Heading for Hyper-Inflation?
Unless you were born before 1975, it might be tough to comprehend the milieu, political climate, macro-economic problems, and even day-to-day living in a world plagued by hyperinflation. No American alive today lived through the collapse of the continental currency in 1775 or the run-away inflation of the Weimer Republic in Germany in the 1920s. Both of those events were brought on by excessive spending during wartime.
Only the few Americans who immigrated here from Zimbabwe or Venezuela would have felt firsthand their modern currency devaluations—the Zimbabwe dollar or the complete collapse of the Venezuela bolivar. The inflation rate in Zimbabwe, for example, exceeded 79,000,000,000% in 2008.
During the past few months, U.S. inflation figures are far more moderate but indicate we may be on the verge of another bout of inflation. That has the potential to change our economy, our political climate, and our lifestyle if the Federal reserve is not successful in controlling inflation by raising interest rates or taking other “hawkish” measures.
Denial, rationing, price controls, “tightening” of our money supply, and wearing buttons reading “Whip Inflation Now” have been tried in the past and may provide varying levels of relief should inflation heat up further.
Hedging Against Inflation?
Advice from the most frugal and wisest investment advisors could soon be challenged if inflation increases dramatically. Saving your “money,” for example, could be the worst option if your money is in the form of U.S. dollars or other fiat currency. Treasury and municipal bonds and corporate bonds are likely to decline in value if our Federal Reserve does move forward with raising rates five, six, or seven times, as is currently being discussed. Hard assets, particularly precious metals, have served as a rare respite during inflationary times and have enabled some investors to “keep up” with inflation to some extent if the value of paper money declines.
Buying grains, food, real estate, and fuels, though challenging to manage, should also see appreciation if inflation increases. As our post-pandemic economy emerges, watching the price of metals, fuels, and agricultural commodities could become especially interesting.
Hogs rang the bell so far this year, gaining 32%. Crude oil is up 22%. Natural gas and soybeans are up 20%. Friday afternoon, April gold traded for $1,900 per ounce, and April hogs brought $1.08 per pound. Soybeans for March fetched $16.00 per bushel, while crude oil for April delivery was at $90.00 per barrel.
Opinions are solely the writer’s. Walt Breitinger is a commodity futures broker in Valparaiso, Ind. He can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.