Preppers are sometimes unclear as to the nature of the contingency for which they prepare. Hyperinflation of the U.S. dollar is likely. Natural disaster in a city is less likely. Global crash of Western civilization is unlikely. How you prepare for each scenario is different. This essay presents advice for the first contingency. You are on your own for the other two.
Hyperinflation of the U.S. Dollar
The price of gasoline has not risen in 48 years. In fact, it has fallen. In 1964, you could buy a gallon of gasoline for 35 cents–a quarter and a dime. Today you can exchange that same quarter and dime (made of 90 percent silver) for over $8 in cash at any coin dealer or pawn shop. Those very same coins today will buy over twice as much gasoline as they did back then. The price of gasoline has not risen. It is simply that U.S. money, both paper and coin, has become increasingly worthless through inflation.
For over 20 years, U.S. currency has lost between 2 and 3 percent of its value every year. This is higher than today’s bank interest rates in the United States and in Europe. Any money that you save, whether in a savings account, a CD, a safe-deposit box, or a jelly-jar buried in your back yard will slowly evaporate. Save your money in a bank account or CD and you are merely paying the bank to use your money. You will receive less buying power when you take it out than when you deposited it.
The causes of today’s negative real interest rates are complex, involving Western governments’ economic stimuli, wealth-redistribution, and deficit spending policies. But causes are irrelevant. What matters to you is the impact. Real interest rates cannot remain negative indefinitely. If the United States alone suffered from negative interest rates, Americans would move their wealth from dollars to Euros, or to pounds sterling. But since the problem is global, they must shift their wealth from money to commodities (land, oil, precious metals). Whenever and wherever real interest has become negative in the past, the consequent loss of confidence in currency has produced runaway hyperinflation–a crash in currency value steeper than 50 percent per month.
Let me describe the impact of hyperinflation from first-hand knowledge. Mary Lee and the kids and I lived in Brazil in the 1960s and early 70s, during a period of hyperinflation.
The bad news was that store prices increased every day. Restaurant menus did not show prices, so you had to ask when ordering. It would have been stupid to keep more than one week’s needed cash on hand or in a checking account because it would evaporate faster than you could spend it. Anyone who owed you money delayed paying until the last possible moment. Anyone to whom you owed money hounded you mercilessly from day one.
The good news was that hyperinflation had little impact on daily life. Employers adjusted your every paycheck upwards to keep pace with the consumer price index (CPI). Banks paid interest plus CPI adjustment (about 50 percent) on your monthly balance. Big-ticket salesmen (cars, appliances) would quote a price, but it was mutually understood that if you took more than a day to decide, your purchase price would be adjusted upwards by the CPI. The invoices that you handed to your clients included the statement that net amount due would depend (via the CPI) on how many days they took to pay. Finally, to reduce the inconvenience of carrying bushels of paper money, the federal government redesigned the artwork on the nation’s currency every so often. They then decreed that each new-design cruzeiro bill would be worth a thousand of the old ones.
In short, within a year or so of the start of hyperinflation, everyone learned to use a currency that continued to lose half of its value every month. No disruption. No societal collapse. No zombie packs.
If the United States were to enter a similar period of hyperinflation, there is no doubt that Americans would eventually adjust to it, just as Brazilians did 40 years ago. Commercial disruption would likely last no more than a year.
Two Problems, Two Solutions
During the period of adjustment, you will face two different problems demanding two different solutions. First, vendors (stores, restaurants, gas stations) will be reluctant to accept increasingly worthless dollar bills or coins. Second, until things settle down, any money that you have saved will also be worth less and less.
For the first problem (immediate purchases during the period of adjustment), I recommend that you right now buy a bag of pre-1965 dimes, quarters, or half-dollars with a face-value of $500 or $1,000 from any reputable coin dealer. (Personally, I like Northbridge Precious Metals Group.) A $500 face-value bag will cost you about $12,000. In the worst case, if hyperinflation hits, the coins will be instantly recognizable as U.S. money. Within a few days, every alert restaurant, retail store, and gas station will realize that each silver dime is worth about $2.40 (in November 2012 dollars), each quarter about $6 and each half-dollar about $12, and that their buying power will remain fixed even as the currency collapses. Best case, if hyperinflation never happens, you can sell them back to any coin dealer for more than what you paid for them. (Indeed, for more than what you would have gotten had you put the $12,000 into a money-market account or CD.)
For the second problem (long-term safety), I recommend putting 25 percent of your savings into gold. The advantage of gold over silver is that gold has less bulk. You must carry $10,000 of silver in a 27-pound bag, but $10,000 of gold is just 5 or 6 half-dollar-sized coins. I prefer Krugerrands because they are more rugged than Buffaloes or Maple Leafs, and just as recognizable to dealers. Eagles also are durable, but command a slight premium. Of course, you cannot use gold coins as currency. You will eventually have to exchange them with a coin dealer or bank for whatever form of money people are using once the adjustment period is over. Again, best case or worst case, you can always sell gold coins to a dealer for more than you would have gotten had you put the cash into a money-market account or CD.
Notice that I said nothing about food, water, medical supplies, guns, nor ammunition. Having lived through seven years of hyperinflation and currency collapse with a wife and three kids, I can assure you that after a brief period of adjustment, society keeps chugging along as normal. U.S. society is at least as resilient as Brazil’s. Since everyone wants to keep commerce flowing, it should not take long for Americans to come up with creative versions of easily carried money, or ingeniously to adapt to using paper currency even as it collapses.
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Frank W. Sweet is an NRA-certified firearms instructor who teaches the safe and effective use of handguns for self-defense. He was awarded an M.A. in Civil War Studies in military history from American Military University in 2001. He is the author of Legal History of the Color Line (ISBN 9780939479238), Six Gems of Forgotten Civil War History (ISBN 9780939479023), and of numerous published historical essays. To receive a schedule of his firearms training courses, email to firstname.lastname@example.org. The information above should not be construed as legal advice.
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