We popped up on the “wrong” side of the inflation/deflation argument here the other day with a hyperinflation scenario that seems to us not just possible but likely. Although we hold fast to a prediction that deflation is going to run its course, throwing tens of millions of Americans into bankruptcy, before relief comes to debtors, we are persuaded that at some point well down the road the U.S. will throw the switch to hyperinflate.  Even so, we believe that the attendant collapse of the dollar will play out far more quickly than the collapse of the German mark during the Weimar hyperinflation of 1922-23. So swiftly will this occur, in our opinion, that the hyperinflationary spike will begin and end in mere weeks, leaving deflationary to dominate both before (as it continues to do now) and long after.

A contributor to the Rick’s Picks forum, Ed M,, disagreed -- mainly, he said, because there is no precedent for so swift a collapse of a sovereign currency. We present his argument below, followed by our response, but also some interesting thoughts of Ed’s concerning barter.  

Here’s Ed:

“The idea that a hyperinflation would come and go in a few days or weeks has no precedent, and, as such I give it little credence.  However, the question for those owning [precious metals] concerning what to ‘transfer’ one's ‘profits’ into, is very relevant.  Furthermore, there is the issue of taxes on what could be, at least nominally, outsized profits. So, while leaving the question of what to buy momentarily behind, let me offer that arranging some sort of barter might be the way forward for [precious-metal] holders.

“Choices of what to purchase will be more or less the same in future as they are today, but in what will likely be a chaotic environment, some items will be, for a variety of reasons, difficult to acquire expeditiously and economically.

Fungibility

“But here are some of the choices that, depending on where one resides, and what connections one has, may be possible.  Each choice has obvious advantages and disadvantages having to do with relative liquidity, availability, perceived value, maintenance costs, taxes, ‘fungibility,’ etc.

1) Raw Land

2) Food Stuffs

3) Currency

4) Developed Property- commercial and/or residential

5) Precious gemstones

6) Objets d'art

7) ‘Services’ unspecified

8) Other commodities

9) Heavy equipment

10) Businesses unspecified

11) Stocks

12) Bonds

“I haven't done much research on this question yet, but I imagine that bartering [precious metals] for raw gemstones might be worthwhile.”

Our reply:

History Rarely Repeats

When we try to guess how long it will take for the dollar to collapse, why should precedent matter? History almost never repeats itself in a way that can be clearly foreseen and easily predicted. There's always a twist, and in this case the speed of the collapse is exactly what we might expect to undo even those who profess to be "ready".  Bear in mind that the dollar is already a fundamentally valueless IOU, not money, and it is therefore only mere perceptions that need change to make this so in practice. That could happen -- globally -- in the space of time it takes to air the evening news.

Moreover, it is not the reichsmark or Zimbabwean dollar that we are talking about, but a currency in which nearly everyone on the planet has a crucial stake either directly or indirectly.  Under the circumstances, and given the lightning speed at which news travels these days, it is not difficult to imagine how a global run on the dollar might become unstoppable in mere hours.

The world may be ready and perhaps even resigned to the dollar's collapse; what few seem to be imagining, however, is how very quickly the collapse could run its course around the world -- as quickly, even, as a run on a single bank.

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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com

-- Posted Thursday, 20 August 2009 | Digg This Article