Inflation/Hyperinflation - we may be in for a painful ride

[KAG]

Now I know this topic isn't directly aviation related, but it effects aviation directly - the economy.
I’ve been doing some reading on investing in precious metals (silver in particular) and in the couple of books I’ve read keep talking about precious metals as a means to fight off inflation or hyperinflation, and actually prosper from it. These books also took a deep (dark) look into the history of money, and what is happening today in the USA. Frankly it’s terrifying, and at the risk of sounding like a paranoid conspiracy type - I think we may be entering a very tough time in our history.
With the rampant dept our governments have, not to mention the under funded social programs such as CPP and our health care system. Add to the fact that as the baby boomers start to sell off their retirement portfolios the stock market will have more sellers the buyers – you guessed it the TSX/DOW tank.

Here’s an interesting article from American point of view about the future of America, it’s worth a read.
http://www.businessinsider.com/how-hype ... ica-2010-9

This would have catastrophic effects felt around the world.
I mention this because the more I read, the more I feel friends and family need to know what we MAY be facing, and to hedge your bet by adding some precious metals in your portfolio.

If anything it’s worth a discussion as I’ll bet most on here (especially younger folks) haven’t heard or thought about what is going on in the financial world, and just how fragile our lifestyle is.

[Changes in Latitudes]

That's definitely a relevant topic, one that I have been thinking about quite a lot, but have acted little on. Let's say, for argument's sake, that I have 20,000 in a high interest savings account and its just sitting there collecting dust and little interest. The bills get paid via other accounts, with a decent buffer left over for unexpected trouble. From your research, what percentage should one invest in precious metals? I get a lot of variation in the answers from financial people and it gives me great skepticism about how to approach things during this time. I really have ZERO trust for anything. I don't want to make a huge immediate gain, I don't want to play the market, I just want stability when things really go down hill. I'm finding most institutions can't give me a straight answer.

Someone keeps telling me that all empires eventually fall and I tend to believe that.

[coreydotcom]

i personally think it's all about passive income.

i recently bought an apartment building (5 units) with a friend. Our rental revenue is significantly higher than our mortgage. Once it'll be paid off, it'll literally be a couple thousand a month net in our pockets. Granted, we won't pay it off this year or the next, or the one after, but for a retirement, if I have a couple buildings, bringing in a couple grand a month, net, that's my RRSP right there.

we're already looking for the 2nd building, and thinking about the 3rd, fourth and 5th!

my 2 cents.

[SunWuKong]

Investing in precious metal to fight against hyperinflation?
I would say those kind of dangerous gamble (tulip mania netherlands) is part of the problem.

If we really have to face an economy breakdown and finance crash down, better have as a back up a little farm to grow potatoes and chickens.

[Hedley]

It is not exactly rocket science to conclude that governments have no fear of devaluating their currency. It's a great way to shrink your debt - screw the debt-holders by reducing how much you owe them. It's brilliant, actually, if a bit evil.

So, I guess no one here lived through the inflation of 1980. What's old is new again. It must be nice to have started shaving last week.

Free advice: purchase things that hold their value internationally. This is why people convert their currency to precious metals (eg gold) when they think the currency is about to devalue.

better have as a back up a little farm to grow potatoes and chickens

Stop hogging the doobie, ok?

Here's a real-world consequence to a government intentionally devaluing it's currency:

A Chinese company announced plans to acquire Cirrus Industries

And a chinese company just bought TCM. China has a far greater problem than any of us when it comes to sitting on a pile of devaluating currency! Expect to see them try to continue to convert it to real assets.

[2R]

It is all beyond our control ,it is official, it wuze dem dam sheetheads again and dem other fellas that we owe a lot of money !!!
http://www.washingtontimes.com/news/201 ... mic-crash/

[slowstream]

Scary Times indeed!

Did no one notice all that advertising, bring your unwanted gold jewellery in and we'll pay you top dollar for it?

Gold is undervalued and the U.S dollar is soon to be worthless and China holds the mortgage to the U.S, that alone gives me sleepless nights!

The U.S (and too many companies in Canada) have outsourced much of their manufacturing, making the U.S and Canada to a lesser degree nations of consumers and not producers!

The numbers working poor families keep growing every month and every year in North America!

Corporate America will be the destruction of our society in my humble opinion.

Scary times indeed..............God help us, I think we're screwed!

[KAG]

Investing in precious metal to fight against hyperinflation?
I would say those kind of dangerous gamble (tulip mania netherlands) is part of the problem.

If we really have to face an economy breakdown and finance crash down, better have as a back up a little farm to grow potatoes and chickens.

You might want to do a little reading – Google hyperinflation in Canada, see what comes up.
Gold (and silver) revalues itself in times of inflation/hyperinflation when the masses flock to them, any commodity really. It's happened many times in history, and we are not immune to it. After WW2, 50 ounces of gold could buy you a city block in Berlin - Hyperinflation. In the late 70's, 500 ounces of silver could buy an average house in America - Inflation. I truly hope this doesn't happen, it would suck. But I'm not betting on any government to bail my family out, I’m going to buy some shinny insurance just in case. We don’t ignore a storm cloud out in front of us, nor should we ignore what history has clearly shown, can and does happen to governments who print Fiat currency. You can’t fix a debt problem with more debt, at some point you need to pay up.
Again, I truly hope I’m just being paranoid.

[Hedley]

Corporate America will be the destruction of our society

Nah. It's just a machine without conscience, like a sausage-making machine. It just rumbles on.

I think we're screwed!

Not quite. What we are witnessing is the disappearance of the middle class in North America, whom used to graduate (or drop out of) high school then go get jobs at the local gloving-making or car factory, tightening up lug nuts. They would be Good Company Men (tm) and after 40 years, get a nice pension.

Those days are gone forever.

Problem is, there are a lot of people in low-cost countries willing to tighten lug nuts for a lot less than you. Trade tariffs are not the answer, either - the Fed once called them the "crack cocaine" of economics

So. What to do? There is structural unemployment in North America which is not going away any time soon. The percentage of unemployed is high and not coming down any time soon, as we would normally see in a traditional economic upturn.

However, there are an awful lot of rich people in North America, too. They didn't all inherit the money - at least some of them acquired it after their birth, so parking the egalitarian anger is probably educational.

Lots of people in North America will make lots of money in the future, have no doubt about that. Will there be prosperous times for everyone? Not bloody likely, IMHO.

What activites in North America are still profitable? Well, the money guys on Wall St never seem to hurt - they make a mistake, the gov't whips out the chequebook and problem solved. Too big to fail, we are told. Hm.

Making stuff - like clothes, cars, etc - is a hard place to make money in North America, because of the low-cost country competition. Bought a pair of $20 jeans lately? No way you could make them for that price in North America.

What is still very profitable is designing stuff, with offshore production. Apple is doing pretty will with the iPhone and iPad. Note that they don't try to manufacture it in North America.

Hm. Health care, as mentioned above, is a gold mine with the demographics of the boomers hitting 65. Big bucks to be make there.

In general, the best advice I can give you is:

1) do something you enjoy
2) it had better take more than an hour to learn how to do it

[SunWuKong]

King Air Guy,

After WW2, 50 ounces of gold could buy you a city block in Berlin - Hyperinflation. In the late 70's, 500 ounces of silver could buy an average house in America - Inflation.

That's why I said it's part of the problem. However I didn't say you cannot make any money in investing in metals today, in fact those past 10 years has been quite a good deal, And we do have some good years ahead of us.

In case of REAL meltdown, only food is important, because if paper money have a psychological (only) price, precious metal too.
See what happened to germany in the 20s when buying some potatoes needed full bags/wheelbarrow of paper money: by mid-1923 workers were being paid as often as three times a day. Their wives would meet them, take the money and rush to the shops to exchange it for goods. However, by this time, more and more often, shops were empty. Storekeepers could not obtain goods or could not do business fast enough to protect their cash receipts. Farmers refused to bring produce into the city in return for worthless paper. Food riots broke out. Parties of workers marched into the countryside to dig up vegetables and to loot the farms. Businesses started to close down and unemployment suddenly soared. The economy was collapsing.



Precious metal? Part of the problem yesterday (debasement) or today with speculation reinforcing general inflation.
Gold today is a "good", not money, and any speculation on any good rienforce inflation.

[North Shore]

Parties of workers marched into the countryside to dig up vegetables and to loot the farms.

..Well, in that case, even a farm isn't much use - if the masses take it upon themselves to come and loot it....

[SunWuKong]

Yeah, another way to see it is understanding what has real value during hyperinflation... Hide your potatoes...

[KAG]

Sun,
In your case, food and guns are the order of the day. Let’s assume society hasn't totally broken down, gold and silver will be able to buy what is still available.
If the US dollar collapses, gold/silver will be bartered along with other commodities. Either way it’s ugly.
An off grid house, awell stocked pantry, gun’s/ammo, a wood stove, and some distance between you and the masses and your ready for everything including the zombie hoards.

[SunWuKong]

An off grid house, awell stocked pantry, gun’s/ammo, a wood stove, and some distance between you and the masses and your ready for everything including the zombie hoards.

Exactly You were the one speaking about Hyperinflation...



Anyway, it all depends on what KAG is speaking about. If this is about microeconomics, and investment, sure gold, or even better silver is a good investment for now, and from that viewpoint, in fact from the investor viewpoint, we could say buying precious metal would protect your paper money against inflation, the same way buying housing or a rising company could "protect" you against inflation: meaning investing in something we expect will get more expensive is better than doing nothing with your savings (paper money at the bank) while buying goods/food becomes more and more expensive.
In this case the vocabulary is not appropriate. It's simply investing, making money, speculating, not fighting against speculation, which is a macroeconomic task.

If this is about macroeconomics, fighting against inflation has a sense, because that's exactly what some governement try to do. And since gold has been a "good" (commodities), and no money anymore, speculating on gold has never helped a country to fight against inflation, and speculating on any goods makes inflation worse.

So if KAG was speaking about microeconomics, from the individual (investor) point of vue, yes he is right, I beleive aswell buying silver is still a good deal. But it will in no way fight against inflation inside the country you speculate on metal, because inflation is an increase of price.

[KAG]

...I take back that "read more" comment. Let me guess I’m arguing with an economics graduate?
Mad max aside, what do YOU think will happen with the US dollar? And with that our dollar? Aside from food, what is the best hedge?
I thought I understood that gold goes up with inflation and holds its buying power, even in a hyperinflation scenario.

[Beefitarian]

If it gets bad enough the best plan is to relocate. Gold wouldn't do much good in Germany when the nazis took over unless you were one of them.

[SunWuKong]

what do YOU think will happen with the US dollar?

No I am not an economics graduate, and I don't know what will happen to the US dollar. I read a lot of different articles about it, and I still don't have any idea. It involves not only economic, but politics aswell right? It depends aswell on China decisions too... Some say it cannot play the role of the main reserve currency any longer. Some have been saying for years now US $ will fall down... Still here...

[Beefitarian]

The US dollar has to crash because they would never accept a single world currency otherwise.

[Never Mind]

This has been a topic on my mind as of late. If one is attentive enought they will realize that the business and economic 'climate' has changed and that more and more are growing aware that something big is going to happen. Why even self-help, motivational speaker, Anthony Robbins has chimed in and has a 2 part video on YouTube regarding the hard times approaching. His slant is that we are entering into a 'winter' economic phase and that we need to prepare for tough times. However, when it's winter you not only have bad days but good ones as well.



Never Mind

[Mig29]

KAG,

I will agree that the times are sh***y but believe me man, the last thing you want to do is invest in "precious metals"!! These times we live in are so 'surreal' that I wonder how we go this far.....Reduce debt and buy what you really need not what you want and if you can follow SunWuKong's advice:

If we really have to face an economy breakdown and finance crash down, better have as a back up a little farm to grow potatoes and chickens.

When the crap hits the fan on a GLOBAL scale, those gold tokens and platinum lady necklaces are going to be less worthy then a bottle of water or a tank of gas in your car. That is if you still own a car at that point....

[Mig29]

sorry for not reading everyone's comments....

but just to add this as well...aside that this is a really interesting topic (I'm afraid it will be relocated by the moderator soon)...are we talking about a more severe financial troubles (aka great depression) or a a total meltdown here??

Many of you are mocking SunWonKing here for his opinions, but when the crap really hits us, I still believe that all that gold and your silver spoons and forks will be on no use....KAG (not picking on your mate) but you said you read some "deeper" books as well on history and the past war times, so I'm sure you ran into a part where it mentions that when the times become really hard, and days short, and people won't be able to trust even their closest ones, and will lose every ounce of morality, consciousness and humanity in them......then my friend, those 'metals' will be just that and nothing more....

But if we are talking about rougher then normal financial times, then that's another situation

[Cat Driver]

Soooo, if you were in a position where you need to re-mortgage your home/possessions.

Would lock in for 1 / 3 / 5 years at today's interest rates?

It could get expensive if rates go up significantly.

[KAG]

Mig,
I'm talking more sever recession/depression, that still has an up side down the road - Modern life hobbles along until that point. I can’t begin the fathom a complete collapse, and as mention by Sun, a farm and some food will be the only thing that gets you through.

But a recession/depression, times of monetary change/collapse of fiat currency’s, gold and silver have won out –at least that’s what I’ve read. People run to precious metals as a safe haven to preserve their buying power. Assuming there is a light at the end of the tunnel were approaching for the American dollar, great gains could be made when looking at the gold/DOW ratio (how many ounces of gold buy one share of the DOW) It’s a cycle that has repeated itself over the last 100 years. It’s kind of what I’m leaning towards (hoping anyway) and why (one reason anyway) I’m buying bullion to sit on.

Aside from the coming down turn…My question is what happens if the greenback fails entirely? Is it the Mad Max scenario? how will we Canadians fare? Will another currency rise up to replace the US dollar, and life outside the USA continues along, or will the trade deficits accumulated by various countries cause there currencies to collapse?

Pretty dark topics I know but I feel they need to be at least considered and possibly planned for…the what if.

[KAG]

Soooo, if you were in a position where you need to re-mortgage your home/possessions.

Would lock in for 1 / 3 / 5 years at today's interest rates?

It could get expensive if rates go up significantly.

Cat
if you locked in at today’s rate, and hyperinflation kicked in, and the government started throwing money at people to keep the economy going (it's happened), you would come out on top. Your Mortgage payment would be the same amount, meanwhile you would physically have more money to throw at it. In theory a loaf of bread could cost more then your Mortgage payment – if it was locked in. Sure your house would be paid for, but you wouldn’t be able to afford to eat.
At least that’s what I’ve read.

Personally, I re-sign for the longest term I could given that interest rates are pretty much as low as there going to get. Then again, no one knows and really it's best guess.

[bizjets101]

If you were to lock in for 5 years, 4 years from now if things are okay - you can re-finance - if things are horrible at least you have a year to figure it out. Anything shorter than 5 years you'll lose bigtime.

Best is to find what is affordable, lock in for as long as you can - and don't worry about it for a few years.

As for the the original poster talking about Silver - might want to read up on the Hunt Brothers.

When I worked for Irv years ago at YYZ - and gold went to 800 an ounce - he was all upset because as he said - 'he had to drag it out of his basement to sell'!!!!!

Typical Canadian strategy, the idea is buy low - sell higher, in fact Canadians usually buy high - and when the market crashes end up selling lower.