Are You Ready for Hyperinfaltion?

by Mike Calpino

The day after the election the Federal Reserve announced it was going to engage in "Quantitative easing" to the tune of $600 billion dollars over the next eight months. Commodities have already reacted to this, with gold, oil and other raw materials rising rapidly. We are to expect inflation after supposedly going through an extended period without it. If we go though a time of even double digit inflation, we should consider ourselves very fortunate. If it were a different time in our history, perhaps that is what we could expect. We have, however, put ourselves into a very precarious position with our debt and liabilities. What I would like to give you is a short history lesson because nations have gone through this before and the causes are easy to determine.

Our more recent example is Chile which went through a hyperinflationary period in the early seventies. In 1970 Salvador Allende was elected. Allende was a hard core socialist and brought together other socialists, communists and hard leftists to begin implementing changes (transforming) Chile into a socialist workers paradise. Even though we have apparently rejected President Obama’s socialist/communist agenda, he and his leftist czars will still wield a lot of power and it is unlikely any of the damage he has done will be repealed.
Allende took the land from "the rich" and gave it to the workers. We have been redistributing wealth for years but President Obama and the Democrat congress doubled down on this, constantly demonizing the "rich". Allende nationalized companies and mines. While we certainly protest against the nationalization of the industries that have taken place, in America nationalization isn’t really necessary. Industries and companies can be controlled just as easily through regulation and tax policy, both of which are moving out of the hands of elected officials and into the bureaucracy, a bureaucracy controlled by the executive branch which is run by leftists, socialists and in some cases, admitted communists.

Allende chose who would run and work in these industries, rewarding his friends and punishing his "enemies." Enemies, sounds familiar... The purpose of this was to have control over production and distribution. Like which cars or light bulbs are produced or what restaurants are allowed to serve? Again, regulation and law accomplishes the same thing here. Next were the wage and price controls. We haven’t seen overt price controls yet but there has been a lot of noise for controlling wages, particularly for the "evil rich". Allende put these controls in place to placate the workers. We could look at it as a payoff to the unions.

Needless to say, all this government intervention distorting the free market caused the economy to tank. Companies couldn't make money because their prices were fixed and high wages were dictated by the government. They went bankrupt and were taken over by the government which made them even less productive. In order to pay the workers the government printing presses heated up and hyperinflation arrived on the scene. When the currency became worthless and there were no goods to buy, ration cards were distributed with political considerations and not need being the first criteria.

While hyperinflation will not be caused by paying union workers gobs of fiat currency in this country, the reason for the printing is irrelevant. The consequences are always the same. I recounted the history of Chile because the election of a hard core leftist and the rapid implementation of socialist policies preceded the economic circumstances that made the wholesale printing of money attractive to the ruling powers, just as it has here.

The other example I would like to cite is the Weimar Republic of Germany, the classic hyperinflationary example. I would like to state several causes of note. The first was that Germany was severely weakened after the Treaty of Versailles and reparations payments were a severe drag on the economy. We have not experienced a military defeat but we have experienced a severe economic downturn. We don’t have reparations but we do have a growing amount of interest on our debt, high domestic spending to alleviate personal suffering and social welfare obligations that are bankrupting us.

In the early years of the Weimar Republic, a lot of foreign investment came into Germany from those who wanted to profit from the rebuilding. When Germany was unable to make reparations payments in 1922, France took over the Ruhr Valley for the iron and coal, German workers went on strike and the economy took a further hit. It is only a matter of time before interest rates rise and we become unable to either make our interest payments or meet the demands of our entitlement system, or both. It is also an interesting parallel to consider Germany’s loss of the resources of the Ruhr valley and this administration’s policy of denying access to our own raw materials, particularly energy.

In response to the economic "crisis", the German government began printing money. Foreign investors pulled out at this point, cutting their losses, and things went into freefall. In early 1923 hyperinflation was in full swing with prices rising astronomically and the nation was effectively shut down due to the currency collapse.

I do hope is was noteworthy to consider that the printing of money was a response to a negative economic situation brought about by bad government policy, socialism in Chile and losing a war in Germany. I also hope you have seen that we have combined the worst of both of these situations along with a few other negatives of our own thrown in, like the fact that our currency is the reserve currency and its collapse will have consequences far beyond the German mark or the Chilean escudo which has forestalled its collapse up to this point. The laws of economics will not be denied forever, however.

I believe hyperinflation is inevitable, I have been talking about it for over a year, and that we need to prepare for it. I hope I will be proven wrong but we have been building toward this point for a long time and I think we have already sailed off the cliff, we are just waiting to hit the bottom of the ravine. The question for all of us is what will arise in America after the horrible two or three years that are coming. In Chile, Allende’s reign came to an end after three years, the military overthrew him and ended his socialist dream in Chile. Now Chile has a good and prosperous economy and a relatively free society, a happy ending. We all know what happened in Germany, they chose Hitler and the nightmare became infinitely worse. If we think government is the solution, there will always be men like Hitler who will take advantage of that. If we believe that government is the problem and the cause of our misery, we will stand up as free people and demand the return of our rights and liberties. Ten years from now our choice will be obvious. Are you ready to ensure we make the right one?