Keeping Your Business Afloat in Hyperinflation
Published in 1989 to educate US businessmen on how to cope with hyperinflation, Gerald Swanson’s book “The Hyperinflation Survival Guide: Strategies for American Businesses” contains a wealth of lessons for non-business folks as well. If you run a business or have investments, do yourself a favor and read the book.
Hyperinflation is defined as “rapid, debilitating inflation that leads to a major devaluation of a country’s currency”. Argentina, Bolivia, and Brazil in the 1980s were used as case studies to extract lessons for the US. In all cases government overspending, and paying for deficits with printed money is the underlying cause – sound familiar? The fiat money supply supply was grown exponentially, and the foreign exchange value of the currency plummeted. Foreign exchange, and wage / price controls followed.
Are We Facing Hyperinflation Now?
With almost a doubling of the adjusted monetary base since August 2008, serious inflation is already “baked in the cake” as those clever folks at Casey Research put it. The M1 has already spiked 10%. We may not see hyperinflation but we will most likely see serious inflation.
Though this report frequently refers to “hyperinflation,” the United States is unlikely to suffer hyperinflation as it is classically defined, or even as it has occurred over the past decade in South America, with inflation rates consistently running toward 1,000 percent and beyond.
As business and financial leaders throughout Bolivia, Brazil and Argentina pointed out, though, it will not take triple-digit inflation to wreak havoc on the United States economy. A sudden acceleration into the teens and twenties would be sufficient to alter personal and corporate lifestyles, and would necessitate changes in the way Americans run their businesses and their lives.
An inflationary surge of this scope is easily possible given current U.S. economic conditions. Indeed, many South American leaders are convinced that rising inflation rates are the logical by product of what they see as our ruinous fiscal policies. Again and again, these business and financial leaders expressed dismay that America’s headlong sprint down the classic inflationary path was receiving so little attention in the United States, while it seemed so obvious from their vantage point at the end of that road.
If there is one overriding lesson from South America, it is that governments cannot indefinitely continue to spend beyond their means without suffering terrible economic consequences. There is simply no logical reason to think that the United States can become the first country in world history to successfully manage its economy by continuing to rely on the resources of other nations to finance its excesses.
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