Not hoping for a collapse
While, in a USD hyperinflation scenario, the trade could be great, everything else would be a disaster. Even if the trade makes money in a USD hyperinflation disaster scenario, it is very possible that there will be nothing available to buy as supply chains collapse due to disruptions of the companies in those supply chains. It is not something I look forward to but I do not see how else this all ends with all levels of government piling on more debt, even bringing in central banks to help or supranational entities, like the ECB, to keep piling on the debt; all of which is debasing currencies around the world.
I would like to see a scenario where the USA runs a small surplus and pay off its debts over several decades, along with the state and city/town governments, but that is never going to happen with the current political climate. It would be nothing short of a small miracle if all levels of government would just balance their budgets instead of piling on more debt to support the current levels of spending. Instead, it looks like the only way it will ever stop would be if people would stop buying the debt, which the governments get around by having the ECB or Federal Reserve buy the government debt when no one else will or can.
From looking at the writing of what happens in hyperinflation countries, it looks very bad situation to be in, even for those people that do have money or have something of value, like a business or farm.
While I do not think a USD hyperinflation will be as bad as some part ones, there are two stories that show what could happen and they are both available as a PDF download:
1: When Money Dies: The Nightmare of the. Weimar Collapse by ADAM FERGUSSON. WILLIAM KIMBER
Details the disaster of the hyperinflation of 1922 to 1924.
2: Blockade by Anna Eisenmenger
Details living in post WWI and the hyperinflation that followed.
Some observations from both sources and how it would relate to a USD/CAD hyperinflation scenario with effects on Royal Bank of Canada.
1: Large part of RBC business is with the United States. Business activity can be expected to collapse for a period of time and it would effect RBC. Another problem is that most loans in the United States, in CAD, would probably be uncollectible. Loans made in USD would probably become worthless. While the loans would probably all get paid, the currency would be worthless and the effect would be the same as the loans had defaulted. (i.e. In my opinion, there is no difference between a loan made in CAD in the United States, that can’t be paid since the USD declined in value that the company/individual needs to make the payments AND a loan made in USD, while the loan will be repaid, the value of that loan will be about zero.)
2: There appears to be no where in he world that is not debasing their currency. It appears that just about every government on the planet is debasing their currency. The only saving point is that they are all doing it at different rates, and one currency rises against another only because that one is falling slower than the other. So far, CAD did weaken against the USD recently, but that appears to be mainly due to problems with low oil prices and not a problem with government spending in Canada. (Canada appears to be going broke at a slower rate then the USA, so its currency, over time, should rise. If both were compared to something like gold, I expect you will find that both a falling in value, one faster than the other.)
3: Some of the things seem so bad as described in periods of hyperinflation that it might be better to just move out of the problem country until things improve. In both sources I list above, they relate to things happening like:
A: People who tried to stockpile supplies were not allowed to do so. Those that did and someone found out, had to share the stockpile with these other people or else they would get reported.
B: Avoiding roads to avoid being robbed from roving mobs looking for the basics necessities of life.
C: Unable to properly heat their homes or at best, only having enough to heat one room.
D: Rationing being useless. Many times the ration allotment was not available. The other problem is that some of the food handed out some people found they could not digest. I use to think that when one got hungry enough, people would be able to eat anything. Instead, in Blockade, Anna relates to how some people simply could not digest some of the maze bread that was handed out.
E: Thinking that things were going to get better. One constant theme was that people thought that things would be better within a short while, only to have the problems drag on and on.
F: People who were ‘set for life’ being completely wiped out. They relate stories of people who would have normally had a very good, upper, middle, class life. Instead, when it was all over and things returned to normal, they were broke and had nothing.
I would prefer to be in an economy where people are making money because there is real growth, real savings, real profit and real wealth, not because I bought foreign holdings and ended up with a huge windfall in USD because I did the ‘hyperinflation trade’. That world will be a miserable one to be in, especially with business activity collapsing and goods disappearing but with all this debt piling up, but I do not see how it ends any other way.
We have had seven years since the disasters in 2008 and none of the institutions/businesses/governments have done anything to save up reserves, or pay down debt. Instead they have piled debt on.
At the moment, I am expecting we are going to have a replay of 2008 in mid to late 2016. I do not know if ECB or Federal Reserve will be able to bail us out this time, since the Federal Reserve already has about $4 trillion in bonds on their balance sheet. They run the risk of setting themselves up to be insolvent with all of the bonds they have bought if interest rate rise. Hopefully, I am completely wrong and in summer 2017 we can all laugh at ‘what an idiot I was’ and how ridiculous I seemed to be concerned about such a thing.
Louis J. Desy Jr.
AI
