hyperinflation probability X severity

money-from-skyI am a student of Austrian economics, which has advantages of accuracy and integrity over the mainstream Keynesian school of economics. While quoted figures for inflation leave out food, housing and energy, Austrians look at the whole picture, including those three components that are most significant to the vast majority of the populace, particularly to those with minimal discretionary income.

Keynesians rationalize dilution of the money supply โ€“ printing more and more paper so prices measured by those dollars seem to continually rise. Austrians point out the destructive effects of monetary inflation on economies and societies.

The decline of unbacked paper currencies is 100% historically consistent. Today’s paper currencies, including our dollar, are entering that phase where the owners try to put out the fire of reduced purchasing power with the gasoline of printing more money. This time The Fed calls it Qauntitative Easing and QE II, and tells us to expect more QEs in the future. At the very least, accelerating inflation is assured.

Accurate fiscal planning in our current situation is challenging as recent regional history becomes less and less a predictor of our future. More relevant examples to our future would be Belarus, Bolivia, Bosnia, Brazil, Bulgaria or any of the 32 countries listed by Wikipedia as having endured at least one hyperinflation in the last 100 years. Even the USA made their list with our paper currencies becoming useless during the periods of the Revolutionary War and the War Between the States. Of course planning as if there will definitely be a USA hyperinflation next year would be as foolish as planning that there definitely will not be.

When I worked for Hewlett Packard in the 80’s, they used probability times severity to help focus their planning. If the probability of something occurring was high, but the severity (impact) was low, it would be of precious little concern. However even if the probability of a catastrophic event was low, its severity would warrant some consideration during the planning process. The probability-times-severity of significant inflation, rampant inflation and hyperinflation definitely qualify them as deserving their places on the planning agenda today.

In the 1989 study published by Figgie International The Hyperinflation Survival Guide, business that survived and thrived during hyperinflation aggressively invested in THINGS and strongly avoided holding cash for any time at all. When measured in cash, everything goes up. Stocks in failing companies held more value than paper currencies, and poor people would buy ge-gaws rather than hold money because the ge-gaws could be traded for something even when nobody would take the paper.

We are not there yet, nor are we close enough to believe it will happen here. But to think about it is to put ourselves a step ahead of those who didn’t. The phrase repeated in hyperinflation after hyperinflation was, “Nobody saw it coming”. Of course that is completely untrue, but clearly the majority didn’t see it coming nor did “the experts” of the universities, government and media… or if some of them did, they gave no clue.

What actions, reactions and preparations are obvious, likely and wise?

I have to go now and do some preparing. I’ll get back to you on that. Really. I honestly sat down to get some of my actions/reactions thought out and written out, but had to do the preceding groundwork for it to make any sense.