First, lets get an idea of what ‘hyperinflation' is. This is basically when the public loses confidence in a type of currency, and decides it isnt worth the paper its printed on.
What people then tend to do is get rid of it as fast as possible, because its value plummets so fast that holding it will only leave you with a much less valuable piece of paper in a very short span of time.
In the height of the hyperinflation in Germany, you could sit down for a meal, and by the time the meal was over, the price had gone up.
In the recent hyperinflation in Zimbabwe, it cost as much as 3 billion Zimbabwe dollars to buy 3 eggs.
If you think this cant happen in the US, please study history a bit on this subject, it could mean the difference between a real struggle for survival and passing through the storm intact.
Gravity works everywhere, and so do the basic laws of economics – even in the US of A.
One method of storing your wealth during a hyper-inflationary period is to hold that wealth in gold and or silver.
At the height of the hyperinflation in Wiemar Germany, you could buy a downtown city block with all the commercial buildings on it for 20 ounces of gold.
Peter Bernholz (Professor Economics in Basel) studied the world's 12 most important periods of hyperinflation and discovered that the tipping point occurs when deficits amounted to 40% of the expenditures.
For the United States we have arrived at exactly that point. The deficit of $1.5 trillion amounts to 41.7% of the $3.6 trillion in expenses.
Has the US Reached The Hyperinflation Tipping Point?
Economist Peter Bernholz is an expert on the subject of national hyperinflations. He has studied all the major cases of hyperinflation since 1980. His conclusion: The tipping point occurs when a government's deficit exceeds 40% of its expenditures.
Guess what? The U.S. will hit the 40% mark in 2009:
Hayman Advisors provided a good summary of Bernholz's research in their October letter (via FS):
There have been 28 episodes of hyperinflation of national economies in the 20th century, with 20 occurring after 1980. Peter Bernholz (Professor Emeritus of Economics in the Center for Economics and Business (WWZ) at the University of Basel, Switzerland) has spent his career examining the intertwined worlds of politics and economics with special attention given to money. In his most recent book, Monetary Regimes and Inflation: History, Economic and Political Relationships, Bernholz analyzes the 12 largest episodes of hyperinflations – all of which were caused by financing huge public budget deficits through money creation. His conclusion: the tipping point for hyperinflation occurs when the government's deficit exceed 40% of its expenditures.
