Mainstream investors are often incapable of seeing what lay ahead on the horizon. With mainstream financial media mistaking “relevant” for “fashionable”—often focusing on short-term events that drive volatility—the “myopia” it feeds seems the path of least resistance. Hence, everyone buys it.
What’s lost in the mix, however, is the big picture. And looking toward what lies ahead, we see not a horizon, but more like a void—an inflationary void, where asset prices loom large, swollen enough to asphyxiate the purchasing power to match them.
Your cost of living is about to undergo a daunting rise.
Plenty of things we buy on a regular basis are rising in price—from food and fuel to cars and real estate. Health care costs are accelerating, something we typically take for granted as it’s the one category of services that tends to inflate faster than most others. Overall, we don’t need an indicator to tell us that our own experiences are either true or false.
The rise in prices across categories is visible in the traces of market sentiment. Never before have Google searches for the term “inflation” spiked so high. And to top it off, the media are finally catching up to the buzz, as prominent analysts and economists are now issuing warnings.
One thing many people just don’t get is that safety measures neither predict nor attract the things they’re intended to ward off or mitigate. You buckle up in your car not because you’re looking forward to a car accident, but because you don’t want a major accident to catch you without it.
When will inflation start accelerating? How high will it go? Will it spin out of control? Are we going to see something similar to 1970s stagflation? Might we be dealing not with just inflation but hyperinflation?
The answer is, one or a few of these scenarios are “possible worlds.” What matters is not which scenario will materialize, but what you plan to do should any of them materialize.
Let’s cover three situations, drawn from economic history, that could endanger—if not destroy—your wealth.
Situation No. 1: It’s Not a Matter of If but When the Inflationary Wildfire Burns
Our dollars are no longer backed by gold. We all know this. When the Federal Reserve prints money, the increase in the money supply doesn’t cause inflation. The increase of the money supply is inflation itself.
It’s “baked-in” at that point. It just takes time for the newly issued “money” to work its way through the system from consumer to consumer, fractionally eroding in value as the prices of goods and services rise (remember, more cash chasing fewer goods equals inflation).
Historically, another thing that tends to heat up an inflationary environment is the factor of a nation’s debt levels. According to American economists Carmen Reinhart and Kenneth Rogoff in their book “This Time is Different,” “Debt levels over 90% of GDP are linked to significantly elevated levels of inflation.”
According to Statista, U.S. national debt to GDP stood at 131.18 percent in 2020. That is far above the 90 percent threshold. Inflation? Yes, it’s virtually guaranteed.
But there’s a more staggering possibility that’s barely emerging through the substratum of public thought: hyperinflation.
Situation No. 2: Government Budget Deficits Can Spark Hyperinflation
According to economist and hyperinflation expert extraordinaire Peter Bernholz, hyperinflation—essentially, inflation on steroids—finds its origins in deficit spending: “Hyperinflation is caused by government budget deficits,” he says.
So, where are we now with regard to this matter?
We’re currently seeing the largest budget deficit in U.S. history.
According to Bernholz, at these levels, hyperinflation is a very distinct possibility.
Yes, it sounds theoretical. Whether the outcome resembles his theoretical predictions or not, the fact remains that public debt, fiscal spending, and the money printing that supports these is ultimately a claim on every American’s future income. There is no free lunch. If the government pays for it, then the bulk of its funding must come from its citizens either directly through taxation or indirectly through the “hidden tax” of dollar debasement (money printing).
So, whether you see the specter of hyperinflation or not, ask yourself if you would rather err on the side of caution (via safe haven hedge) or optimism (doing nothing to protect yourself). Consider what’s at stake—everything you own, your capacity to generate future wealth, and the potential for a dismal turn in your (and your family’s) lifestyle.
Situation No. 3: Once Ignited, Inflation Can Spread Faster Than Any Central Bank Solution Designed to Control or Counter It
Inflation may seem incremental, but its rate of speed is exponential. History has shown that once Pandora’s box has been opened, the darkness that springs forth from it is exceedingly hard to contain.
We’ve seen this happen in the United States three times: in 1917, when inflation soared to 17 percent from just 1 percent two years prior; again in 1947, when inflation hovered at around 14 percent, up from just 2 percent the previous year; and yet again in 1974—the tamest of the three, though the most memorable to most older Americans—when inflation jumped to 11 percent from 3.2 percent two years prior.
If we matched any of those inflation spikes to our current inflation scenario of around 1.7 percent, we can see inflation jumping to 29 percent (based on the 1917 model), 11.9 percent (based on the 1947 model), or 6 percent (based on the 1974 model).
Not unlike the pandemic we’re currently experiencing, skyrocketing inflation always seems improbable … that is, until it happens.
A Shining Solution
The 1970s will perhaps provide the most accurate model, since by then, fiat had already unpegged itself from gold and silver backing. When inflation rose in the 1970s, gold prices soared 1,604 percent between 1970 and 1980. Silver, on the other hand, appreciated, 1,005 percent from the lowest point in 1970 to 1980.
Coined “safe havens” for a reason, non-CUSIP precious metals can provide the added privacy and security that trackable CUSIP metals cannot. As you can see, the problem is more complex than the solution. And it’s a blessing that it is.
Contact us at 833-GSI-GOLD. You’ll receive a complimentary copy of our Bank Failure Survival Guide and the secret the bankers don’t want you to know, “The Fungible Gold & Silver CUSIP List,” free of charge.
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By Anthony Allen Anderson, senior partner