A question about hyperinflation? (please help)

wrcmad

wrcmad

Well-Known Member
Silver Stacker
Hi all,

I have a question that someone with a few more economic smarts than myself may be able to answer. Any help really would be appreciated.

I've been reading a lot of opinions that hyperinflation of the US dollar is virtually inevitable under their current monetry policies. eg http://silverdoctors.blogspot.com/2012/01/john-williams-guarantees-hyperinflation.html

If US hyperinflation actually occurs, how will that effect me (and other Australians), given that my assets, earnings, debt and PM's are all denominated in Australian dollars?

Is the simple fact that we use the AUD enough of a hedge against inflation? Given that PM's will rise in price measured in US dollars as the USD falls in value, will it effect the price of PM's measured in AUD?, or will the AUD just maintain it's value (and thus its price as measured in PM) and not change a whole lot for us here? Does this mean we wont see the predicted skyrocketing prices?

Any ideas would really help sort out my confusion.

Thanks!
 
Short answer 'yes', with an 'if'..... Long answer 'no' with a 'but' .

In the short term, foreign currencies are the best way to hedge against US hyperinflation if you're using them to move your wealth around, BUT, governments keep doing insane stuff like the Swiss did by pegging their formerly super strong Franc to the p!$$weak Euro so there'll be no point. (When that happened, all commonsense had gone out the window) Australian Governments are so in lockstep with Washington, they may choose to link the $US and $AUD just to win favours.

If you can keep trading between the currencies as they all fall apart (essentially all currencies today are backed by the $US) you may be able to keep on par, but it'll take a lot of work, particularly when PM's are seen as a 'sure thing'. (Ironically, excessive bidding on currency exchanges has been identified as a cause of hyperinflation :) )

Others will argue, but the general pattern that preceeds hyperinflation is period of significant deflation. In the time between the 2 events you would have lost significant wealth/purchasing power.

Cash/currencies are a liquid medium of exchange only to be used as a fungible link between the two parties. Leaving your wealth in cash form for any amount of time is folly.
 
gold and silver has risen against all paper currencies for 10 years. All paper currencies.
It has done so for the same reason it has done so for 5000 years. Your safe in precious metals, just keep your money there.
 
As long as world trade still uses the US Dollar predominantly (ie. the dollar is the world's reserve currency), debasement of the dollar is going to cause an exportation of inflation to the rest of the world much like what happened in 2011 when QE2 sparked rising commodity prices.
 
Unlikely to happen under the current circumstances. All other major occurances of hyperinflation (Germany, Hungary, Zimbabwe, etc..) have required a substantial disturbance fo the socio-economic fabric, that we just arn't seeing (on the scale required).. yet.
 
hyperinflation said:
Unlikely to happen under the current circumstances. All other major occurances of hyperinflation (Germany, Hungary, Zimbabwe, etc..) have required a substantial disturbance fo the socio-economic fabric, that we just arn't seeing (on the scale required).. yet.
Click to expand...

I'm confused.....I thought EVERY time they print bailout money and it becomes monetised......It automatically causes inflation and then hyper......It's just what happens due to the currency being worth less than it was before printing more of it???
 
when all currencies are inflated simultaneously, hyperinflation is irrelevant, hence the global economic ponzi scheme headed by the IMF and all the central banks
 
pmbug said:
As long as world trade still uses the US Dollar predominantly (ie. the dollar is the world's reserve currency), debasement of the dollar is going to cause an exportation of inflation to the rest of the world much like what happened in 2011 when QE2 sparked rising commodity prices.
Click to expand...


hiho said:
when all currencies are inflated simultaneously, hyperinflation is irrelevant, hence the global economic ponzi scheme headed by the IMF and all the central banks.
Click to expand...

OK....? Taking the above two points (which seem in agreement):

If inflation IS exported from the US to the rest of the world, causing all currencies inflate simultaneously, net effect is zero.?

And my point:

If inflation IS NOT exported, Australia is protected by the AUD (hedged) and protection through PM's will be uneccessary.?

However, because the USD is essentially a global currency, if it falls in a heap, there will be a global flight to the PM safe haven which will push the prices up as relatively measured in ALL currencies?

Is my understanding correct?
 
However, because the USD is essentially a global currency, if it falls in a heap, there will be a global flight to the PM safe haven which will push the prices up as relatively measured in ALL currencies?

As above.... PM's will be the last resort..... NOTHING else.
 
TheEnd said:
However, because the USD is essentially a global currency, if it falls in a heap, there will be a global flight to the PM safe haven which will push the prices up as relatively measured in ALL currencies?

This.... PM's will be the last resort..... NOTHING else.
Click to expand...

This is possible but i would think most money would flow into the alternative currency when this occurs(the market will select a alternative long before the USD crashes as its the market itself who will determine the life of the USD). There will be flows into precious metals but i would be thinking in this scenario it would be really only gold that would benefit(this is sort of the gold stackers dream doom's day scenario).

In reference to previous posts there's quite a few stocks that have outperformed gold last year my Telstra shares outperformed but gold is really a hedge against the AUD's movements. Silver however is really in it's own realm i have yet to find a fitting description for it, it will rise when the monetary base is expanded but can drop in price by half in 3 days with very little changes(I simply put it in the extremely speculative bets as besides small cap mining stocks and small cap Pharmaceutical stocks nothing i can see moves as volatile as it.

That said i do own a small amount of silver that i keep.
 
wrcmad said:
...
OK....? Taking the above two points (which seem in agreement):

If inflation IS exported from the US to the rest of the world, causing all currencies inflate simultaneously, net effect is zero.?
Click to expand...

You shouldn't look at the issue just within the narrow confines of the FX world. The US markets are significant enough to effect commodity price inflation even if central banks are trying to maintain some relative parity with USD debasement. Australia was largely a beneficiary of this in 2011 because it is a net commodities exporter (or so I've been told - I haven't researched the point for verification). The MENA region was largely a loser because they are net importers and food commodities (wheat, rice, corn, etc.) comprise a much larger percentage of their populations' budgets.
 
wrcmad said:
pmbug said:
As long as world trade still uses the US Dollar predominantly (ie. the dollar is the world's reserve currency), debasement of the dollar is going to cause an exportation of inflation to the rest of the world much like what happened in 2011 when QE2 sparked rising commodity prices.
Click to expand...


hiho said:
when all currencies are inflated simultaneously, hyperinflation is irrelevant, hence the global economic ponzi scheme headed by the IMF and all the central banks.
Click to expand...

OK....? Taking the above two points (which seem in agreement):

If inflation IS exported from the US to the rest of the world, causing all currencies inflate simultaneously, net effect is zero.?
Click to expand...

No, I think you a missing a very important point here and that is, in the face of raising inflation more people move to safe havens like PMs. If you are talking about a global event, then you need to consider a global increase in PM demand.

wrcmad said:
And my point:

If inflation IS NOT exported, Australia is protected by the AUD (hedged) and protection through PM's will be uneccessary.??
Click to expand...

Unless the Australian economic maestros at the RBA decide that that just can't affort to keep the AUD above parity with the USD, in which case they will inflate the currency on their own. We are seeing all the effects a strong AUD has on our economy playing out right now and already talk is of the RBA stepping in. Consider a country where all our exports are the most expensive in the world and whether that is politically palatable and likely to continue. I think not and that we will see the RBA move to reduce the value of the dollar . . . PMs again.

wrcmad said:
However, because the USD is essentially a global currency, if it falls in a heap, there will be a global flight to the PM safe haven which will push the prices up as relatively measured in ALL currencies?

Is my understanding correct?
Click to expand...

Except that in this scenario people with gold will hoard it and will not trade it for worthless pieces of paper at any price, yes.
 
Thankyou all for your input.

It actually makes more sense to me now.

Just seems there are still a lot of unknown variables that may or may not play out in time to come.
 
No way will hyperinflation occur in the US dollar in my opinion. Commodities are getting more expensive as is gold but money supply will contract dramatically.
 
Trichter said:
... but money supply will contract dramatically.
Click to expand...

How? The Fed is trapped. Their balance sheet is filled with crap/toxic assets. Where does the credit/money destruction come from? Who's taking the loss(es)?
 
With the government bailing the banks out and the central banks bailing the government out .. you know it will be the rest of us who foot the bill when the house of cards comes crashing down.

Sad but true.
 
Stephen Leeb has made an interesting point about the role of gold; namely that it will probably come to be used as money for buying increasingly scarce commodities. "Another" said this same thing about oil & gold a decade ago, and special golden disks used to be minted by the US to pay Saudi Arabia for their oil, in addition to a cash component.

3854_aramco_gold_disk_usmint_lg.jpg


What Stephen is saying is:
(1) real commodities (eg. oil, uranium, silver, REE, copper, etc) are limited and increasingly scarce;
(2) rather than sell these commodities for easily printed pieces of paper, a more suitable (ie: not infinite in supply) medium of exchange is needed;
(3) gold is imminently suitable for this. Other types of commodities (eg. wheat, cotton, sugar, etc) are also suitable.

You'll notice that this is now precisely what India & Iran are talking about; viz. exchanging gold for oil.
 
We (the US) will suffer the most, but we are taking the rest of you guys down with us. :)

If the US economy declines, the rest of the world will feel the effects. IE. if we don't buy manufactured goods from China, then China won't need as much raw materials from AU, etc., etc.
 
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