Hyperinflation is a dangerous economic phenomenon in which the cost of goods and services increases so rapidly that existing currency can no longer keep up with the rising prices. As a result, the economy begins to operate on an alternate currency — like the old saying goes, everyone needs a bean counter when beans are worth more than gold.
If you’re not familiar with hyperinflation, it’s something we don’t want to experience again anytime soon. During periods of hyperinflation, people lose faith in their currency as its value becomes almost worthless. People hoard goods and services as stores raise prices daily and each unit of currency has less and less value. In other words, hyperinversion creates an economic apocalypse for individuals who rely on that system for savings or income.
How to Avoid the Pitfalls of Hyperinflation: 8 Ways to Survive Inflation
When prices rise so much that a single dollar can no longer buy you much, it is called hyperinflation. There are numerous factors that trigger hyperinflation, and the most common of them is a recession triggered by a catastrophic event such as war or natural disaster. In recent years, several countries have experienced rapid inflation due to factors like monetary policy and supply shocks. The cost of living increases at an alarming rate, leaving people with no other option but to spend their savings and invest in non-essential goods such as art and antiques.Here is an overview of the pitfalls of hyperinflation and how you can avoid them to survive it:
Why is there so much inflation?
Many people think that inflation is a good thing that encourages spending and boosts the economy. If it goes too high, people will just start spending less. In reality, however, a country experiences such high inflation if it has too much money in circulation relative to the goods available for purchase. This happens when the government keeps printing money to meet its expenses. What happens is that due to excess supply of money, the value of each dollar decreases, leading to a decrease in the overall purchasing power of people. When people find that they cannot buy as much with their money, they spend a lower percentage of their income. When they spend less, the economy slumps and triggers a recession.
Store your assets safely
When people see that the government’s currency is losing its value, they get scared and start withdrawing their money from the banks. This leads to a run on the banks and causes a crises like the one that happened during the Great Depression. At this time, the government will have to bail out the banks to ensure that people still have a place to put their money. When banks are unable to meet the demands of the people, it is normal for them to keep increasing their interest rates, which can further worsen the situation. You can protect yourself from such a situation by holding your assets in a safe place. All that you have to do is to pick up a safe deposit box, place your valuable items in it, and keep the key with you. This way, even if the banks fail, you will still have access to your money.
Don’t rely on the bank
As we have discussed, banks can fail when the government has to bail them out. This can happen during the early stages of a hyperinflation episode. Given that it is a risk that can affect anyone, you should keep your money safe and not rely on the bank too much. If you keep your money in the bank, you are trusting the bank to protect your money, and you may not be able to withdraw it when you need it the most. You should, therefore, have a contingency plan and keep some part of your savings in cash that you can access easily. You can also invest a portion of your savings in precious metals such as gold coins that you can easily sell when you need cash.
Invest in a safe asset
It is also important that you invest in a safe asset when the inflation is picking up. Assets such as stocks and bonds are likely to lose their value if the government keeps increasing its interest rates to curb the growing inflation. You can, therefore, invest in assets that are not likely to lose their value. When inflation picks up, the price of commodities such as oil and food tends to increase, which can cause the overall cost of living to rise. You can invest in commodities such as silver to protect yourself from rising inflation. Silver is an essential commodity that is used in a wide range of products, and it is not as dependent on the economy as stocks and bonds are.
Protect yourself with precious metals
When you invest in a safe asset, you need to protect yourself from a scenario where the value of that asset remains the same, despite the soaring prices. This can happen if demand for the product remains low even though the supply of it has gone up due to higher prices. If you are investing in silver, you can protect yourself from this by investing in silver coins and bars. Keep in mind that while investing in silver coins, you should pick up the ones that have high purity. Silver coins can be a great investment if you buy them at a reasonable price. Silver prices tend to increase in times of hyperinflation since people will pick this metal over other commodities.
Diversify and invest in producing assets
Apart from investing in a safe asset and precious metals, you should also ensure that you diversify your investments to protect yourself from a situation where the value of one asset collapses. When the economy is doing well, the prices of stocks and bonds tend to go down. If you have invested your savings only in these assets, you will be left with nothing to show for it. You can, therefore, invest in assets that go down when the stock market is doing well. When the economy is doing poorly, assets such as real estate, commodities, and other tangible goods tend to increase in value. You can therefore, invest in assets that increase in value during a recession.
Be cautious with credit
We have discussed how the government can use the rising cost of living to curb the growing inflation. There is a possibility that the government will increase its interest rates when inflation picks up, causing the cost of loans to increase. When the cost of loans increases, people will have to pay more to service their existing debt. This can lead to a situation where people are unable to pay off their debt, resulting in a credit crisis. You can be cautious about this by ensuring that you only borrow what you need and that you have a contingency plan if you cannot repay the loan on time. This way, you will not fall into a trap of unending debt.
Hyperinflation can be a very scary situation for a country. It can destroy the economy of the country and make life very difficult for the people living there. There are numerous factors that trigger hyperinflation, and the most common of them is a recession triggered by a catastrophic event such as war or natural disaster. When the economy is already in a bad state and the government is unable to meet its expenses, it is likely to print more money. This leads to a surge in the supply of money and triggers hyperinflation. When the cost of living increases at an alarming rate, people have no option but to spend their savings and invest in non-essential goods. There are ways to avoid the pitfalls of hyperinflation and survive it.