Copyright 2012 by John T. Reed
This is a modified version of an email I sent to readers of my real estate and hyperinflation books. Many readers of the first edition of my book How to Protect your Life Savings from Hyperinflation & Depression have asked me if they should buy the second edition?
Yes.
First off, we’re talking about your life savings on one hand and a book on the other. Given what’s at stake, you should be taking a week-long course on the subject, if there was one, let alone buying a book. You don’t risk your life savings to save the price of a book.
Secondly, this is a very dynamic situation. Important numbers had to be updated for the second edition. For example, when I wrote the first edition two years ago, the national debt was $12.8T. Now it’s $16.2T and skyrocketing. The GDP went up, too, but only from $14.8T to $15.1T.
The Euro Zone is closer to its own hyperinflation.
Third, since the first edition I have read a bunch of books that were originally written in German about hyperinflation in that country and Austria.
Wow!
They changed my view to an large extent. Hyperinflation is far worse than I thought. We’re talking about people starving, 95% of children not growing properly, widespread scurvy, train passengers stealing the leather from the seats to make shoes, and a zillion other similar, crazy things caused by inability to get necessities.
Most importantly, I learned that foreign currency is the best thing to have for the combination of liquidity and just plain physical survival when your country has destroyed its own currency thereby causing inability to purchase even basic needs. I now recommend that you put rainy-day savings in selected foreign countries that manage their currencies well and I tell you the details of how to do that. (I moved all my IRA money into four foreign currencies.) And I discuss the fact that you need to prepare for the eventuality that you might have to take an extended “vacation” outside the U.S. during the hyperinflation. (I kept writing ‘get out of the country’ in the margins of the books about Austrina/German hyperinfation.)
Another hyperinflation-depression-survival technique that works great for many is the Home Equity Conversion Mortgage. I did not even mention it in the first edition. Now, it’s a whole chapter. It gives you an in-kind annuity, which is fabulous in hyperinflation in contrast to the vast majority of annuities like Social Security which are dollar-denominated. No one was worse off in Austria and Germany than seniors on local-currency-denominated pensions—the equivalent of U.S. Social Security or a pension from te U.S. government or private American company.
Generally, I don’t like to answer the “should I buy the new edition” question. Instead, I refer customers to a web page that lists the differences between the previous and current edition. But in this case, the improvements between editions are important and numerous.
I sat down with the first edition and the proof copy of the second edition and circled the new stuff in the new book. It took me days to do it. You can see that long list at the above-linked improvements page.
I have helped hundreds of thousands of readers over the last 36 years in various ways like saving thousands or hundreds of thousands of dollars on their income taxes, winning more football or baseball games, picking a career, writing their own book, buying more profitable real estate, and even dealing with distressed real estate periods. But this impending hyperinflation is a whole other order of magnitude. This book does not just win you a game or save you a portion of your taxable income or avoid bad tenants.
Here is a quote from a Washington Examiner story about the Erskine-Bowles Presidential Debt Commission of 2011:
“We need folks here in Washington to wake up and put this partisanship aside,” said Erskine Bowles, a former chief of staff for then-President Clinton. “We face the most predictable economic crisis in history...which is also the most avoidable crisis in history. These trillion-dollar deficits, they are like a cancer, and they are going to destroy this country from within.”
Let me repeat, “the most avoidable crisis in history.” They are referring to avoidable in the federal policy sense. But there is no hope that the federal government will head this off because the public is unaware of the extreme stakes and danger.
But it is also the most avoidable crisis in history in terms of what individuals can do to protect themselves. We are not totally dependent on the government—at least not yet. You have to know what to do and do it before it’s too late. And that is exactly what my book tells you.
Also, this is not like I am telling you to bet all your money on red at a roulette table. If you follow my advice, and somehow America’s Fairy Godmother saves us from hyperinflation, what’s the harm?
My advice is to buy hard assets like a home, move rainy day savings into well-managed foreign currencies, buy several years worth of food, fuel, and other necessities now, and 320 pages of other similar things. If we somehow do not get hyperinflation, you will make fewer trips to the grocery store because you already have the food. You will have to pay small currency conversion costs to get your money back into U.S. dollars if you want to do that. (You can avoid that by spending the money while on vacation in the country in question.) The currency-conversion charges are about the size of and in the same vein as hyperinflation insurance premiums. As with insurance, you get peace of mind for those charges.
So this is an unusual situation where I can give you non-risky advice that will cost you little but which will probably preserve your life savings if you follow it and the likely hyperinflation does occur. It is a mirror image of what John Paulson did in the Subprime crisis. Michael Lewis wrote about him in the best-selling book The Big Short. Paulson’s story was also told in the book The Greatest Trade Ever by Gregory Zuckerman. Paulson bet big against subprime mortgages and made $20 billion for himself and his investors—the biggest investment profit in history!
Paulson and I are both Harvard MBAs. When asked how he had the courage to bet so big against subprime mortgages, Paulson said it was easy because he had never before seen an investment opportunity with such an enormous upside and such a small downside—the cost of Credit Default Swaps—cheap insurance against subprime bonds defaulting.
Ladies and gentlemen, I have identified the mirror image of that opportunity for you. It has enormous downside—losing all of your dollar-denominated life savings—bank accounts, CDs, bonds, mortgages you took back, pensions, annuities, etc.—or risking some tiny amounts for things like converting U.S. dollars to foreign currencies and buying food sooner than you normally would.
In other words, you have an opportunity to protect your life savings from an impending calamity at amazingly little risk or cost to you. But if you do not, you could turn yourself and your family into paupers nearly overnight. Depending upon your age and other circumstances, that pauper status could last for the rest of your life. If you are skeptical about that, I refer you to those books originally written in German about what happened in the early 1920s in Austria and Germany.
It is crucial that you understand that hyperinflation does not end like infaltion. In the early 1980s, we had double-digit inflation. It ended with disinflation. That is, the inflation rate simply went back down to normal. Hyperinflation does not end that way. Hyperinflation ends—overnight—with the introduction of a whole new currency. In Germany, it was called the rentenmark. In Austria, the schilling. The new currency does not restore the purchasing power of the old currency. You will be able to turn in your dollars for the new currency, but at a conversion rate that makes no change whatsoever in the loss of purchasing power of your old dollars. The life savings that could have bought you a home before the hyperinflation will buy you, maybe, a candy bar both just before and just after the introduction of the new currency.
There is no conflict of interest here. I get no kickback from Canada if you open a savings account there. Nor does the Mormon church pay me a kickback when you buy some of their inexpensive 20-to 30-year long-shelf life canned food as a result of my recommendations. Unlike the gold pushers, I do not advocate gold as a hyperinflation hedge. It has too many specific disadvantages. Nor do I sell gold or anything else (other than the book) that would let me profit from my recommendations.
I recommend you buy this new second edition of my book even if you already bought the first. The highest stakes are involved. The nation is careening toward financial disaster. Neither presidential candidate speaks of real steps to head it off. Ryan, for example, has a 28-year program to balance the budget. Balancing the budget would be the starting point for fixing the problem, not a solution. And I and many other experts figure we have four or five years at the outside, not 28.
And the first sentence in the second edition is the same as it was in the first edition:
It could happen tomorrow.
John T. Reed