Quotes, Inflation and Hyperinflation

 

I underlined and bent the pages in The Ascent of Money for these quotes. They interested me and may interest you.

 

"Inflation is a monetary phenomenon, as Milton Friedman said. But hyperinflation is always and everywhere a political phenomenon, in a sense that it cannot occur without a fundamental malfunction of a country's political economy."

 

"Only entrepeneurs were in a position to insulate themselves by adjusting prices upwards, hoarding dollars (TOR adds they were talking about Germany post WWI so the dollar was a safe currency, comparisons could be made to the Canadian dollar or Swiss franc today), investing in real assets (such as houses and factories) and paying off debt in depreciating banknotes."

 

Inflation is on my mid term worry calender. At some point a couple to several years from now employment will start rising and we will finally have worked the glut of housing inventory out of the system. Things will start to get better and consumer confidence will rise which leads to more spending. When those dollars banks, businesses and people have been hording under the mattress in case of emergencies start moving it will eventually become noticable that there are lots of dollars chasing the same amount of goods and prices will rise. Our benevolent banking friends the Federal Reserve will raise interest rates to try and slow the inflation. I am less than confident it will work.

 

On one hand I am not that worried about inflation because our income is secure and we live well below it with no debt. Remember that while inflation makes debts cheaper in real dollars and thus easier to pay off, it also hurts the economy and leads to layoffs and failed businesses. It doesn't matter if your mortgage or bills cost 20% less if you are laid off/ business goes under and you make 100% less. In this respect we are in a good spot as we don't owe anything.

 

However I do have some worried because we couldn't raise my wages/ prices 20% tomorrow like a small business or whatever could. Since I am pretty happy with my job this is not going to change any time soon. That leaves us managing it. We don't have any debt, let alone variable interest rate debt or a frickin ARM mortgage but if we did I would be trying to get those accounts settled in a hurry.

 

We own some precious metals which would hold their value and be very useful if inflation became truly ruinous. We also store some food which would help us get through issues with JIT inventories. In this sort of situation (high but not hyper inflation) most likely our biggest savior would be that our normal lifestyle is well below our means. It would mean saving less and our travel budget (destined to drop 50% or more anyway when we return stateside anyway) would drop significantly but our day to day existance would be the same.

 

Obviously that sort of plan would not work well in hyperinflation. For that sort of scenario I have less of a warm and fuzzy but since it is so unlikely my underoos aren't all twisted up about it. As soon as practical we are going to start growing some of our own food which will help. Of course stored food and pm's would help in emergencies or as a short term stop gap measure.

What are your preparations for inflation? What are your preparations for hyperinflation?