The Time to Prepare for Hyper-Inflation is BEFORE It EXPLODES

Phoenix Capital Research's picture


This is a
continuation of a series of essays I wrote concerning the global shift away
from the US Dollar as reserve currency. If you missed those essays, a brief recap
of the items listed were:


1)   China
and Russia dropping the US Dollar for trade

2)   China
ramping up trade with Brazil

3)   Saudi
Arabia moving to strengthen trade with China and Russia

4)   China,
Russia, Brazil, India, and now South Africa are moving to trade more in their
own currencies (not the US Dollar)

5)   Singapore
(major financial center in Asia) starting to trade yuan


All of these
items are real and documented. And the pace of the move away from the Dollar as
reserve currency is not slowing.


Indeed, it
was just revealed that ASEAN+3 countries (Brunei, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam, China, Japan,
and South Korea) are researching the prospect of a “common currency” similar to
the Euro.


significance of this development cannot be overstated. The primary question
those who do not believe the US Dollar could lose its reserve currency status
ask is: what will be the replacement?


For certain
there is no one currency that could fit the bill. The Chinese yuan could not do
it as China is not ready and in fact ready to suffer a housing and banking
collapse. Russia’s economy is a disaster aside from a few key areas (Moscow, St
Petersburg, etc), the Euro in its current form won’t even exist in a few years,
and Japan is both an ecological and financial disaster (they’ve just announced
a 1 QUADRILLION stimulus plan.


Thus, the
idea that any one of these currencies could replace the US Dollar as reserve
currency of the world at this time is absurd.


However, a
common currency comprised of most Asian countries (the primary creditor nations
and manufacturing base of the world) is a completely different story.


I am aware that common currencies in general are flawed (especially when you’re
uniting a bunch of bankrupt aging countries like Europe). However, a common
currency comprised of Asian countries would
overcome be a much more viable alternative to the US Dollar as reserve currency
of the world.


The reason
for this is that a common currency in Asia would get past the individual risks
of any one Asian nation’s currency (Thailand and Japan in particular are a
mess) at least in the beginning.


ultimately a common currency there would prove as futile as the Euro. However,
it would serve as a “stepping stone” in the process of finding a replacement of
the US Dollar as world reserve currency.


What I mean
is that should a common currency be introduced in Asia, it would probably work
for about 10-15 years. By then we’re well into the 2020s if not the 2030s at
which point it is quite possible China will indeed be in a place to provide a
world reserve currency on its own.


I wish to
stress that even if Asia doesn’t
implement a common currency and the US Dollar remains the world’s reserve
currency (I put the odds of this at 20%), we are still facing a debt default in
the US which will result in the US Dollar dropping dramatically in value and
ushering in serious if not hyper-inflation.


Indeed, most commentators fail to understand the real reason
Weimar Germany suffered hyperinflation. Niall Ferguson’s book, “The Ascent of Money”  explains that it was in fact a
political mistake that ushered in hyperinflation:


Yet it would be wrong to see the
hyperinflation of 1923 as a simple consequence of
the Versailles Treaty. That was how the Germans liked to see it, of
course…All of this was to overlook the
domestic political roots of the monetary crisis
. The Weimar tax system was
feeble, not least because the new regime lacked legitimacy among higher income
groups who declined to pay the taxes imposed on them.


At the same time, public money was spent recklessly, particularly on generous wage
settlements for public sector unions
. The combination of insufficient
taxation and excessive spending created enormous deficits in 1919 and 1920 (in
excess of 10 per cent of net national product), before the victors had even
presented their reparations bill… Moreover,
those in charge of Weimar economic policy in the early 1920s felt they had
little incentive to stabilize German fiscal and monetary policy,
even when
an opportunity presented itself in the middle of 1920.


A common
calculation among Germany’s financial elites was that runaway currency
depreciation would force the Allied powers into revision the reparations
settlement, since the effect would be to cheapen German exports


What the Germans overlooked was that the
inflation induced boom of 1920-22, at a time when the US and UK economies were
in the depths of a post-war recession, caused an even bigger surge in imports,
thus negating the economic pressure they had hoped to exert. At the heart of the German hyperinflation
was a miscalculation.


similarities between the US today and Weimar pre-hyperinflation are striking.
As in Weimar, US fiscal authorities are not taking any steps to rein in their
loose money policies. Similarly, the US Fed, like Germany’s financial elites
believes that currency depreciation is a good thing.


Thus we have
a rather frightening set-up for hyperinflation in the US: the largest emerging
market players are moving away from using the US Dollar at the same time that
US monetary authorities are engaging in disastrous policies similar to those
employed by the men who brought hyperinflation to Weimar Germany.


I firmly
believe the US will see serious (‘70s style inflation) if not hyperinflation
within the next 2-3 years. It could come sooner depending on how the Fed’s
policies play out.


On that
note, if you’ve yet to take steps to prepare your portfolio for the coming
inflationary disaster, our FREE Special Report, The Inflationary Holocaust explains not only why inflation is here
now, why the Fed is powerless to stop it, and three investments that absolutely
EXPLODE as a result of this.


All in all
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steps to prepare AND profit from what’s to come. And it’s all 100% FREE.


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PS. We also
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collapse in the US stock market (inflation will NOT be positive for stocks for
much longer).


I call it The
Financial Crisis “Round Two” Survival Kit
And its 17 pages contain a
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how to take out Catastrophe Insurance on the stock market (this “insurance”
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acrabbe's picture

hyperdeflation is a mathematical certainty at this point. hyperinflation is a 99.9% probable reaction based on historical socio-political patterns and monetary policy. in feudal times a new king would absolve the peasants and lords of debts to the old monarch. Today we have an oligarchical system perpetuated by global empire began long ago by the british and/or their zionist/khazarian/alien/machiavellian/evil/etc leaders.

There's a chance they would allow hyperdeflation to overwhelm the entire world, but I doubt it, because that would guarantee billions of deaths. If that happens, then all of this gesticulation is moot because we will all be fucked. even the survivalists. It would be a real mad max. The only survivors would be in the DUMB's and people with millions of dollars who purchased old missile silo security residences.

No More Bubbles's picture

Billions of dead is exactly their goal. 

acrabbe's picture

based on US socio-political patterns from the 20th century hyperinflation is the most probable politico-monetary reaction to the most logical conclusion which is hyperdeflation due to exponentially increasing interest expense on exponentially increasing debt and stagnant and slightly NEGATIVE credit growth. a keynesian system built on a debt-backed reserve currency is DESIGNED to implode. hyperinflation is just the reactionary outcome of a central bank system that has the power to print legal tender into existence.

steve from virginia's picture

I think it's funny calling 'Hyperinflation' when so many people are flat broke.

When so many places (in America) are falling into ruin. When 'real' business is struggling and wages are stagnant or falling.

Where jobs are still flowing overseas and immigrants are still flooding into the country looking for the American Dream (of dishwashing) @ $5/hr.

It's funny when the only growth industries in the US is food stamps and the 'poverty effect'. It's funny where real estate prices are cratering and mortgage lending for new houses is slowing to a crawl.

The problems in the world are long- running and structural, not a matter of funding legacy debt. The latter is a symptom of breakdown, not the cause which derives from the repricing of necessary inputs such as crude oil.

A consumer/crude oil or 'waste- based' economy can only function when input costs (capital) are production- plus a small markup. Relative scarcity reallocates credit away from consumption (GDP) and uses it to reprice capital into an 'investment'. At some point capital repricing renders the input too valuable to waste.

Capital repricing isn't inflation, it's more of a 'phase shift'. Repriced crude is worth more in a storage tank (or in the ground) than it would be burned up in an SUV. When the capital input takes on money characteristics, the reverse also becomes true: money and the input are equivalent, with one becoming the proxy for the other.

Crude prices are increasing because demand cannot be satisfied by current or near term- future supply. Demand is amplified by credit which cannot be serviced by returns from use of the fuel. We have been 'too efficient' @ stripping our resource base.

How does inflation figure into this? If nominal prices for inputs increase beyond the credit- carrying capacity (not servicing ability) demand is destroyed along with credit formation structures. It's not the liabilities on the balance sheets that are destroyed, it is the balance sheets themselves. The destruction of capital on balance sheets parallels the destruction of 'natural' input capital.

For those who think 'fiat money' is evanescent, consider the trillion barrels of extremely valuable crude oil which have been made to 'vanish'.

Overly- high nominal input (crude) prices are self- correcting so large nominal prices are impossible to achieve. This is the nominal oil price 'upper bound'. @ the same time, the debt distortions required to bid prices to high nominal levels are also self- correcting as credit mechanisms/balance sheets are annihilated by deleveraging.

High inputs effect the weakest (credit) links in credit structure, not the strongest. USA finance won't fail but European sovereigns will fail instead. (Note that Eurozone's deadbeats are also Eurozone's energy deadbeats.)

Hyperinflation is a currency- not a credit phenomenon. USA is too indebted, has no savings and too much labor slack. Money supply is contracting compared to claims made against the currency. The US is a currency mono-culture with no currency black market (as was the case in the Weimar Republic). Everyone's broke!

China has hyperinflation: it has a tight labor market, large amounts of savings in currency (to steal) multiple currencies in circulation in a large black market and galloping money supply. China's elites are borrowers ('investors') who gain by hyperinflation. The giant China real estate bubble is a hedge against yuan inflation, as are most/all real- estate bubbles.

After (inevitable) deleveraging what sort of currency will emerge is unknown. It's fun to speculate but ... a waste of time.

CompassionateFascist's picture

Equally interesting is what stopped the early 1920s hyperinflation in Germany: Adolf Hitler's Munich Putsch. The uprising failed, but it frightened the bankers into issuing a new mark, backed by gold. Coming soon, to an America near you....

Smokey1's picture

Shallow effort to scare up more subscribers.

Bam_Man's picture

France seizing and occupying the Ruhr/Rhineland (Germany's industrial center) was a major contributing factor to the hyperinflation. Where in the US hyperinflation thesis is the analogue to Germany losing 50%+ of its industrial capacity?

CompassionateFascist's picture

Analog: the last 30 years of "Free Trade", during which most of our industries were exported to foreign sweatshop economies.

Troublehoff's picture

agreed - that's my take too

the allies knew the reperations were unpayable

the US has something in surplus that will always be worth a lot - agriculture, land, tech companies and a not insignificant oil reserves.

I'm expecting high inflation but not hyper-inflation and i dont think wages will keep pace..

i.e. the mother of all stagflations

AGuy's picture

The Tsunomi of Entitlements is approaching US shores. Politiions that try to cut entitlement will quickly be voted out of office (if not tar and feathered or Lynched), leaving only the politicans that promise bigger payouts as the value of the dollar falls. Watch as see the distruction of the United states into the Divided states of America.



vocational tainee's picture

By june next year the dollar will have lost another 30% of purchasing power..

Troublehoff's picture

By june next year the dollar will have lost another 30% of purchasing power..


Possibly so - but I'm not sure i'd define that as run to the shops on payday, wheelbarrow for your money hyper-inflation


i see how it can be a slippery slope once people lose faith and the velocity of money spikes.

if that happens we may get another Volcker style interest rate KILL or maybe it wll be too late?



Transformer's picture

Hyperinflation is already baked into the cake.  It cannot be undone at this point.  Perhaps delayed a bit, with currency revaluations, etc., but at this point it is already a given. QE3 will continue one way or another, because the government has no choice.  Did you know that Germany had almost no inflation for a year and a half leading up to July 1922, and by the year end had experienced almost a ten times increase in prices?

You don't have to focus on Germany, there are other hyperinflations to study.  France in the 1790's, Chile, Argentina, Zimbabwe, Belarus, Brazil, Mexico, Hungary, this is not rocket science.

It's very simple to see the coming loss of confidence in the dollar.  Just look at us here on ZH and the numbers of people who are waking up all over the country.  They are waking up to the entire financial/political situation which also includes the FED and the dollar.  Almost everybody has now figured out that the Gov lies about inflation.  The US Gov and the dollar are synonymous.  It's already happening.  People storing food and other staples/survival gear know that the prices of these things are going up very quickly.  Best to buy now.

How long do you think it will take for the story of the worthless dollar to go viral in the US, once it reaches critical mass?  The Bernank won't even have the 15 minutes he says it will take him to fix it.

If you have gold and silver to survive the upcoming collapse, you better also plan for the hard times that come with it.  If you have to spend your PM's to eat and survive, that simply means you didn't plan very well.

The one factor that will make this hyperinflation different is that it is the whole world that will be affected, not just a single country.

Bam_Man's picture

France seizing and occupying the Ruhr/Rhineland (Germany's industrial center) was a major contributing factor to the hyperinflation. Where in the US hyperinflation thesis is the analogue to Germany losing 50%+ of its industrial capacity?

AGuy's picture

How about China and India. While they haven't seize the land under the factories, they still moved production overseas. The US has already lost more than 40% of its manufacturing capacity since the 1970's, and more and more manufacturing moved overseas (first to Japan and Mexico and Korea, Now China and India).



Fiat2Zero's picture

Wait we have industrial capacity? Where is it? Quick, someone start the factories back up so we can start printing some exports...

acrabbe's picture

Something about Niall Ferguson's premise for Weimar hyperinflation strikes me as off. I haven't read his work, but I suspect he is nt an Austrian, since he is a Harvard man (?) and thus is establishment. I could be wrong on this, and am willing to risk being wrong and not google him. I will have to circle back to this in a few hours, so I may be mistaken in my haste, but I do believe the cause of Weimar had more to do with the mathematical sinkhole of exponentially increasing debt service combined with political paralysis, much less to do with any miscalculation of export/import effects. Debt was the major factor, not trade deficit. Sinclair and Von Mises should be looked to when looking for accurate analysis on Weimar.

I think it's a mistake to reference a keynesian like ferguson on weimar, and the evidence is in his analysis.

Of course, hyper- inflation/deflation all depends on a deep agenda that none of us are privy to. hyperinflation does require them to print trillions in order to offset the massive credit destruction taking place as a result of the loan creation machine (housing) having a hiccup. They haven't been able to create any replacements (weather derivatives, etc) in time and their OTC machine is flawed due to non-standardized contracts. Therefore no clearing mechanism possible. The natural forces are hugely deflationary. The Fed and/or Treasury and/or BIS has to actually commit to printing untold sums of money. QEx.

Transformer's picture

I disagree.  Hyperinflation will start from a lack of confidence in the dollar.  People will want to get rid of their dollars in exchange for something of value.  Velocity will go way up, thus hugely increasing the effective amount of money in circulation.  THEN, as prices quickly start rising, the goverment will "print" lots of money, because the elites will demand it (bailouts), and so the government can continue to function.

Most people do not understand the mechanism of hyperinflation.  The sequence is:

1. loss of faith in fiat

2. velocity greatly increases, having the effect of increasing money supply

3. gov increases supply of fiat, to survive, and to pay the debts owed to the elites who do not lose

4. repeat 3 and 4.

acrabbe's picture

we do not totally disagree. it's a cycle. the loss of faith occurs due to the printing into existence of large sums of fiat in reaction to the exponentially increasing interest costs on exponentially increasing total debt. it's circular, there is no absolute beginning, save for 1913. The loss of confidence is in process currently.

cranky-old-geezer's picture

Ultimate destruction of the US dollar will come by collapse of confidence, irrespective of M2 (M3 actually). 

No chart I've ever seen accuately measures confidence in the currency, not even gold & silver spot, since they're suppressed.  Even if there was such a chart it would be useless in predicting confidence going forward since confidence can evaporate overnight (what typically happens).

Deflationists look purely at charts while ignoring macroeconomic / political / geo-political factors affecting confidence in the currency.  This is their Achilles heel.

Fiat2Zero's picture

I have to agree. Dollars are a good like any other, where supply and demand determine the "price" (in this case we'd have to use an alternative measure of price, like PMs or oil).

Supply goes up with the printing. But demand will fall very fast as people lose faith in the currency. The demand will go up for other stores of value.

When supply is going up fast and demand is falling, the value of the dollar (or any currency) will tank.

MarketFox's picture

Yeah....I know what you mean....

But the selling of the $ and the hatred is at a very high level....relatively already....


The press has been long time saturated with it.....and if there ever was a one sided is one of them.....


Usually this is a GS public distribution type setup....


And selling ¨Book Press Label  Fear¨is an old game too.....


And the other countries are not offering very promising options....




One thing for 24 months .....we are all going to find out.....




MarketFox's picture

Demographics are going to play the big role in the US....


The baby boomers are going to be doing one thing....SAVING....


Who is going to replace them.....




As confusing as it is out there.....this is what it boils down to....


The total money availble in credit and equity is being decimated.....and is not coming back....


This is not a flex back situation....this is a 20 year plus ordeal.....


All you need to know is that if the economy has 50% of the credit and equity that it used to have.....that the supply of US$ is cut down by 50%.....


Where can prices go.....


It does not get any simpler than this.....







geno-econ's picture

Or perhaps DSK meant he only has $ 2million in $US dollars available for bail but substantially more in gold, silver ,other currencies, stock ,RE ,etc. How those bankers and lawyers lie.

geno-econ's picture

Where's the hyperinflation.  DSK claims he is worth only $2 million, unless he means purchasing power compared to 20 years ago . Amazing how the bankers rape and lie.

ParaZite's picture

Rats jumping from a sinking ship. Makes sense to me. You might want to do like Leo did on the titanic and follow the rats to safety... just a thought. 

Hacked Economy's picture

Aren't those the banksters?  Will I have to wear a bright orange vest so the vengeful hunters won't confuse me for a rat on the run?

bbq on whitehouse lawn's picture

The US dollar was the common currency.

The Euro was to be the next common currency.

Gold will be the only common currency left standing.

Maybe Silver in South America.

Gold is the only currency set up that individual currencies can devalue against and still be politically viable.

Everyone knew that if the euro failed as a go to currency that gold would take its place. The euro has failed in all but name.

Hacked Economy's picture

"Was" is the operative word regarding the Euro.  It's fighting just to stay above water now. 

BeerGoggles's picture

Ask Graham Summers about his recent trades! Mua ha ha

famousamos's picture

Get ready to party like it's 2008, or at least enough to spur QE3. Temporary defation bitchez!

catch edge ghost's picture

Or. A formal international monetary unit with weightings To Be Announced.

Christmas Pie, bitchez.

Thumbs in.

MarketFox's picture

The US$ went down big already in real terms .....especially since 2002 versus commodities.....


A large portion of the previous monetary dilution was because of massive private debt .....over $40 Trillion.....


Massive debt destruction means that a gigantic supply of US$s will be wiped away as well....


It was not printed money that diluted the US$ so was massive private debt.....


Let´s say the FED prints $4 Trillion and $20 Trillion in debt destruction occurs....

And the baby boomer demographics are what made massive borrowing-dilution possible before.....and henceforth the baby boomers are not going to be spending as they once did.....nor will their children be paying top dollar for their homes....


The reality is that a massive supply of US$ is going to be wiped away....regardless of Bernanke......

Thus what does one do....


Sell US stocks

Sell US commodities

Sell metals

Sell oil



Cash will be number 1 in the future....and it will be in US$......because the US$ will be back in vogue in a big big way.....

Don´t believe it....


Just revisit these comments in 24 months.....



AGuy's picture

"Let´s say the FED prints $4 Trillion and $20 Trillion in debt destruction occurs...."


Your making the poor assumption that the Fed will print $4 Trillion. The Fed has already printed more than $23 Trillion if you include the guarentees they provided to back stop paper assets. The Fed will print and print until the ink and paper supplier say "No Mas" to US dollars.



RockyRacoon's picture

You're saying I should sell all hard/tangible assets and keep as much in fiat dollars as possible?    Should that be in my local S&L (I don't use "banks") or should that be actual paper under my mattress?   Is there no alternative to actual cash?  Period?

falak pema's picture

so rocky do you make harsh guttural sounds when you get hungry?

(see thread above).

Hacked Economy's picture

I have mostly physical silver, plus some actual cash (in FRNs) set aside in a safe place.  I think most of us here on ZH have the same idea.

Having some cash on hand is a good idea in case of a bank run or extended power outage (in which case the ATMs won't work).  That happened here in my home town a couple of years ago.  Most of the local businesses couldn't operate because their checkout stands were all computerized.  The few smaller businesses that stayed open (without lighting LOL) accepted cash...but you had to HAVE the cash on you of course.

I agree that it's always a good idea to get out of debt, but I disagree that any major portion of your holdings should be in cash.

Lndmvr's picture

Better have the right change cause the high schoolers won't have the resister to make the correct change.

MarketFox's picture

Tough to do.....but the way it is.....


Get rid of all debts.....and SAVE.....


tired1's picture

I was told of a guy in Russia just post USSR who was able to borrow a loarge some of money with which he purchased a business. After hyper-inflation hit he was more than happy to pay off the loan with the next to worthless rubles. I think that's what is in store for the US, just a matter of when...

akak's picture

Your profound mistake, and the mistake of all clueless deflationists, lies in assuming that because the dollar is issued as debt, that therefore ALL debt is also money --- it is absolutely NOT.

By your absurd "logic", the vast expansion of credit in the last 20 years should have already led to hyperinflation, or at least a vast, many-fold increase in inflation over that period --- yet I note that nothing of the sort happened.

MarketFox's picture

You are clueless....

Just review commodity prices from 2002 to today....

Review house prices from 2000 to 2006.....

What happened to car prices in 10 years ....etc.....etc....

The dollar buys dramatically less than it used to......



Here ....let´s make it really simple....


in 2006 the total economy was in a box.....and in the box was total credit and equity.....

The total was $73 Trillion.....


In 2012...the number becomes $40 Trillion....


So what can happen to prices ......

This is all you need to know......


Mostly attributable to credit destruction.....

RockyRacoon's picture

Hey!  I was setting him up and you come in and ruin everything. 

Party pooper.

akak's picture

Hey, you gotta be quick here, Rocky, QUICK!

But I know you can do it --- I've seen how fast your kind can run away when I catch them in the garbage can out on the curb.

Hacked Economy's picture

I have a few that live in the local sewers down the street.  I actually call the big one "Rocky" now, and leave him alone (largely because it's a really BIG one and would probably kick my butt).

akak's picture

Have you ever heard two raccoons fighting?  It's nasty!
You'd swear that a pack of wolves had gotten mixed up with several very ornery bears!