Six Myths Regarding Inflation And Hyperinflation In The USA!

August 21, 2013

It is strongly advised you to take possession of real gold and silver at anywhere near today's prices, while you still can.   The fundamentals indicate rising prices for decades to come, and a major price spike can happen at any time.

·         As the currency goes down, everything else goes up at roughly the same rate.  Not true.

·         The law today will be the law tomorrow during hyperinflation.  Not true.

·         I'll be able to ride it out here in the back woods of Colorado or Alabama during hyperinflation.  Maybe…and maybe not.

·         There is no risk of inflation when the bigger risk is deflation.  Not true.

·         The dollar will not go down in value, because everyone who owes dollars has a short position on the dollar that must be covered.  Not true.

·         The amount of currency must expand to have an expanding economy.  Not true.

1.As the currency goes down, everything else goes up at roughly the same rate.  Not true.   Or, in other words, if bread goes up ten times in price, and if silver goes up ten times in price, it does not matter what I buy, and does no good to buy silver...  Not true.  Put $100,000 into bread, try to find the storage place to store it, and watch your investment turn moldy before your very eyes!  Or else, keep your money in cash, and watch 90% or more of the value vanish.  Silver going up at the same rate of bread is still 100% better than buying bread, and ten times better than cash!

In the last twenty years, fruit prices for apples and oranges have been a steady $1-2 per pound.  But silver has moved from a low of $5 to a high of $50, and back to $23 today.  Silver prices have already dramatically outperformed the price of fruit over the last decade.

It has been mostly true that for most hyperinflations, that the price of things as denominated in foreign currency, has been somewhat stable.  But the other hyperinflations will be significantly different from the inflation in the US, because of the size of the US economy, and by the education level of the populace, and by the options available.  As there was hyperinflation in Zimbabwe, consider... how many coin shops were there in Zimbabwe offering silver to their people?  None?  There are 4500 coin shops across the USA!  And then there is the difference in buying power.  The people of the USA have enough money, and enough buying power, to significantly change the world market price of silver, but not the people of Zimbabwe!  There is barely $2 billion worth of annual investment demand for silver.  When the people of the USA decide they want silver, and can actually buy it, silver demand will actually significantly increase, and it will really move the silver price, and it already has!

But consider also.  Merchants raise their prices at different rates, such as whenever they feel like it.  There is no national governmental council board directing industrialists and capitalists and businessmen on when to raise prices to devalue the currency that government prints! 

Some express another version of this myth.  They say, "it does not matter what asset I buy to protect myself from inflation; housing, stocks and bonds, all are assets, and all will go up at similar enough rates."  Not true.  Bond values collapse as interest rates rise to match the inflation rate.  Housing values collapse if there is capital flight and too many liberal policies in government, such as happened in Detroit.  Stock values collapse if tax rates go sky high or during nationalist confiscations or socialization or communism, or even by bankruptcy!  And we have seen all of that in this past decade alone during this bull market in silver and gold!

The point is that silver and gold will outperform nearly all other things.  Monetary demand will not flow into food items.  Monetary demand will not flow into bonds that are being sold due to rising interest rates.  Monetary demand will flow into silver and gold, the only forms of true money.  People will not be buying cowrie shells by the tens of billions of dollars.  People will not be buying beaver pelts by the tens of billions of dollars.  They will buy silver and gold.  Like they always do when they can, and should.

2.  The law today will be the law tomorrow during hyperinflation.  Not true.  Laws will change dramatically as the governments collapse, and can get much worse, or much better, after a change in government or liberty led revolution.  This is why I consider education, specifically political education on the topics of freedom, liberty, and libertarian ideals, to be as important, if not more important, than advocating the purchase of silver bullion to protect yourself from inflation.  But yes, buy silver bullion too!  This way, the owners of the wealth of tomorrow will be more able to form a more free society in the future after the demise of the current forms of government around the world that rely on paper money for the source of their power.

3.  I'll be able to ride it out here in the back woods of Colorado or Alabama during hyperinflation.  Maybe, and maybe not.  Many times, most of the wealthy people are forced to flee the country before or as things are really deteriorating.  Many fled communist China and ended up in Hong Kong.  Many fled Nazi Germany, even officers in the military, as depicted in the classic movie "The Sound of Music".  God's great grand plan might be for most people to flee to Israel.  Israel is said to grow rich in gold and silver in the time of the end.  Ezekiel 38.  Zechariah 14.  So, again, buy silver and gold!  But remember, that might not be enough.

4.  There is no risk of inflation when the bigger risk is deflation.  Not true.  Deflation is a non existent risk when government prints money to bail out the banks.  Deflation only happens when banks fail, and when deposits go "poof" and vanish with the failing bank.  Banks may be failing, and are failing, and are often merged into larger banks.  But no depositors deposits are going "poof" and vanishing! 

The entire point of there even being a Federal Reserve is to prevent deflation, and they do.  They do more than that, they create inflation.  Deflation only happens when there is a gold standard, and when there is not enough gold to back up the deposits.  Then, the total amount of "currency" can go down, back down the limited amount of gold.  But deflation cannot happen when on demand deposits are not backed by gold, and they are not today.  Instead, if people want gold or silver, they have to go to a bullion dealer, and when they buy silver and gold, they cause the value of their dollars to go down and gold and silver go up, which is the exact opposite of deflation, which would happen when they go to the bank and redeem their deposits for gold.

5.  The dollar will not go down in value, because everyone who owes dollars has a short position on the dollar that must be covered.  Not true.  Defaults happen!  People actually fail to repay their debts!  Can you imagine that?!

Yes, the Federal Reserve bails out banks to prevent their failures.  But who bails out individuals who must pay down debt?  Nobody.  When they fail to repay debt, it's the lenders who lose, but when those lenders are the banks who get bailed out, then no deflationary forces take place.  Furthermore, look at the nature of this argument.  Is debt like a short position on dollars?  No, it's not.  Consider the differences.  The investor who puts on a short position in futures markets must deliver or buy it back, or their brokerage must, or the exchange must.  A person or nation who owes dollars does not have two other wealthy and solvent entities who have signed on as co-lenders to securitize the debt. 

Also, most dollar denominated debt is collateralized, such as by housing.  In contrast, a short position in the silver market does not necessarily have the corresponding silver to back it up.

Also, consider who is short silver.  It's the banks.  They will not likely be able to ever buy the ten years worth of annual production of silver to give to people who are content to let the large banks store their non existent silver for them.  Since the banks know they will not be able to cover, they never will.  They may cover some shorts in the futures market from time to time to create extra volatility, and to earn an extra income from moving the market around, but they will never call up all their silver depositors and say, hey, we are delivering your silver to you for free, and now it's up to you to store it yourself!  Never.  But the people might wake up, and either demand delivery, or cash out, and buy silver elsewhere.

And who is short dollars, or in dollar debt?  Many nations around the world?  Many cities?  Many states?  Many of these are sovereign entities who have the right and duty to their people to default and not pay dollars.  Many have defaulted already.  Many have the legal right to declare bankruptcy, and they will.  Did Argentina move heaven and earth to buy dollars?  No. They defaulted and devalued their currency.  Same thing will happen all over.  Debts are not always paid, they are often defaulted, bankrupted, or simply not paid.

Dollar denominated debts that are not paid do not prop up the dollar.  They devalue the dollar, because they drive up interest rates as bond values crash. 

6.  The amount of currency must expand to have an expanding economy.  Not true.  This is a lie!  The value of money can go up as the economy expands.  In fact, that is exactly what took place in America for over 100 years, from 1776 to 1913.  There was consistent deflation at about 2% per year, and America grew from nearly nothing to becoming the powerhouse of the world that won World War I!  All on deflation!  Deflation is the natural birthright of increased productivity.  As productivity goes up, prices go down.  This is not a function of money, but rather, something that masks the hidden forces of inflation. 

I absolutely hate the simple myth in the gold community that an ounce of gold has always been worth about the price of a man's suit.  Utter nonsense!  By the time machines could make clothes, the value of a man's suit came way down!  For over 100 years, gold was $21.66/oz.!  Here is evidence online that it was $3-6 for a man's suit in 1903.

Another way this myth is stated, is that if gold itself expands at 2% or less, then businesses, on average, cannot expand more than 2% growth rates, and thus, nobody would ever invest money into the economy and thus, there would be no economic growth.  Well, the experience of the United States from 1776 to 1913 is proof that this is not true. 

Simply because the average returns are 2% does not mean that nobody would ever invest.  Some businesses make more, others make less.  Some businesses lose money.  Yes, losses actually take place, and yes, some businesses go bankrupt!  That creates more opportunities for others who can buy things at distressed prices, and other businesses who no longer have to compete against failing businesses!

If the 2% investing rule were true, nobody would ever buy bonds that pay less than 2%!  Yet many people in today's world do exactly that!  And I would wager that everyone who buys bonds that pay less than 2% is not actually even getting 2%, but rather, they are actually losing money, because that's so much lower than the real inflation rate, yet people continue to choose to make decisions that guarantee an economic loss, because that seems safer than earning nothing in cash, and safer to them than "volatile silver" or "mysterious barbaric gold".

This kind of argument is so stupid, it's like the argument that looks at the failure rates for restaurants, and concludes that based on the failure rates that nobody would ever open up a restaurant business.  But look out into the world, and you can see that restaurants exist!  Sometimes, I don't like wasting time refuting arguments that are such completely and utterly nonsense, but my own failure is that I sometimes fail to realize that not everyone can see what seems so easy to see for me. 

Likewise, look out into the real world.  Are people in the USA increasingly buying silver for investment purposes?  Yes, they are!  Maybe not any one of your 1000 friends, because current rates are about $1 out of every $3000 is going into silver per year.  But the stats show that more and more people are buying silver.  For 15 years, the US Mint sold no more than ten million ounces of silver eagles per year.  This year, they are on pace to sell over 40 million ounces of silver! 

So, why do these myths persist?  Because the Federal Reserve has a very lucrative monopoly on the right to print money out of thin air.  This deception must be sold, and re-sold, again and again.  They must denigrate, disparage, and slander gold and silver at every turn.  They pay people to make these myths become reality, both in the news, and in the universities.  Their best paid spokesmen are the ones who have simply been deceived, and who re-tell these myths because they honestly believe them in the bottom of their heart.  That happens.  It's the blind leading the blind.  Hey, if you paid a $400,000 for eight years of college education to get a doctorate in economics to learn these myths, you might believe them, too.  After all, consider the alternative; that you or your family paid nearly half a million to learn lies?!  That might be harder to admit than the truth

(Sorry, the cost of a year at Harvard is now estimated at $65,000.  There has been inflation.  So, that, times 8 years, is $520,000, and by eight years from now, it will probably be even more...)

Now this was a list of myths regarding hyperinflation, mostly refuting the nonsense that "it can't happen here". 

It can.  It has.  It will.

If the money masters were all powerful, gold would remain at $21.66 per ounce!  The fact that gold prices are over $1300 shows that the price manipulators, or price liars, are failing!

There are plenty of reasons why it must happen here. The more of anything there is, the less it's worth. All frauds fail. Money printing is theft. Theft is an unsustainable economic system. Socialism works only so long as there are people to steal from.

The US Government is spending $1 trillion more per year than they are collecting in taxes.  That's $1000 billion.  That's the same as one million million dollars! 

I hope I have given you more than 6 reasons to buy silver and gold.  Actually, more like a million million reasons!

You can still buy silver today, and you should!

By the time 1% of the population of the USA, or 1% of the wealth sitting in the banks tries to protect itself from inflation and buy silver, the price of silver will be headed over $500 dollars per ounce.  The math is rather simple.  There is only about 700 million ounces produced each year, and most of that is purchased by industry.  There might be a maximum of 300 million ounces of silver newly available at any price for new investors.  Thus, 1% of money in the banks is about $180 billion.  So the price is $180,000 million / 300 million, which is $1800/3, or $600/oz.

As I see it, the price you pay for silver is like an IQ test for our economic era.  Anyone getting silver under $500/oz., is in the top 1% on the Silver IQ test, and is about three standard deviations above the mean smarter than everyone else!  Therefore, consider how smart you must be to be buying silver today! 

I strongly advise you to take possession of real gold and silver at anywhere near today's prices, while you still can.   The fundamentals indicate rising prices for decades to come, and a major price spike can happen at any time.

JH MINT & Coin Shop
13241 Grass Valley Ave
Grass Valley, CA 95945
(530) 273-8175

Jason Hommel

Gold ETFs outflow reaches Rs 462 crore in Apr-Aug of FY'17