A Case for the Dollar’s Collapse and How to Prepare

I feel like Chicken Little. This is about a threat to our country that could far surpass the Great Depression and equal the Civil War in its trauma, should it come to pass. An event happened last month that frightened me greatly. I learned about the rapid inflation in Iran. As it turns out it has been happening since December of 2011, and just three weeks ago, the Iranian Rial (their equivalent of our dollar) lost over 30% of its value. Stated in terms of inflation, the retail prices in Iran are increasing 70% per month.¹ This is causing severe hardship on the Iranian people. I don’t happen to own any Iranian Rials and I’ll bet you don’t either, so other than a heart-felt sympathy for the Iranian people, why should we worry? We should worry because, much like Iran, our government’s fiscal structure and policies and our country’s social structure are strong indicators that the United States is at a very high risk of future hyperinflation, leading to the total collapse of the dollar.

Can you imagine if all your wealth denominated in dollars were losing 70% per month or more? These would include cash on hand, your bank account, savings account, CDs, savings bonds, corporate and government bonds, and all cash-equivalent holdings in your retirement accounts. Further imagine that you’re retired, receive Social Security, a small, fixed-income company pension, and rely mostly on IRAs and 401-ks for most of your income.

This matter is a dark, scary, and potentially depressing topic. I have been back and forth on whether to publish it. I decided to share what I have learned, at the risk of needlessly upsetting family and friends, rather than just sitting on potentially beneficial information. If you choose to just trust God to bring you through whatever awaits us, and for you it is too painful to consider financial devastation, then you should stop reading now. I respect that position. But for me, while I know without a doubt that God will always provide for all believers, I know he expects me to use my intellect to help fulfill my role in His plan for my life, which includes providing financial security for my wife.

Overview

The majority of this article is an in-depth analysis. So for the time-challenged, I present here an overview. Inflation is by definition the depreciation of a currency. In the U. S. a commonly used index is the Consumer Price Index (CPI), and variations thereof. Excessive inflation is undesirable. It is essentially a hidden tax, slowly eroding the purchasing power of our income and savings. It causes hoarding because of the fear of price increases and declines in the value of people’s savings, and it can ultimately lead to the total collapse of the dollar. By total collapse, I mean the dollar becoming virtually worthless. Historic examples of a currency’s total collapse show that it can happen within mere months. What may drive hyperinflation is the electorate’s addiction to government social programs and unfunded liabilities of same, past and current wars, Congress’s lack of political will to cut spending, and the Federal Reserve’s inability to say no to Congress’s demands to borrow more. Whenever the Fed loans money to the government, it creates that money out of thin air, simply printing it on worthless paper with worthless ink. This increase in the money supply unmatched by a corresponding increase in goods and services is the cause of inflation. And all one has to do is watch FBN or CNBC for a few hours to hear discussions of the “impending fiscal cliff” and what to do about it, which is a reference to the January expiration of the “Bush tax cuts”, the nation’s out-of-control debt and unfunded liabilities.

In order to protect one’s wealth from the dollar’s collapse, one should minimize the portion of that wealth denominated in dollars. This means converting dollars to stuff. “Stuff’ includes real assets, commodities, emergency supplies and earnings potential of carefully-selected, sound companies (equity stocks and mutual funds).

The remainder of this article explains in greater detail how inflation happens, how hyperinflation happens, why I believe that the dollar’s collapse is in the realm of possibilities, and how to defend one’s wealth against hyperinflation.

Understanding inflation

To understand what causes inflation and how difficult inflation is to control, it is necessary to understand six key points. The following points are stated in the context of the United States, but the underlying economic principals and social pressures apply universally. I’ve highlighted the key points in bold type.

1. Everyone recognizes inflation when they see it. They know it when they fill up at the gasoline pumps, buy groceries or pay the power bill. They know it when they read compiled cost of living data. But I submit that very few people understand what causes inflation. Inflation is caused by the money supply increasing faster than the quantity of goods and services produced.² It is that simple. Inflation is not caused by unions demanding higher wages. It is not caused by temporary, localized shortages of food or other commodities. It is not caused by excessive spending (although the Federal Reserve’s reaction to deficit spending can cause inflation). It is not caused by shortages of qualified workers driving up salaries. And it is not caused by OPEC restraining how much oil member nations bring to market. Granted, those situations can temporarily drive up the prices of the items experiencing the shortages, but in a free market economy, it is self-correcting. The higher prices will drive the supply up, which will eventually bring prices back down. Ebbs and flows within the free market are simply not inflation. What I have just described is the classical definition of inflation as distinct from more currently accepted definition which includes the price increases I listed above. These points are all covered in great detail in the now-classic video “How to Cure Inflation” by Milton Friedman (7/31/1912 – 11/16/2006).²

2. The Federal Reserve System is the central banking system of the United States. The Federal Reserve controls the money supply, determining when to print more dollars and when to print less. Determining how much money is in circulation is referred to as monetary policy, and it is the sole responsibility of the Federal Reserve’s Board of Governors. The Fed was established by Congress in 1913 as a knee-jerk reaction largely in response to a series of financial panics.³

3. The Federal Reserve was chartered as an independent agency within the government. But even though its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it is still a political organization. The seven members of the Board of Governors of the Federal Reserve, including its chairman, are appointed by the President of the United States and confirmed by the Senate.⁴ The System is subject to Congressional oversight. They also meet frequently with Treasury officials and the Council of Economic Advisers to help evaluate the economic climate and to discuss objectives for the nation's economy.⁵ Therefore, the System’s Board of Governors’ actions are highly influenced by Congress and the President.

4. Congressional seats are lucrative jobs. Members of Congress define their own benefits and set their own salaries. They are perhaps the most adored, fawned-over, pseudo-royalty class in the country. Lobbyists file through their offices every day pressing for favors and votes on behalf of their constituents. In return for favorable votes, lobbyists fill congressmen’s campaign coffers and illegal though it is, sometimes their personal bank accounts. For these reasons, congressmen typically prefer to keep their jobs for life. Congress is therefore motivated to keep the electorate happy, hopefully assuring reelection each term. The best way to keep the electorate happy is to give us stuff – i.e. bringing home the pork, granting lobbyist’s their requests, and voting for social programs. And they do.

5. Because of our demands for continuing fixes to support our addictions and Congress’s powerful urges to keep their jobs, Congress is totally willing to mortgage our future in order to meet our demands today. Congress’s mantra is “Live large now, pay later”. They borrow from whatever source they can find. They have borrowed virtually everything in the Social Security Trust Fund and the Medicare Trust Fund, putting those programs at high risk of insolvency. They borrow from China and other foreign countries. They borrow from us when we buy U. S. Savings Bonds. And they borrow from the Federal Reserve. The Federal Reserve is the lender of last resort, and politically, the loan requests cannot be turned down. Borrowing from us, i.e. Social Security, Medicare and U. S. Savings Bonds does not cause inflation, because it does not increase the money supply. It is simply moving money from one place to another within the country. But borrowing from the Federal Reserve is unique in that it will most likely cause inflation because the Federal Reserve prints the money it loans, thus increasing the number of dollars in circulation, i.e. the money supply. The Fed in essence creates money out of thin air. [I think it should be criminal that the Fed can collect interest from taxpayers on bonds it issues and will not make public its accounting records. But that is for another story.]

6. When the Fed loans money to the general fund or to banks and the resulting increase in the money supply is greater than the goods and services the economy produces for the same time period, the dollar is devalued and inflation occurs.

To summarize the six key points, the Federal Reserve, pressured by Congress to print money to support our habit, increases the money supply faster than the goods and services produced, causing inflation. So ultimately, we the people are the cause of inflation, because we demand of Congress more and more benefits to support our addictions, and they willingly comply.

For those who may not understand or agree how printing more money than goods and services produced causes inflation (point 1 above), I’ll offer more background. Exhibit A is Milton Friedman, renowned economist and recipient of the 1976 Nobel Memorial Prize in Economic Science⁶ for his explanation of the relationship between money supply, production and inflation. He described this phenomenon in his book “A Monetary History of the United States" (1963), coauthored with Anna Schwartz, and his previously-referenced video “How to Cure Inflation”.² In the video, he said: “The reason we have inflation is because the money supply is growing more rapidly that the quantity of goods and services produced.” Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. I’ll also offer some empirical evidence. In both World Wars I and II, Fed policies to help the government finance its debt stimulated monetary growth. What followed were substantial increases in inflation.⁷ A more contemporary example is what the Federal Reserve announced September 13. It announced that it is going to crank up the printing presses again and pump $40 billion per month into the economy. It is being referred to as “QE3”, which stands for Quantitative Easing 3. It is an open-ended program of asset purchases, starting with $40 billion per month in mortgage-backed securities. The response on the gold market was immediate. The announcement was made at noon, and by 1:00 PM, the price of gold had spiked to a new level. This was the free market at its best, doing what free markets do. Owners of gold realize that putting more dollars in circulation means that they can demand more dollars per ounce of their gold to account for the lower value of each dollar.

The best way to look at real inflation is to look at the price of gold over time. Gold is the arguably the most-reliable of all currencies. There is a finite amount of gold in the world, and mining as fast as possible year-in and year-out increases the absolute world inventory of gold very little, barely keeping up with gold lost. So gold has roughly the same absolute buying power in 2012 as it did in 1900. People frequently talk about changes in the price of gold. But what they are really talking about is changes in the value of the currency they are comparing. The following chart shows the run-up in gold prices over the last 40 years. But if you flip the chart upside down, what you have is a plot of the declining value of the dollar in absolute buying power. Regardless of how you hold the chart, what is readily apparent is the almost-exponential increase in inflation over the last five years. Measured against gold, the dollar has lost 2/3 of its value.

HYPERINFLATION 2012, SPECIAL COMMENTARY NUMBER 414, January 25, 2012, John Williams

In the previously-referenced video “How to Cure Inflation”, Milton Friedman stated the obvious – to stop inflation, simply stop printing money. The Fed has the authority to do that, but will they?

Understanding hyperinflation

Austrian economists describe three stages of high inflation. In the first stage, people still hang onto their money, expecting prices to come down. In the second stage, people part with their money to stock up on goods before prices rise again. In the final hyperinflationary stage, people buy anything they can get their hands on — even if they don’t need it — because the goods are more valuable than the currency.⁸

Hyperinflation is by definition out-of-control inflation. A commonly-accepted quantification of the definition is price increases of 50% per year or greater. The stage is typically set for hyperinflation by having fiat currencies accompanied by bad behavior of the governments which issue them, causing nominal or high inflation. But hyperinflation needs a trigger, and that trigger is commonly a panicked sell-off of the currency. Hyperinflation behaves much like an avalanche. Once it starts, it feeds upon itself and can’t be stopped, until the currency become worthless. Unlike nominal, year-to-year inflation that we’re accustomed to, hyperinflation is not simply a devaluation of the dollar due to an increase in the money supply. It is a panicked sell-off of the currency. It is organic, taking on a life of its own, fueled by panic, and ending when the base currency is worthless. While bad monetary policy sets the stage for hyperinflation, psychological responses trigger it and drive it to its ultimate conclusion.

A fiat currency is one which has no intrinsic value but is simply “guaranteed” by the government which issues it. The U. S. dollar is a fiat currency. Iran illustrates what can happen. Many fiat currencies have failed. Take Germany for example - German Marks became worthless. Between 1919 and 1923, the Mark went from 12 Marks per U.S. dollar to 4.2 trillion per dollar. People were stacking wheelbarrow loads of paper Marks into their fireplaces to burn as heating fuel. A major cause of the Mark’s collapse was massive debt.⁹ Sound familiar? Nineteen fiat currencies have become worthless in my lifetime, and not just third-world countries, but countries such as Argentina, Brazil and Mexico.²² Fifty seven countries have experienced hyperinflation in the last century.¹⁰ The fundamental problem with a fiat currency is that there are no constraints, other than political, on how much currency the issuing government can produce. There are many reasons for printing excessive currency. A big one is wars financed with borrowed money – another factor here after Afghanistan and Iraq. Another reason is political – borrow money to finance more benefits for the electorate in order to stay in office, which is also happening here. Philosopher George Santayana said: “Those who cannot remember the past, are condemned to repeat it.”¹¹

The case against hyperinflation

There is one scenario that could happen which might save the economy. If Romney is elected president, and if he yields a firm hand with the veto pen to prevent any further debt-limit increases, and if he replaces Fed. Chairman Bernanke with someone who will stop printing money, and if the Senate swings Republican, and if Congress collectively starts making massive budget cuts, and if the economy responds with increasing production and low unemployment, then we could possibly head off massive inflation and save the economy. This is a lot of ifs, but it could happen. The above steps would bring temporary pain to the economy for several years, and so would be politically painful. Refusing to continue to increase the debt limit would shut down all non-essential parts of the Federal government. But it would be infinitely less painful than total collapse of the dollar. And shutting down non-essential parts of the government would be a good thing in my mind.

Some of you may remember the high inflation of 1972 through the early 80’s. It finally took a Fed chairman, Paul Volker, who was willing to implement a brutal policy of tight money, including the acceptance of a recession, before inflation would return to low single digits.¹² But it worked and inflation was brought under control.

Our financial advisor admits that the economy is necessarily entering a period of inflation. But he doesn’t think that hyperinflation will ever happen. He believes that the Fed can and will take the necessary actions to slow inflation, should it become excessive. And he didn’t qualify that prediction by any of the “ifs” I listed above. He thinks it doesn’t matter much who is elected President. And I’ll be the first to agree – inflation is not a partisan issue.

Further, Joshua Kennon stated: “If Congress stops spending 1-2 years from now, inflation won't happen despite the money we've printed.”¹³

The case for hyperinflation

The financial environment is much different now than it was in the 70’s. One would have to be unconscious for the last year not to know the magnitude of the nation’s debt, which is over $16 trillion. That is around $50,000 for each of the country’s 313.5 million residents, including men, women and children. If you spread that over families who are actually paying income taxes, it is more like $350,000 plus per household. Our per capita debt is worse than Spain’s, Portugal’s, Greece’s and Italy’s.¹⁴ Total public debt is growing by $1.4 trillion per year. Our public debt reached 100% of GDP in 2011. By contrast, Iran’s public debt was estimated to be 12% of GDP in 2011⁸, and their currency has still failed. Our problem has been brought about by both Democrats and Republicans, so a Republican President and Republican House and Senate won’t necessarily be a solution. After all, the massive stimulus spending was started by a Republican Congress under George W. Bush. I just don’t believe that Congress has the political will to ever balance the budget. Nor do I think the American people would allow it, unless a lot more people become aware of the risk.

I began this article a couple of months ago out of fear for our nation’s financial future and my family’s personal financial security. I started reading everything I could find on the subject, hoping to find something positive to alleviate my concerns. I didn’t. I’m much more frightened now, extremely frightened! One of the most credible predictions of the dollar’s collapse I found was written by John Williams, who has a degree in Economics, cum laude, from Dartmouth College, and was awarded a M.B.A. from Dartmouth's Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting economist, Mr. Williams has consulted for individuals as well as for Fortune 500 companies. He wrote in his lengthy report “No. 414: Hyperinflation Special Report 2012“ earlier this year: “The U.S. economic and systemic-solvency crises of the last five years continue to deteriorate. Yet they remain just the precursors to the coming Great Collapse: a hyperinflationary great depression. The unfolding circumstance will encompass a complete loss in the purchasing power of the U.S. dollar; a collapse in the normal stream of U.S. commercial and economic activity; a collapse in the U.S. financial system, as we know it; and a likely realignment of the U.S. political environment. Outside timing on the hyperinflation remains 2014, but events of the last year have accelerated the movement towards this ultimate dollar catastrophe. Following Mr. Bernanke’s extraordinary efforts to debase the U.S. currency in late-2010, the dollar had lost its traditional safe-haven status by early-2011. Whatever global confidence had remained behind the U.S dollar was lost in July and August. That was in response to the lack of political will—shown by those who control the White House and Congress—to address the long-range insolvency of the U.S. government, and as a result of the later credit-rating downgrade to U.S. Treasury debt."¹⁵ 1/25/2012

I’ve already mentioned QE3, which was announced since the above report was issued, and which adds exponentially more inflationary pressure. And QE3 differs from QE1 and QE2 in that QE3 has no cap on the amount of dollars the Fed can print.

Mr. Williams’ concern refers by implication to the first-time-ever downgrade of the government’s credit rating last year by Standard and Poors. The credit rating is an assessment of the borrower’s ability to repay its debt. The credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.” It said the bipartisan agreement reached to find at least $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would not be likely to achieve more savings in the future.¹⁶ And then again just last month, Credit rating agency Egan-Jones downgraded its rating on U.S. debt, citing Federal Reserve plans to try to stimulate the economy.¹⁷ The firm said the Fed's plans to buy mortgage bonds will likely hurt the economy more than help it. Egan-Jones said the plan will “reduce the value of the dollar and raise the price of oil and other commodities, hurting businesses and consumers.“ So at the same time Egan-Jones expressed concern about the financial stability of the nation, they also expressed concern about inflation.

Mr. Williams further predicts: “As the advance squalls from this great financial tempest come ashore, the government could be expected to launch a variety of efforts at forestalling the hyperinflation’s landfall, but such efforts will buy little time and ultimately will fail in preventing the dollar’s collapse.”¹⁵

And finally as another disturbing trend, HEB grocery stores have started accepting payment in gold for groceries. That is an exaggeration, but some locations have actually added “Gold and Silver Buyers” stores under the same roof, where you can convert your gold to dollars and then walk a few feet and buy your groceries.

Total dollar collapse seems plausible to me. The nation's economy is in uncharted territory, so we have no domestic history to draw on. We just have nineteen fiat currencies of other countries that have collapsed in my lifetime, and Iran is on the brink. I hope and pray that I’m wrong, but hyperinflation is not a risk that can be ignored.

The decision

Either our nation will eventually experience hyperinflation, or it won’t, and if the former, we don’t know when. The U. S. economy against the backdrop of the world economy is incredibly complex. I hope I’m overlooking a key control that will prevent hyperinflation. I’m not sure even the best and brightest economists totally understand the interactions and cause-and-effect relationships of hundreds of economic variables and unpredictable human behavior. After all, it’s hard to find two economists who agree on much of anything economics-related. But I can honestly say that I’ve never been as worried about the threat of personal financial devastation as I am now.

I have intentionally tried to extract and simplify principals related to monetary policy, production and inflation. Studying economics hurt my head when I studied it in college, and it still does, so I have tried to spare you a headache. I’ve presented a lot of facts, opinions and food for thought and included many references. But you have to make your own guesses as to what the future holds. Read and study. Talk to others. Consult financial advisors. Keep up with the CPI and the price of gold. Watch the news. My wife and I have taken steps to hedge our retirement savings against inflation. We still have more to do. It’s like walking a tight-rope. Nationally-syndicated financial columnist and fellow Texan Scott Burns¹⁸ wrote, “I'm not sure we can position ourselves against high-inflation or hyper-inflation. It's a game in which we can lose less, not a game that we can ‘win.’ “ He’s absolutely right. So we’re taking a balanced approach, trying to retain equity investments which will hopefully continue to appreciate in a stable economy while having less exposure to inflation, and divesting as many dollar-denominated assets as possible.

“Skepticism, like chastity, should not be relinquished too readily.” George Santayana¹⁹

How to prepare

If you decide that hyperinflation is a real threat, there are some steps you can take to prepare. Most all of them bear risks of other kinds. One step that bears no risk, and should be the first step is to have a faith grounded firmly in Jesus Christ. And pray. These are the most important by far.

There are some other things we can do. It would be helpful if we could have early warning. There are ways to predict future inflation using the bond market, but these are beyond the scope of this article. I’ll just reference one such method which can be found in Joshua Kennon’s “Reading Between the Lines - The Spread Between Treasuries and TIPs, How You Can Gauge the Market's Expectation for Inflation”.²⁰ On the flip side, Williams wrote: “The U.S. dollar remains highly vulnerable to massive, panicked selling, at any time, with little or no warning.”¹⁵

Buy stuff. Dollars would become worthless, so we should possess little cash and cash-equivalents – only enough for near-term needs and an emergency fund. “Cash and cash-equivalents” includes U.S coins and paper money but also anything denominated in dollars, such as bank accounts, savings accounts, domestic bonds and CDs. Inflation-protected securities might be an exception depending on how quickly their rates adjust and to what metric they are indexed. Treasury Inflation Protected Securities (TIPS) is an example. Use dollars to buy things that have intrinsic value that will survive the dollar’s collapse. Tangible things include real estate, precious metals and commodity mutual funds, bartering items that can be stored long-term like batteries and ammunition, and emergency supplies like food and water. We like Real Estate Investment Trusts (REITS) which hold their value in actual real estate without the worry of managing the properties. Stocks and mutual funds could be reasonable investments if their value is based on capitalization and future earnings, but which hold little cash. Global stocks and mutual funds and foreign stocks which have significant value invested overseas in non-dollar countries are also worth looking at. The value of stocks and equity mutual funds may fall temporarily, but long-term they cannot stay below their capitalization value in real terms. Bonds are undesirable – as the Fed begins raising interest rates in an effort to head off inflation, the face value of bonds will fall, and then since they are denominated in dollars, the holder will receive a double hit.

A diversified, foreign-currency CD for a small portion of a portfolio could be helpful. I like Everbank’s Debt-free CD, which invests in currencies of five debt-free countries. A 3-month CD is currently earning 1.21% and it is FDIC-insured. If the dollar collapses, and the value of the underlying foreign currencies remain constant, the foreign currency CD will preserve real buying power.

Some of us have future cash-flows denominated in dollars, such as corporate pensions and Social Security. Our options are limited in protecting these assets. To hedge against future income streams, Mr. Burns¹⁸ suggested taking out a loan such as a home equity loan, the payments on which can be paid out of the pension, and then invest the loan dollars in inflation-protected assets. We can also convert the pension income stream to tangible assets as soon as possible after receipt.

John Williams also has some good recommendations for defensive actions in Chapter 9 of his report¹⁵. He wrote: “With no viable or politically-practical way of balancing U.S. fiscal conditions and avoiding this financial economic Armageddon, the best action that individuals can take at this point remains to protect themselves, both as to meeting short-range survival needs as well as to preserving current wealth and assets over the longer term. Efforts there, respectively, would encompass building a store of key consumables, such as food and water, and moving assets into physical precious metals and outside of the U.S. dollar.” He rates the effectiveness of each defensive action.

And as with all investment portfolios, diversification is very prudent.

Ironically, the most prepared for hyperinflation is the family which owns one or more homes and several new automobiles, is heavily in debt for all, has a high credit card balance and/or personal loans, two secure jobs and little cash or cash equivalents.

In addition to financial preparedness, we need to think about survival basics. Greece, Italy and now Iran are perfect examples of the civil unrest that financial disasters can cause. Many otherwise law-abiding, hard-working citizens would not hesitate to take whatever actions are necessary, and even illegal, to feed themselves and their families. They may decide to unilaterally “tax” your food assets. People may become angry. Power losses may happen. Transportation of goods may slow or come to a halt. Food may become scarce for a time. Because of hoarding, shortages of many things may occur. There are books on emergency preparedness, including Arthur T. Bradley’s “Handbook to Practical Disaster Preparedness for the Family”.²¹ The thing I like about this book, aside from the fact that Dr. Bradley is a graduate of Auburn University, my alma matter, is that it was not written by some crazy, doomsday proponent, but contains very practical advice on preparing for events that could actually happen. Another good thing about the book is that it doesn’t offer a “one-size-fits-all” approach, but realizes that every family is different. On the negative side, the book’s chapter on financial planning is perhaps its weakest. But overall, it is a valuable book.

Everyone should ask themselves the following questions:

1. What would we drink if the water supply were disrupted for weeks?

2. What would we eat if the grocery store shelves were cleaned out, and not restocked for months?

3. How would we heat our home if our natural gas or electricity were cut off during a prolonged hard freeze?

4. How would we light our home or cook if we lost power?

5. How would we move around if gasoline became nearly impossible to buy?

6. If lawlessness prevailed, do we have the resources to be able to defend our property and lives?

7. If I would die or be at risk of death without a certain prescription medicine do I have adequate reserves?

8. Do we have medical insurance that doesn’t have a dollar cap on benefits?

9. If the communication infrastructure fails, do we have a plan to reestablish contact with our loved ones?

10. How would we get current news?

These are not questions that we can wait to ask and act on until the precipitating event happens – then will be too late. When a currency is falling 30% per week, there is precious little time to adjust portfolios or stock up on food. Grocery store shelves can be cleaned out in a matter of hours. And the emergency supplies, propane, camp stoves, water purifiers, etc. that come to mind to meet temporary survival needs will be the first things to experience shortages.

The Final Analysis

As I mentioned above, I struggled long and hard over publishing this article. One the one hand, I don’t want to mislead or needlessly frighten. On the other hand, it would be hard to live with watching my family and friends experience financial ruin, if I had withheld information that could have saved them from it. In the final analysis, I decided I can live with being labeled “Chicken Little” a lot easier than the alternative. And also in the final analysis, this is just information. What you do with it is your own decision.

There are things we know and thing we know we have no way of knowing. We know the U.S. has a fiat currency. We know that other than a few that exist today, all fiat currencies have eventually collapsed. We know that the nation is deep in debt, with debt continuing to grow at an alarming rate. We know what causes inflation and hyperinflation. We know that the economic conditions in the U. S. are ripe for catastrophic inflation.

The things we don’t know include whether the Federal Reserve has the political will to head off massive inflation. We don’t know what the future holds in terms of wars, interest rates, more terrorist attacks on our soil, continuing growth of national debt, unemployment, economic growth, political actions, regulations, natural disasters, nuclear discharges and on and on. We can only speculate.

And then aside from the things we know and the things we don’t, we have our faith-based beliefs that come to bear. Our founders had a strong faith in God, sought His divine guidance and blessings on this country, and I believe that because of that faith, devotion and reliance on Him, God shined down on the United States and made it the greatest nation that has existed since Israel. But now, I believe that we have become the modern Sodom and Gomorrah. I earnestly pray that God has not withdrawn his blessing from our nation.

Finally, hold your family close and God closer. And of course pray. May God bless you, and may God save the USA.

Proverbs 13:16: A wise man thinks ahead; a fool doesn’t, and even brags about it.

Disclaimer

I am not an economist or certified financial planner. Should you decide to act on any of the information I have presented, you should do your own research and find a good financial planner who understands hyperinflation risk. If you do nothing else, watch Milton Friedman’s video: “How to Cure Inflation”², which puts a visual face to the economics of inflation that I have described in words. It is not only powerfully-relevant, but entertaining and easy to watch. But please, please don’t do anything drastic based on this article alone. The apostle Paul encouraged his disciple Timothy to use moderation is all things. That admonishment is appropriate here. If you take action, my advice is to not do something extreme like converting everything in your savings accounts, 401ks and IRAs to gold. But take lots of small actions that collectively will help protect your wealth from changes in the dollar’s value.

Postscript

I would greatly appreciate your comments on this article. Was it helpful? Do you foresee an alternate, more-positive scenario? Are there questions you’d like to ask? I’ve left many questions unanswered in the interest of brevity, and the article is too long already. To leave a comment, click on the “x comments” text below. If I receive enough requests, I will consider researching and publishing a follow-up article on the pros and cons of various defensive actions.

References

1. Cato at Liberty, Hyperinflation Has Arrived In Iran
http://www.cato-at-liberty.org/hyperinflation-has-arrived-in-iran/

2. How to Cure Inflation, by Milton Friedman
http://www.youtube.com/watch?v=jE7zxo61Xc8

3. Wikipedia, Federal Reserve System
http://en.wikipedia.org/wiki/Federal_Reserve_System

4. Wikipedia, Chairman of the Federal Reserve
http://en.wikipedia.org/wiki/Chairman_of_the_Federal_Reserve

5. The Federal Reserve System, Structure of the Federal Reserve Board
http://www.federalreserve.gov/pubs/frseries/frseri.htm

6. Wikipedia, Milton Friedman
http://en.wikipedia.org/wiki/Milton_Friedman

7. Historical U.S. Money Growth, Inflation, and Inflation Credibility, William G. Dewald is the retiring Research Director of the Federal Reserve Bank of St. Louis, December, 1998
http://research.stlouisfed.org/publications/review/98/11/9811wd.pdf

8. Forbes, Hyperinflation Hits Iran Like Weapon Of Mass Destruction, Addison Wiggin, 10/8/2012
http://www.forbes.com/sites/greatspeculations/2012/10/08/hyperinflation-hits-iran-like-weapon-of-mass-destruction/

9. Nick Jones, The Daily Reckoning, Fiat Currency: Using the Past to See into the Future
http://dailyreckoning.com/fiat-currency/

10. The Telegraph, Hyperinflation: Iran's way out – possibly
http://blogs.telegraph.co.uk/finance/jeremywarner/100020559/hyperinflation-irans-way-out-possibly/

11. George Santayana, quoted by Yahoo Answers
http://answers.yahoo.com/question/index?qid=20080825183900AACAIkV

12. Investopedia, The Great Inflation Of The 1970s, July, 8 2009
http://www.investopedia.com/articles/economics/09/1970s-great-inflation.asp#axzz28jwTbjXx

13. Why We Aren't Seeing Inflation Yet, Despite All of the Money the Government Is Printing, Joshua Kennon, About.com
http://beginnersinvest.about.com/od/inflationrate/a/why-arent-we-seeing-inflation.htm

14. Weekly Standard, America’s Per Capita Government Debt Worse Than Greece, Feb. 23, 2012
http://www.weeklystandard.com/blogs/chart-america-s-capita-government-debt-worse-greece_631797.html

15. Shadow Government Statistics, HYPERINFLATION 2012, SPECIAL COMMENTARY NUMBER 414, January 25, 2012, John Williams
http://www.shadowstats.com/article/no-414-hyperinflation-special-report-2012

16. S&P downgrades U.S. credit rating for first time, Zachary A. Goldfarb, The Washington Post
http://www.washingtonpost.com/business/economy/sandp-considering-first-downgrade-of-us-credit-rating/2011/08/05/gIQAqKeIxI_story.html

17. CBS MoneyWatch, Ratings firm downgrades U.S. credit
http://www.cbsnews.com/8301-505123_162-57513390/ratings-firm-downgrades-u.s-credit/

18. Scott Burns, nationally-syndicated columnists, financial writer
http://assetbuilder.com/company/assetbuilder_team

19. Wikiquote, George Santayana
http://en.wikiquote.org/wiki/George_Santayana

20. Reading Between the Lines - The Spread Between Treasuries and TIPs, How You Can Gauge the Market's Expectation for Inflation, Joshua Kennon
http://www.cbsnews.com/8301-505123_162-57513390/ratings-firm-downgrades-u.s-credit/

21. Handbook to Practical Disaster Preparedness for the Family, Arthur T. Bradley, Ph.D., 2010
http://www.amazon.com/dp/1475136536/ref=asc_df_14751365362188342?smid=ATVPDKIKX0DER&tag=hyprod-20&linkCode=asn&creative=395093&creativeASIN=1475136536&hvpos=1o1&hvexid=&hvnetw=g&hvrand=11861467712143337707&hvpone=&hvptwo=&hvqmt=

22. Washington’s blog, The Average Life Expectancy For A Fiat Currency Is 27 Years...

http://georgewashington2.blogspot.com/2011/08/average-life-expectancy-for-fiat.html