How to Protect Your Life Savings from Hyperinflation and Depression, by John T Reed

How to protect your life savings from hyperinflation and depression, it is a book by John T Reed in which he explains that due to the economic policies of the US government, the US could head towards a period of hyperinflation or economic depression equivalent to the hyperinflation that devastated Germany at the beginning of the 20th century (and Austria and Hungary) or the economic depression from the great depression of 1929.

Although the author’s biases do not cease to be seen (the book is from 2010, updated in 2012, and he blames the Obama administration) and is written from the perspective of an American (making the book little useful for other countries), it is true that it exists very little literature intended for personal finance in extreme situations, as is the case with hyperinflation or a strong economic depression (such as the one we are likely to experience due to COVID 19).

The book basically consists of two parts, one in which it describes how a strong economic crisis is like the great depressions or hyperinflation in the style of the Weimar Republic (or more recently the examples lived in Venezuela, Zimbabwe or Argentina) and one second half dedicated to explaining the different types of assets with which we could find ourselves in a situation of hyperinflation or deflation as well as how to survive an equivalent situation.

It could happen tomorrow

The argument of the book is that the high level of indebtedness of the US (and other countries) with respect to GDP could bring about a bankruptcy of the United States (and possibly other countries), which, although we haven’t seen many recently, are not so uncommon in history since the Roman Empire. Even countries like Argentina that were once among the richest in the world in terms of GDP per capita have ended up causing sovereign debt crises or hyperinflation later. With which, the hypothesis from which the book starts is that both the US and other countries (which includes a good part of the Euro Zone) would be destined for a crisis in which investors stopped lending to the US government. Something that also it is feared that it could happen to us in Europe.

In this situation, a government would have no choice but to take two paths. One would be cut or even default on your sovereign debt or a combination of both that would lead to a strong economic crisis with deflation. The other option would be to print money as Germany, Austria and Hungary did between the First and Second World War, or many other countries such as Venezuela or Zimbabwe have done more recently.

Although many serious economies such as the US or the Euro Zone have many provisions to prevent uncontrolled money being printed (as recommended the current minister of consumption), it is true that currently due to the policies of Quantitative Easing from the Fed and of LTRO of the ECB the money supply has been greatly increased by central banks.

In these situations, governments tend to act in ways that tend to harm the population. There is also a strong impact on many aspects of our daily lives, such as food or taxes. In fact, an interesting phrase is that to survive it ends up being necessary to skip the law, since it prevents doing the things that are necessary (accumulating, having a foreign currency or gold …) Finally, in this first part, it recommends following the different existing inflation rates , as well as its adjustment to our consumption. Even monitor and build one to fit our needs.

In the second part the author comments on the different assets that can be had in case of a situation of hyperinflation and economic depression, recommending some and recommending getting rid of the others before an extreme situation in the economy could come.

Non-recommended assets

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  • Bonds: especially since at a fixed yield under hyperinflation its value at maturity would be almost nil, an exception could be bonds indexed to inflation or TIPS.
  • Actions: because it is not very clear what could happen in such a situation (although it is not the worst asset you can have).
  • Oro: apart from its price evolution (for example, in 2012 it did not have a purchasing power equivalent to that of its peak in 1980) because it may be requisitioned by the authorities (as Franklin Delano Roosvelt did in 1933 with Executive Order 6102). If you recognize the advantage as containing high value density.
  • Other raw materials: He is not as reluctant here as he is with gold, recommending small-denomination pre-1965 US coins that have a high silver content.
  • Bank deposits: those not insured by the FDIC (equivalent to the Spanish FGD) would be even more risky in the event of a crisis that made banks fail. In the case of Spain we have seen this with the preferred shares of the Savings Banks.
  • Pension plans and equivalents: because they may be illiquid and because some states in need of liquidity for the public pension system have intervened.

Recommended assets

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  • Everything you will need throughout your life: such as long-lasting food, soap, razor blades, etc. Under these circumstances in deflation we could find that we have paid more, but in hyperinflation we would not be affected as much by the increase in prices. If you recognize that it is quite complicated, like food that ends up expiring.
  • Real estate: they are a long-term coverage, since their value in use remains (especially for the first home). A mortgaged homeowner would find himself heavily benefited from hyperinflation if his income increases at the same rate, as his debt would be reduced to next to nothing. However, they do not solve the problem in the short term.
  • Agricultural holdings: Farmers had a much better time in the great depression after the 1929 stock market crash and also in hyperinflation in Austria.
  • Assets for barterAlthough it is not recommended because it is inefficient, it is true that having products in demand could be useful to obtain other things that we need. It could be razor blades, socks and underwear, condoms, canned food, toilet paper, seeds, salt, etc. Only what we use ourselves, so in the worst case we simply have supplies for several years.
  • Inventories of our business.
  • Foreign currency: in banks in other countries since at home we could be forced to deliver it. Recommending those countries whose debt-to-GDP ratio was less than 60% and a low rate of corruption from international transparency. With which are Australia, Denmark, Canada, New Zealand, Sweden and Switzerland. Combined with the possibility of leaving the country, it could be the best way to survive a hyperinflationary crisis.
  • Assets that could survive a bankruptcy filing: For example, in the US some assets such as wedding rings cannot be seized, so the best thing to do would be to buy a very expensive one and keep it in the safe. However, I think this part is not well researched as We have already told here about the maintenance of the value of jewelry. In Spain you have to look unattachable assets according to article 1911 of the civil code and article 606 of the civil procedure law.

In short, a book that deals with an event that might be unlikely, but also tries to provide solutions at the level of our family economy. Something that is not usual, since most of the personal finance books tend to focus on normal situations and the books that deal with extraordinary situations do not usually go down to the level of personal finance.

Ask the readers Do you think there may be a situation of hyperinflation or economic depression soon? How do you think they should protect themselves in this regard?


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