Over the years, and especially recently, there’s probably a word you have heard bandied about in regards to the economy that is whispered with dread, menace and the hushed, terrified awe of the boogeyman: Hyperinflation.
Often talked about, rarely codified, and even more rarely explained in terms that everyday people can relate to, hyperinflation seems to be a topic that is the province of financial talking heads and would-be economic theorists.
But I have some bad news for you, folks. Hyperinflation is real, entirely too real, and I am telling you right now, up front, you have good reason to be scared out of your wits by it.
Hyperinflation causes runaway and unstoppable price increases on all kinds of goods and services, but especially the common, everyday staples and necessities that we rely on to make our lives go, things like food, fuel, water and electricity.
Hyperinflation is not a theoretical mega-disaster that is so rare it might as well be the stuff of fiction. It has already happened, and many times before.
In the 20th century alone up till today, hyperinflation has occurred around the world in civilized places in excess of 50 times. It is only a matter of time before it happens again, and if you aren’t prepared for it, you could lose absolutely everything and be left to starve.
We aren’t going to let that happen, though, and in this article we will tell you everything you need to know about hyperinflation. What it is, what causes it, and how you can defend against it.
What is Hyperinflation?
Hyperinflation is nothing more than standard inflation with the throttle cranked up to maximum before it is snapped off.
In more pedestrian terms, hyperinflation is the extremely rapid increase of the cost of goods across all domains. This resulting, unchecked increase in cost radically devalues attendant currencies for the nation experiencing it.
This subsequently results in many consequences, including bank runs, hoarding, loss of confidence in currency and other deleterious effects that only compound the problem, but in the most practical terms it makes all sorts of goods and services essentially unaffordable for the majority of people.
Hyperinflation is never good, and there is no way to square it. Governments that are experiencing the effects of hyperinflation try all sorts of countermeasures to stall, arrest or fix it but they are rarely, if ever, successful. Much of the time, they only make problems worse by “robbing Peter to pay Paul”.
The exact onset of hyperinflation is often difficult to predict, but it is not difficult to predict the historical causes and instigators of hyperinflation.
By keeping an eye on the right “weathervanes”, economically, it is possible to be alerted ahead of time to conditions likely to produce hyperinflation, and even an economic collapse. Knowing it is ahead, you have at least some time to prepare for it. We will investigate these various causes in the next section.
Causes of Hyperinflation
There are two major groups of events that cause or pave the way for hyperinflation to take place.
The first two are, as always, caused by the government.
- Use of Paper Money / Fiat Currency: There is no modern example of hyperinflation that has occurred anywhere where paper money or fiat currency was the coin of the realm. The use of currency that has inherent value is seen as something of a safeguard against hyperinflation, but of course, in our era of rampant government and economic irresponsibility, the mad hope that we might yet return to such a currency is all but a pipe dream.
- Government Budget Deficits / Excess Creation of Currency: One of the major indicators that hyperinflation is forthcoming or likely is a significant budget deficit on the government’s books combined with excessive creation of currency. This is highly problematic, especially going into the 21st century, because if there is one thing modern, first world governments love doing more than anything else it is printing money. With budget deficits showing only signs of growing ever larger and no shortage of ink and paper, the eventuality of hyperinflation seems unavoidable.
The following causes may singly or together result in hyperinflation, and can be categorized as supply-side or “supply shock” causes:
- War: For many of the most prosperous nations, war can be a harbinger of hyperinflation. In the absence of careful cost-benefit analysis, the nearly certain infestation of the military industrial complex and aversion to bringing home vast oceans of treasure from defeated enemies wars are invariably humongous drains on national stockpiles, coffers and reserves. Combined with economic uncertainty that often results from war, this can be a one-two punch that propels a nation into the clutches of hyperinflation.
- Mass Civil Unrest: Anytime a nation is experiencing widespread civil unrest, its currency is likely to be damaged. Speculators will lose confidence in a country’s products, and that means its markets will experience downturns. The overall buying power of the currency is lessened, leading to sell-offs or preferential exchange for foreign currency, further weakening the domestic one. This vicious cycle, if not arrested and particularly if experienced in conjunction with war or other commercial or industrial factors will easily grease the skids that send a nation’s economy hurtling into full blown hyperinflation.
- Commercial / Industrial Catastrophe or Downturn: a widespread catastrophe in commercial or industrial sectors can further stress and already shaky currency or economy and result in hyperinflation. Pestilence, drought, embargoes and other such far reaching conditions can have a major economic consequences depending upon the sector and a country’s dependency on it. This is commonly encountered in countries that are actually touched by an ongoing war, and might be losing the facilities or resources that make commercial and industrial endeavor possible.
Effects of Hyperinflation
I hope you are convinced by now that hyperinflation is indeed real, not some economic monster under the bed, and you have cause to be worried about it. If we are unlucky enough to experience it, what can you expect?
- Devaluation or Total Loss of Savings: Hyperinflation cuts the legs off of any currency, and any investments linked to manipulation of that currency. The money in your savings account and various other investments will be severely devalued, if they maintain any value at all.
- Geometric, Rapid Price Increases: You will see a sustained and marked increase in the price of goods and most services. In some cases, price increases can occur daily, or even hourly. You can expect to pay 10, 20 or even 30 times as much for basic staples like bread, milk, eggs, and fuel compared to what you would normally, and it can get far worse than that.
- Mass Hoarding of Commodities: Immediately prior to the onset of hyperinflation citizens will attempt to gobble up any and everything valuable, or things that they think they need to survive. This massive uptick in purchasing will first strain and then break an already beleaguered supply chain, further exacerbating hyperinflation thanks to typical (and inescapable) forces of supply and demand. Many stores and other purveyors of goods will quickly become empty and stay that way.
- Uptick in Unrest and Violence: It is difficult to impress upon the uninitiated just how bad a situation hyperinflation is, and the resulting toll on the civilian populace. Stressors like these always result in increases in civil unrest and violence of all forms. The desperate and the deranged will want what you have, however minor it may be, and this means security and defense of self and family may well become daily concerns.
- Waves of Foreclosure and Mass Unemployment: Hyperinflation sets to falling a series of dominoes that will leave no corner of commerce, industry and civil life untouched. Unable to make mortgage payments or pay rents, a massive tsunami of evictions and foreclosures will take place across the nation. The newly dispossessed will shortly thereafter lose their jobs in all likelihood (if they have not already), and this assumes that their employers are even able to weather the storm and remain in business.
So when does it all end? What are the signs that hyperinflation is receding or ending? I have bad news for you, reader:
It is virtually impossible to predict the severity and duration of hyperinflation!
All you can do is endeavor to be prepared for it ahead of time, and then weather the storm until things get back to normal.
What Does Hyperinflation Mean to You?
Here’s the bottom line, reader: When hyperinflation sets in, all the money you have, in your wallet, and your bank account or anywhere else is rendered exponentially less valuable. This means that whatever you have right now you effectively only have a fraction of that under hyperinflation.
You may not be able to afford food, electricity, water, and all the other basic necessities, and if you can you probably aren’t going to be making your rent or mortgage payments to do it.
You could be facing starvation, homelessness, the mercy mile, in virtually no time.
Hyperinflation is a total threat for anyone who is not essentially and civilly independent. You must be prepared for hyperinflation, and thankfully most measures you can take are simple and easily implemented.
We will cover those in the very next section.
Protecting Yourself and Your Family from Hyperinflation
Protecting yourself and your family from hyperinflation is mostly a matter of eliminating liabilities, securing access to survival necessities and divesting yourself of dependency on any civil services or societal facets such as ultimately worthless currency that will render you vulnerable to the forces of hyperinflation.
Most of these procedures are simple, even if they aren’t easy, but many of them are both. It is instructive during times like these to remember that the only things you and yours need to survive, genuinely survive, are the things that people have needed since time immemorial: shelter, water, food and security.
Everything else is gravy, and you don’t need to be connected to the grid or dependent upon the shambling corpse of what used to be a functional and admirable society to obtain those.
I say this with no fear mongering, reader: These wild and uncertain times we are living through cannot go on for long until we hit a major corrective measure.
Reality will reassert itself, and it is always painful when that happens. Start taking steps right now to prepare yourself for this entirely too likely catastrophe.
Eliminate All Debt (esp. variable rate loans/mortgages!)
Personal debt is never good, and it is especially dangerous during periods of hyperinflation. That can serve as something of a “double whammy” by forcing you to pay a superfluous expense on something, interest, and also putting you at risk of foreclosure, repossession or seizure should you not pay, depending on what the debt is for.
Any variable or flex rate loans, mortgages, credit cards and so forth are especially nasty because you can bet your last copper cent that the mortgagee will drive up interest rates as hyperinflation takes hold, putting an even worse strain on your already beleaguered finances.
Eliminating debt now, conversely, serves as a double boon, eliminating ongoing interest payments and freeing up money that you would otherwise be spending on debt servicing to invest in other things you will need for the coming crisis.
Diversify Your Income Streams
Most families today, and many individuals already have at least two sources of income, typically a full-time job, and either a part-time job or side gig, and sometimes an intermittent side hustle that brings money home.
The tumultuous economic conditions brought about by hyperinflation will mean changes are coming fast and furious, and you could be unceremoniously fired or have your hours reduced or salary cut at your primary job.
It is therefore in your best interest to diversify your income streams now, not only so you’ll have fallback skill sets or options should your primary revenue stream be diminished or eliminated entirely under hyperinflation, but also so you can start accruing more money and therefore gain access to more things that you need presently before the onset.
If you work a typical 9-to-5 job, start a side hustle or get to moonlighting. You can make use of any and all skills for this task, and some people can even put their hobbies to work as legitimate skills through tutoring, lessons and so forth.
Setting up passive income streams from websites with affiliate advertising networks and similar ventures is a great way to set it and forget it for making a little extra cash.
Internet-based business in particular can be a small but valuable bulwark against hyperinflation if the majority of your customer base is in a country not currently suffering the ill effects.
Cut, Cut, Cut Expenses!
Start cutting back expenses now so you won’t feel the sting later. If you are eating out several times a week, give that up in preference of cheaper (not to mention) home cooked fare. Invest or save the money you keep based on the guidelines in this section.
If you have multiple vehicles, see if you can get by with only one. Look for anything that is genuinely superfluous in your life, even though you might have already convinced yourself you have to have everything that you own, buy and participate in. You can get by with a whole lot less than you think and still live a rewarding and enriching life.
The chains of rampant consumerism are the same links that will shackle you to the rapidly sinking anvil of hyperinflation when it occurs.
Invest in Hard Commodities
In stark contrast to paper money and other fiat currencies, you should definitely be accumulating hard commodities that retain their value whatever paper currency is doing at the moment.
Real estate, gold, silver, and other precious metals have long been well regarded as the proper stuff currency should be made of but also valuable hedges and protections against inflation.
Paper money may only be fit for rolling cigarettes or burning as tinder under the current economic circumstances, but gold and silver will still be as valuable as they have ever been if not more valuable.
You can say much the same thing about land, real estate and other big ticket investments that civilizations and ergo people will always need, one way or the other.
These blue ribbon investments might save you from dire circumstances or just allow you to keep on living more or less as you always have while other people scramble and scrimp just trying to eke out a meager existence.
Stockpile Necessities for Life
You don’t need money to live; you just need the things that money can buy for you.
If you depend on regular exchanges of money to get the things you need to survive, you aren’t truly prepared to go on living during hyperinflation unless you have a swimming pool sized vault full of it, Scrooge McDuck-style.
If something happens to the money, and something bad will happen to it under hyperinflation, you will not be able to purchase those basic necessities.
A life saving and greatly comforting prep that you can put into place, or may have in place already, to prepare for hyperinflation is a basic stockpile of food, water, hygiene products, cleaning supplies and all of those things you use around your home every day.
When you’re confronted with the terror of seeing milk skyrocket to $50 a gallon or bottled water go to $100 a case, you’ll be beyond grateful that you are sitting on a store room full of fresh, clean drinking water and powdered milk a plenty.
I can make examples about all the other things we buy on a daily and weekly basis but I think you get my drift.
When you and yours do not have to worry about the astronomical market price of meat, eggs, rice and beans you’ll be far ahead of your neighbors and in a much better place to survive.
Don’t forget to rotate any perishable goods or consumables that can wear out in storage at regular intervals.
Enhance Personal and Asset Security Measures
Any period of hyperinflation will invariably also result in rising temperatures, and I’m not talking about the climate! Desperation, lack, degradation and outrage will see significant increases in interpersonal violence.
As I read in a book once, “The progression from a higher to lower order is always marked by ruins, mystery and a residue of nameless rage”. Those who are desperate will have rage to spare, and will take from those who are unable to secure their holdings.
Some people will steal in order to obtain nothing more than their next meal, or the next meal for their children.
Others will steal from you, even kill, for nothing more than sport or out of sheer, pure and unadulterated bitterness at the universe. Accordingly, you must be prepared to protect your holdings from top to bottom.
Your property and everything in it must be protected and this usually means you’ll need guns along with the willpower and training to use them. This is a great time to draw extended, but trustworthy, family members together so you have more manpower to devote to security.
Become “Off-grid” Capable
Another excellent prep to ready your family for hyperinflation is getting your life and your home completely off grid.
You won’t need to pay outlandish prices for the same electricity you have always used if you can create your own with solar cells, windmills or hydroelectric power. Whole-house battery backup systems will bank any electricity you do not use for future use.
Another option is a standby gasoline or diesel fuel generator, though these will be impractical if you do not already have a substantial stockpile of liquid fuel owing to the drastically increased cost of said fuel under hyperinflation.
Anything that you can produce, make, grow or procure yourself will always be a massive savings and benefit during hyperinflation.
Food, heat, electricity, water, shelter- all of the things that are vectors for middlemen to get their cut off of before they get it to the end user- are the ideal things you should be working towards producing yourself.
Make Ready to Barter by Accumulating Luxury/Comfort Goods
As mentioned above, you’re going to see many products hit the stratosphere when it comes to price, and many more disappear entirely for the duration. Some of them, or at least certain brands, won’t come back even after it’s over.
If there is one thing you can depend on about human nature it is that people will always look for ways to self soothe or self-medicate during times of trouble. That means comfort items and luxury goods will still remain in demand even if they become rarer than moon rocks.
Things like cigarettes, alcohol, cosmetics, candy, toys, and anything else that you can think of that is nice to have or enjoyable to consume but not strictly necessary for survival is a good candidate for inclusion in this category.
Even if you don’t partake of any of them yourself, it won’t matter, as you are accumulating these things primarily as trade goods.
You’ll find no shortage of people that are desperate to get their next draw off the bottle, puff off the cigarette, shot of liquor or bite of chocolate, anything that will numb their pain or remind them of kinder times.
Folks like these might not have anything, but you will be surprised what they will do to come up with the funds to get their fix. They are going to pay someone for it, so it might as well be you.
With shrewdness and a little luck, you might well be able to capitalize on the wants and cravings of others and come out of a period of a hyperinflation even better off than you were before.
Historical examples of hyperinflation in the 20th and 21st Century
The following countries have experienced periods of serious to devastating hyperinflation just during the 20th and even into the 21st century. Trust me when I say that this stuff is not ancient history, folks! We aren’t immune to the forces that cause hyperinflation no matter how meddlesome international financiers and economic forces are, and American exceptionalism will prove to be no defense. Read, learn, and plan accordingly.
The Bolshevik Revolution of 1917 led to a period of instability and economic chaos, which in turn paved the way for hyperinflation.
By the end of 1917 the annual inflation rate had reached 180%. The following year, it hit 2,200%. By 1919 it had topped out at 302% and finally an astounding 11,200% in 1922.
This, as you would imagine, wrought terrible consequences on the citizenry. People’s life savings were wiped out.
The value of the ruble became so devalued that people began to use other commodities as currency, such as cigarettes, sugar and jewelry. The black market flourished.
The burgeoning USSR managed to get a grip on the situation by introducing a new gold-backed currency, the chervonets, in 1924 and taking drastic measures to stabilize the economy, eventually culminating in the adoption of the NEP, New Economic Policy, which still forced common working people to bear the brunt of the fallout for years.
Germany’s period of hyperinflation and attendant depression is notable both for its severity and also for sheer detail in its historical documentation.
The Treaty of Versailles, which ended World War I, placed crushing reparations on the German people while at the same time severely damaging the country’s infrastructure.
These factors, in addition to political instability, revolution and war costs led to jaw droppingly high inflation rates and the corresponding issuance of massive paper currency.
The defeated Germany was after the war ordered to repay $500 billion to the conquering Allies in reparations. To do this they had to hand over resources made in factories as well as livestock and raw goods in the form of timber, minerals and grain. Germany was being fleeced, rightly or not.
This naturally led to a rapid decrease in value for their currency as confidence waned about being able to back up the banknotes with actual assets.
At the end of January, 1919, at least 1 million Germans were without work, and that number grew all the time as soldiers and sailor returned home with no armed forces to stay in. Waves of revolutionary and counter-revolutionary bloodshed broke out on German streets in the following years.
The government fought to preserve its interpretation of peace, security, and order against those put forth by far-left communists and far-right counter revolutionaries. Violence was everywhere. At home, the war hadn’t ended.
Soon the German economy started to collapse under the strain of these external and internal factors.
As reparations were paid to the Allies in the early 1920s, the value of the German mark plummeted dramatically, triggering a period of hyperinflation. In early 1922, one US dollar equaled 160 German marks. By 1923, it was an unbelievable 4,200,000,000,000 marks to one US dollar.
This hyperinflation had a ruinous effect on Germany as a whole and, as usual, the working class in particular. According to one account, “A loaf of bread that cost 63 marks in early 1922 would have cost 200 billion marks by late 1923.”
Hungary’s mercifully short-term period of hyperinflation has the dubious distinction of being deliberately, willfully enacted as a government response to post-World War II woes: a misguided effort to help get the ailing nation functioning again.
In short, it was seen as the ultimate tax on its citizens- which it was! – and it arguably helped the nation get economic growth going again by piping lots of money though the banking sector and into industrial and entrepreneurial endeavors. Of course, this was cold comfort to citizens at the time.
By late 1945, Hungary was in dire economic straits, having lost over half of its pre-war territory and a third of its population. They were also saddled with a staggering $800 million debt to the occupying Soviet Union.
The government saw inflation as a way out of this hole by simply printing more money to pay off debts and help fund reconstruction efforts.
At its peak, it made the hyperinflation experienced by Germany in the previous decades look tame: prices on goods would double every 10 to 12 hours. Food shortages followed, and persisted.
This led to widespread panic and hoarding of goods as people tried to spend their money before it lost all value. Savings were obliterated.
Creditors completely wiped out. In the end, arguably, the plan worked more or less but at terrible cost. The government introduced a new currency in 1946 that helped to stabilize prices for a couple of decades until the commies took over in the 1960s.
The most recent and still ongoing case of hyperinflation is in Venezuela. This socialist South American nation has been in the throes of a deep economic crisis for over a decade now, once that reached a fever pitch around the turn of last decade.
Largely caused by government mismanagement and corruption, the country has the world’s largest oil reserves but this wealth has not trickled down to the people. In fact, it is estimated that as many as 90% of Venezuelans live in abject poverty.
The Venezuelan bolivar has lost an astonishing 99.99% of its value against the US dollar since 2013. According to the U.N.s IMF (International Monetary Fund) in 2016, inflation was running at nearly 300%.
By 2017, it had skyrocketed to over 850%. And in 2018, it was an unbelievable 929,000%. What this means is that the price of goods and services in Venezuela is increasing at an exponential rate.
You can get a better sense of what this looks like by checking out the “Cafe Con Leche Index” which tracks the price of a cup of coffee in Venezuela.
As of June 2020, that price was well over a million bolivars, and climbing. The Venezuelan government has responded to this inflation by simply printing more money at a manic pace but this only exacerbates the problem as it leads to even more inflation.
The government has also taken other measures such as minimum wage hikes and price controls on some goods but these have also failed to stem the tide. The result is a nation in true economic free fall with no end in sight.
People are dying in droves from starvation, international debt markets are closed to the nation, and no other government, save perhaps a few, will have anything to do with Venezuela due to the staggering corruption and desperation infesting the country.
A true tragedy of epic proportions, and a cautionary tale that even countries with immense material wealth in commodities may fall victim to hyperinflation.
Hyperinflation is often spoken about and hushed tones with equal measures of fear and reverence, but this is no theoretical monster or economic boogeyman.
Hyperinflation can subject a nation’s economy to the worst stresses imaginable, and usher in unprecedented levels of loss and poverty.
Being prepared for hyperinflation is mostly a matter of eliminating liabilities while stockpiling the basic necessities needed for life support. So long as you can do that, you should be able to hold on until things get back to normal.
Tom Marlowe practically grew up with a gun in his hand, and has held all kinds of jobs in the gun industry: range safety, sales, instruction and consulting, Tom has the experience to help civilian shooters figure out what will work best for them.
11 thoughts on “How to Prepare for Hyperinflation”
This is an excellent article, but I do have a question on the effect of hyperinflation on those holding FIXED-RATE mortgages (such as those holding 2.25% 30-year fixed. Would not those people be able to pay off those mortgages in much cheaper dollars, assuming that incomes kept anywhere near the rater of increase?
That’s what the conventional wisdom would be. I, though, would find it hard to believe that the banking industry is going to sit back and let homeowners pay off their low interest mortgage with highly inflated dollars. They will change the rules in the middle of the game. You can “bank” on it !
The banks will have no choice. Your loan agreement is a binding legal document. You just have to act before the government trims a couple zeros off the dollar.
Not a lawyer (just saying not bragging) but I think Pete is right on this one.
Seems to me the smart thing to do is to borrow as much money as possible now at low fixed rates and buy objects that will increase in value during inflationary times
Gentlemen, you may figure that maximizing your debt and buying commodities is the logical move, thus paying off the loan with cheaper dollars and getting ahead. There are several problems with this. First, timing. How fast will inflation increase? There are many factors involved, making accurate prediction all but impossible. Second, you assume that the fixed rate loans will stay that way. Laws can and will change, and the banks have lobbyists (and your money to bribe with). Third, the most valuable commodities can be confiscated. My ggfather saw the stock market would crash in 1928 and put his money in gold and land. FDR confiscated the gold, taxes took the land.
The only folks allowed to profit from hyper inflation are governments and connected people, not the common chump. We’re all going to get screwed, Tom’s suggestions provide a bit of lube instead of taking it dry.
Timing is everything, have the same issue when I buy stocks. Laws can change at any time, inflationary times, de-inflationary times, matters not, as for the government taking the land because of taxes, lots of people have lost their land in the last 20 years with no inflation.
So if Hyperinflation occurs, why would the banks foreclose on everyone’s house when they would have little or no chance of selling the house because everyone else wouldn’t be able to afford it.
The majority of the abandoned houses would be looted and become unsellable.
The mega investors will buy up the foreclosed homes, and then rent them back to the commoners. “You will own nothing, and be happy” is the motto of the communists in power.
Thoughts on student loans? I still have a LONG way to go before I pay these suckers off, and I have a feeling s*** will hit the fan sooner rather than later. I wonder what the worst case scenario would be for failing to pay such a loan. It’s not like they can “repossess” my education. Still, I can only defer payments for so long. Surely at some point men with guns will come knocking. Will I wind up in a debtor’s prison? Will prison even exist if they’re unable to feed prisoners?
What are your thoughts on owning stocks in an industry-tracking index fund during a time of hyperinflation? How does hyperinflation affect the stock market? We’ve seen inflation massively increase the portfolios of those that have money to invest… does a hyperinflation scenario change that? As a woman I’d rather own stocks than gold bricks in my basement that I have to defend (although willing).