QUESTION: First, thank you for your insights on the economy and investing. Your track record is amazing and I’ve come to rely on your views as an accurate lens of perspective towards our current and upcoming troubles.
I have a basic question about the upcoming hyperinflation…
If we experience a bout of hyperinflation similar to that seen in other fiat currencies over time, which will be more important: holding a job during the inflationary period or quit/retire in order to remove assets from the system and invest them in traditional stores of value such as precious metals and real estate? I’m specifically talking about my 401K and pension with my current company. I’ve recently turned 55 and can retire. In fact, that’s the only way I can take any more out of my 401K or get my pension. I’ve already removed every penny I can from the 401K and even paid the early withdrawal penalty just to be able to get it off the books and secured away in a store of wealth.
If I quit/retire, I’m not yet in a position where I can not work so I will need to find other employment. However, I’m not willing to just hand over my retirement funds to the government through confiscation or erosion of principal via inflation.
I’d appreciate any insights you have on this.
Thanks
Brian
ANSWER: The hyperinflation takes place only in countries without bond markets and have been typically the interim revolutionary government as was the case in Germany. The reason why hyperinflation takes place is because there is a new government that typically repudiates all debts of the previous. Even the USA when through such a period with the transition from the Continental Currency to the US dollar that was swapable into bank shares at 100:1.
When there is a government in place, what you end up with the Draconian attack against all resources of the people. This results in the collapse of the rule of law, rising taxes, and asset confiscation. This is how great empires collapse. This is what we are going through currently.
The government is sucking up a larger and larger share of national wealth. November 1st, you will see the first cut in food stamps. Entitlements are curtailed. The government will not simply print money to meet promises. They default on those promises just as we see plans for BAIL-INS taking depositor’s money rather than BAIL-OUTS as was the case following 2007.
This period is extremely hard to predict because the rule of law is collapsing. Privacy is under threat and they are hunting down every penny. When Hitler outlawed Germans having accounts outside of his reach, the Swiss passed their secrecy laws in 1934. Today, the Swiss government has given up everyone and has lost its real sovereignty in that regard where not even Hitler acted so recklessly as has the USA, Germany, and Britain not to forget France. They are all attacking the Swiss and demand their pound of flesh.
The system will flip to asset inflation as capital begins to leave the public sector. But this is not DEMAND led inflation inspired by consumers, but Asset Inflation caused by a shift in strategy. There is also Currency Inflation where by assets rise because they are undervalued in the eyes of foreign capital. Both of these are distinctly different from the classic DEMAND led inflation because the economy is doing well and that manifests in an increase in buying power.
The deflationary aspect is also three-dimensional. Classic Deflation by definition is declining prices concurrent with Monetary Restraint Deflation in a Keynesian system whereby government deliberately attempts to prevent a boom in some sector. When a currency rises too high, a nation is unable to sell its goods overseas and thus prices are too high relative to the international value causing discounts and price declines creating Currency Deflation. Then there is the normal Demand Deflation that unfolds because of an economic decline resulting in a collapse in demand and uncertainty emerges.
We are really trying hard to address the confiscation of pension funds. This is a serious risk and part of this deflationary atmosphere where government is sucking up everything it can. I would not retire. Withdrawing funds from a 401K may be an option. But that is premature just yet. This monumental question will be address. What will be the best solution is not yet identifiable.
