46 THE BiG DROP
is temporary and the central banks “have it under control.”
Stage three is when inflation begins to run away and cen-
tral banks lose control. Now the illusion wears off. Savings and
other fixed-income cash flows such as insurance, annuities and
retirement checks rapidly lose value. If you own hard assets
prior to stage three, you’ll be spared. But if you don’t, it will be
too late because the prices of hard assets will gap up before the
money illusion wears off.
Finally, stage four can take one of two paths. The first path
is hyperinflation, such as Weimar Germany or Zimbabwe. In
that case, all paper money and cash flows are destroyed and a
new currency arises from the ashes of the old. The alternative is
shock therapy of the kind Paul Volcker imposed in 1980. In that
case, interest rates are hiked as high as 20% to kill inflation...
but nearly kill the economy in the process.
Right now, we are in late stage one, getting closer to stage
two. Inflation is here in small doses and people barely notice.
Savings are being slowly confiscated by inflation, but investors
are still comforted by asset bubbles in stocks and real estate.
Be nimble and begin to buy some inflation insurance in the
form of hard assets before the Stage Three super-spike puts the
price of those assets out of reach.■ Hyperinflation it Can (Still) Happen Here
Six years and $4 trillion of Federal Reserve money printing af-
ter the 2008 crash, you may think to yourself, if hyperinflation
were ever going to happen in the U.S., it would’ve already.
In fact, when I write “hyperinflation,” you might only think of
two images. One, a reckless third-world country like Zimbabwe
or Argentina printing money to cover government expenses and
worker salaries to the point where trillions of local “dollars” or
pesos are needed to buy a loaf of bread.
The second image is of the same phenomenon in an