“Those who cannot remember the past are condemned to repeat it.” – George Santayana
Back in late June of 2010, I stumbled upon Robert Kiyosaki’s Rich Dad Blog for the very first time. Well, after browsing the archive section, I found myself reading and subsequently re-reading his May 11th post entitled “Living on Borrowed Time.”
There was just something about this particular blog post that left me eerily intrigued.
In a nutshell, “Living on Borrowed Time” references Kiyosaki’s own book, Rich Dad’s Conspiracy of the Rich: The 8 New Rules of Money, and basically acknowledges that while we’re currently in a “calm before the storm” phase, he believes the U.S. economy is heading for undergoing two different types of economic depressions–both an American and German-style depression.[1]
To make a long story short: I became intrigued with the blog because Kiyosaki dropped the economically calamitous financial term HYPERINFLATION.
You see, back in ’96, at the tender age of twenty, I read renowned financial writer Howard Ruff’s Making Money: Winning the Battle for Middle-Class Financial Success, and in that book he writes very comprehensively about what are dubbed as “the ‘flations”– Inflation, Stagflation, Hyperinflation, and Deflation.
According to Ruff, “Inflation is not rising prices. Rising prices are only the consequence of inflation. Inflation is really badly mislabeled. It should be called ‘monetary depreciation’.”[2]
Well, hyperinflation is monetary depreciation on steroids!
Unlike ordinary inflation, which can actually be healthy for an economy, Hyperinflation is runaway inflation that normally occurs as the by-product of a government’s inability to borrow money.[3] During a Hyperinflationary scenario, there is a complete loss of faith in a country’s currency, and people begin to desperately get rid of their money the very moment they earn it.[4]
It was fifties economist Phillip Cagan who famously defined Hyperinflation as “a non-annualized inflation rate of 50% or more [per] month”;[5] and once this sky-high level is attained nobody in their right mind will desire to keep their money because of the fact that out-of-control inflation is rapidly eroding its attractiveness as a “store of value.”[6]
The entire course of economic history is littered with nations who’ve witnessed the debasement and collapse in the value of their currencies. Notable and well-documented examples of countries that faced this dire, financially apocalyptic fate include Germany’s Weimar Republic (1921 – 1924), Argentina (1975 – 1991), and probably most spectacular of all is the rampant 231 million percent inflation Zimbabwe experienced where a single loaf of bread ended up costing over $10 million![7]
Are you prepared for a German-style Depression in the U.S.A.?
Unfortunately, the controversial news I have for you is that several prominent financial minds believe hyperinflation is coming to America. The reason you’re reading this article is because, after conducting extensive due diligence, I’ve concluded that the U.S. dollar is extremely vulnerable to devaluation and the probability is very high that hyperinflation could be triggered.
So what are the compelling facts that could possibly support such a dire conclusion?
Well, here is the short and unsweetened bottom line: The Federal Reserve’s disastrous monetary policies and colossal U.S. government spending is a veritable formula for inflation.[8]
Over the course of six years, the Federal Reserve has pumped over $3 trillion into the economy via Fed Chairman Ben Bernanke’s “quantitative easing” (QE1, QE2 and QE3/”QE-Infinity”, essentially printing money to fund Treasury bond and mortgage-backed securities purchases) program.[9]
Supply and demand says the more scarce something is the more it’s worth. Conversely, the more there is of something the less it’s worth.
So, when the Fed prints up paper dollars (known as fiat currency) out of thin air and uses this David Blaine-type financial maneuver to buy 70% of U.S. Treasury bonds, not only is it setting the stage for extreme inflation by diminishing the value of existing dollars, it is also embarking on a spending, debt, and dollar-creation binge of historic proportions.[10]
Regardless of what it’s called, expanding the money supply to buy Treasury bonds is nothing but old-fashioned “debt monetization”, and this shenanigan has universally led to a currency crisis.[11]
By resorting to such a financial tactic, the Fed has shown us how fiscally deplorable the situation really is, while basically acknowledging that there’s scarcity amongst foreign lenders, effectively making the Fed the purchaser of last resort.[12] (Both China and Japan have been surpassed by the Fed as the largest owner of U.S. government debt.)
The United States Federal government is currently more indebted than any other country on the planet, with nearly $100 trillion in real total debt, according to a study by California economist James Hamilton.[13, 14] (Boston economist Laurence Kotlikoff and former U.S. Comptroller General in the Government Accountability Office, David Walker, have also challenged official U.S. debt, which excludes unfunded liabilities for Social Security and Medicare.)[15] See U.S. Debt Clock Running at High Speed.
When one contemplates the astronomical scale of this debt load along with the fact that the U.S. controls the world’s reserve currency, it must be acknowledged that our country is facing a very serious debt dilemma.
Using the Past as Prologue
In an editorial commentary entitled “The Lessons of History” that appeared in the December 18, 2010 issue of Barron’s investment newspaper, author and legendary Hall of Fame commodity trader and index developer Victor Sperandeo, known on Wall Street as ‘Trader Vic’, made an incisive case for the statistical certainty of U.S. hyperinflation:
In our system, the Federal Reserve can buy all the paper the Treasury can issue, and the Treasury can pay the government’s bills with the Fed’s newly printed Federal Reserve notes. But at some point, the scales will tip, and debt investors will decide they won’t be repaid with the same buying power. Historically, that break point occurs when a government borrows an amount equal to 40% of its expenditures over an extended period of years.
From a historical perspective, Sperandeo acutely pointed out that there have only been a total of 30 countries that have experienced a hyperinflation, and in every single instance, government exorbitance and “money printing” have been critical precursors.[16]
Trader Vic spoke at The Atlas Summit 2013 June 27-30th. His topic was “The Coming Hyperinflation,” in which the following three key statistics are duly noted:
“All cases of hyperinflations have been connected with huge budget deficits.”[17]
- “The figures demonstrate clearly that deficits amounting to 40% or more of yearly expenditures cannot be maintained.”
- Budget deficits as a percentage of GDP: “our hypothesis that in all cases of hyperinflation annual deficits amounting to more than 20 percent of GDP are present and for all cases except for Belarus, Turkmenistan, Poland, and Yugoslavia.”
- Total Debt To GDP
2011 Eurostat/IMF/OECD (estimates)
1
Zimbabwe
304%
2
Japan
226%
7
Italy
123%
8
Greece
165%
15
France
86%
18
Germany
81%
19
Portugal
103%
22
United Kingdom
86%
42
United States
70%/104%
45
Spain
85%/146%
Source: Hyperinflation: A Statistical Inevitability by Victor Sperandeo
It’s critical to note that for three consecutive years the U.S. government has borrowed forty-plus percent of what it spends, and Debt to GDP now officially exceeds 100%.
INSIGHTFUL VIDEO: Wall Street Trader Victor Sperandeo Presents “The Coming Hyperinflation” – Learn More.
Positioning Yourself for a Once-In-A-Lifetime Market Occurrence
While most will blatantly reject that this economic scenario could ever play out at home, in America, sadly, I’m here to ring the alarm and let it be known that all of the numbers that took place one-hundred percent of the time in the previous 30 instances are present.
In closing, I want you to know that the eternal optimist inside me is yearning to hit you with a Joel Osteen-style summary. I mean, I wish that I could tell you that this “Trader Vic” dude is really nothing but a charlatan who masquerades as the Harold Camping of the financial world and that pondering his ideas is more akin to reading the tale of Alice’s Adventures in Wonderland, but this article isn’t meant for those with “itching ears” (2 Timothy 4:3). So, I’m not going to sugarcoat the truth.
Victor Sperandeo isn’t some run-of-the-mill doomsayer who’s out fear-mongering for the sake of publicity. He’s reputed to be a master global-macro trader of incredible financial acumen, and it is my conviction that his insights and analysis should be taken seriously.
“Can a nation financing 50% of its budget expenditures in the debt market grow itself out of a collapse? Is the reward likely to match the risk of owning government debt?” he asks.[18]
History is telling us that the current trend of debt excess and massive deficit-spending is highly unsustainable, and unless there’s a sharp trend reversal the American economy is marching towards Armageddon.[19]
The backbone of Sperandeo’s argument lays in both his unshakable belief that a growth-led economic recovery isn’t in the cards and a strong assumption that in order to avert a deflationary spiral, the Federal Reserve will continue to devalue the dollar by flooding the financial system with newly printed currency until inevitably a tipping point is triggered that spooks inflation-wary bond buyers and causes unabated selling of U.S. Treasuries.[20]
As frightening and unpopular as his position is, Trader Vic isn’t alone in making this extreme prognostication. (See list of References.) If those in the Hyperinflation camp are right, we can expect a precipitous rise in interest rates, as bonds sell off, and a ferocious exodus from the U.S. dollar that will leave millions of unsuspecting Americans holding practically worthless paper currency with little to zero purchasing power.
In essence, our lingering Great Recession will become a German-style depression.
After viewing Sperandeo’s data-driven presentation, I concluded the risk was bona fide, and I began positioning myself to not only survive an abrupt hyperinflationary outbreak, but also to potentially thrive in that worst-case environment.
Contrary to all the gloom and doom rhetoric, it is still my belief that within every dark cloud can be found a silver lining, and for every economic crisis there will be both victims and victors. For the unprepared masses, the unexpected arrival of U.S. hyperinflation would be tantamount to a “financial Holocaust.”[21] But for the small minority who had the foresight to plan and position themselves and their assets ahead of the collapse, this may prove to be one of the most historic opportunities of a lifetime.
The unimaginable demise of the U.S. dollar would be the most significant financial event of the past 50 years and would undoubtedly lead to the single largest transfer of wealth in recent history, as there would be a swift flight away from all U.S. dollar-denominated assets and a global run into tangible assets, like precious metals commodities (with gold and silver the most likely safe-haven candidates to lead the charge).
As the National Debt Clock continues to tick at full-speed, the time we have before the market forces render a final verdict is indeed borrowed. The all-too-important question you have to ask yourself is the following: If Trader Vic and others are correct, would my family and I be prepared for the economic and societal ramifications?
“The time to plan for any crisis is before it happens.“
The Conclusion: America is an empire in decline, and the odds are high that within this decade massive changes will be coming to our monetary system. Every American family needs to prepare for tougher times by putting in place an iron-clad contingency plan that would hedge against the disastrous consequences of runaway inflation.
If you’re interested in seeing my personal survival plan, check out the basic list of steps I have been taking within my own life in the next part of this article Where I will outline 10 steps you can take to survive an impending currency collapse.
References
[1] Kiyosaki, Robert. “Living on Borrowed Time.” Rich Dad Financial Education (blog). May 11, 2010. http://www.richdad.com/Resources/Rich-Dad-Financial-Education-Blog/May-2010/Living-on-Borrowed-Time.aspx
[2] Ruff, Howard J. “The Malarial Economy.” In Making Money: Winning the Battle for Middle-Class Financial Success, 31-32. New York: Simon and Schuster, 1984.
[3] Sperandeo, Victor. “The Lessons of History.” Barron’s, December 18, 2010. http://online.barrons.com/article/SB50001424052970203676504575618532254502558.html
[4] Ruff, Howard J. “FORECASTING THE FUTURE.” In Making Money: Winning the Battle for Middle-Class Financial Success, 45. New York: Simon and Schuster, 1984.
[5] Sperandeo, Victor. “The Lessons of History.” Barron’s, December 18, 2010. http://online.barrons.com/article/SB50001424052970203676504575618532254502558.html
[6] Ruff, Howard J. “FORECASTING THE FUTURE.” In Making Money: Winning the Battle for Middle-Class Financial Success, 45. New York: Simon and Schuster, 1984.
[7] Wikipedia contributors. “Hyperinflation.” In Wikipedia, The Free Encyclopedia. 2014. Accessed March 23, 2014. http://en.wikipedia.org/wiki/Hyperinflation
[8] Aden, Pamela, and Aden, Mary Ann. “The Fed Is Conjuring Inflation.” MoneyShow.com. Last modified January 2, 2011. http://www.moneyshow.com/investing/article/1/GURU-22100/The-Fed-Is-Conjuring-Inflation
[9] Wikipedia contributors. “Quantitative easing.” In Wikipedia, The Free Encyclopedia. 2014. Accessed April 11, 2014. http://en.wikipedia.org/wiki/Quantitative_easing.
[10] Aden, Pamela, and Aden, Mary Ann. “The Fed Is Conjuring Inflation.”
[11] Stuppler, Barry. “Is Hyperinflation the US Government’s Only Way Out?” Stuppler & Company. Accessed March 22, 2014. http://www.coinmag.com/article.pdf
[12] Aden, Pamela, and Aden, Mary Ann. “The Fed Is Conjuring Inflation.”
[13] Hamilton, James D. “Off-Balance-Sheet Federal Liabilities.” University of California, San Diego. Last modified July 17, 2013. http://econweb.ucsd.edu/~jhamilton/Cato_paper.pdf.
[14] Education News Staff. “UC Professor Pegs National Debt At Nearly Trillion Dollars.” Education News. Last modified July 30, 2013. http://www.educationviews.org/uc-professor-pegs-national-debt-at-nearly-90-trillion-dollars/.
[15] Miles, Carla. “Seeing unofficial red: U.S. debt almost $87 trillion says San Diego professor – San Diego Personal Finance.” Examiner.com. Last modified October 15, 2013. http://www.examiner.com/article/seeing-unofficial-red-u-s-debt-almost-87-trillion-says-san-diego-professor.
[16] Sperandeo, Victor. “The Lessons of History.”
[17] Atlas Society. “Victor Sperandeo: The Coming Hyperinflation.” YouTube. August 24, 2013. https://www.youtube.com/watch?v=vZO5kcQVK68.
[18] Sperandeo, Victor. “The Lessons of History.”
[19] King World News. “John Williams – Accelerating Great Collapse & Hyperinflation.” King World News (blog). January 26, 2012. http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/1/26_John_Williams_-_Accelerating_Great_Collapse_%26_Hyperinflation.html.
[20] Brown, Greg, and Kathleen Walter. “Sperandeo: Hyperinflation Risk Is Real.” Moneynews. Last modified February 4, 2011. http://www.moneynews.com/Headline/Sperandeo-Hyperinflation-Risk-Real/2011/02/04/id/385039/.
[21] King World News. “World To Witness A Frightening & Historic Financial Holocaust.” King World News (blog). August 12, 2013. http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/8/12_World_To_Witness_A_Frightening_&_Historic_Financial_Holocaust.html.