and I cannot rationally consider Paul a “huckster”. The [same] amount of money that the Fed created from 1913 to Sept. 2008 has been created in the last 16 weeks. This is off-the-hook, unprecedented (at least in the US) monetary inflation
and will potentially have a devastating effect on price inflation within 1-2 years’ time. Worse, there are no plans to slow down and, in fact, the Fed continues to smoke the bearings off the presses like there’s no tomorrow. (And there may not be, for the Dollar!).
The bottom line and the lesson I feel we should take away from these so-called “hucksters” is that government intervention in the markets is the root of almost all our economic woes. Inflation is real and growing, regardless of timing, and is likely to get much worse. (The exact call on dates means very little to me) and that bickering over these details of who is wrong and who is right is absurdly pointless in light of what is unfolding. Understanding the degree of manipulation, the vulnerability of our JIT infrastructure, the fact that we import most of our food, fuel and goods…it doesn’t take a rocket scientist to realize the potential for a very dangerous situation to unfold unnervingly quickly and for which a staggering number are, sadly, completely unprepared, thanks to an ignorant / complicit mainstream media and a breathtakingly corrupt Fractional Reserve Banking System.
Additional note: I contacted Euro Pacific Capital in the wake of the related Shedlock article and received the following reply on Monday, January 26, 2009:
“Thanks for your e-mail. Yes we are aware of the Shedlock article, and we are disappointed that he would choose to market his firm by bashing ours. On many
levels his critique is distortive and unfair. We will address this in upcoming podcasts.
Thanks,Andrew Schiff
Euro Pacific Capital, Inc.”
Lastly, who does Jeff K. suggest we should entrust with economic insight? Bernanke? Geithner? If he says Larry Kudlow, my opinion of his observations will have been thoroughly confirmed. Some people will stand square in the tracks and argue over a loose railroad spike, even as the speeding train bears down on them. Sincerely and God Bless, – H.H.
Hi Jim,
Jeff K. slams Jim Rodgers, Peter Schiff, and Roger Wiegand in error as he does not appreciate the long term and conservative (read safe) old fashioned investment strategies, strategies safe enough for “widows and orphan” as they say. One should keep their eyes on the big picture, the macro economics and think in terms of years, and not in terms of a day trader and more nimble risk taking ‘investors’ who can make money in the short term and yet loose in the end. Few gamblers always call it right and most eventually loose. One cannot compare these two very different classes of investing on the success or failure of a chosen year or two.
This appears be the greatest financial meltdown in history, and as you say, we are in “terra incognita”. The fundamentals continue to justify a conservative approach and playing the macro trends while ignoring the market noise. While Schiff did missed this nasty deflationary phase, he may yet prove to be a winner and Rodgers always mentions that he has the worst timing. Clearly they have gotten the big picture right, it is now a matter of whether it becomes be a deflationary scenario, some level of high inflation or the worst, hyper inflationary. IMHO, hyper inflation is likely. Unfortunately I can’t speak about Wiegand. Fortunately I believe I’ve followed the best advice, the most conservative of all and invested in tangibles, lots and lots of tangibles. – E.L.