Hyper-Inflation and You: Two Dolls Instead of Thirty This Christmas
There’s only one powerful investment that can guarantee your retirement when hyper-inflation comes roaring back.
When you can only afford two dolls instead of thirty, you know hyper-inflation is making a come-back, and the president is telling you so, himself.
He said those two dolls may “cost a couple of bucks more than they would normally.” On Monday, Mattel, the U.S. toy company and maker of Barbies, said it would raise prices on U.S. toys because of Mr. Trump’s 145 percent tariffs on imports from China. The Toy Association, a U.S. industry group representing 850 toy manufacturers, warned shortages were likely before Christmas. Its survey of 410 small businesses that make toys found that a majority said they had canceled orders, and about half said they risked going out of business within weeks or months if the tariffs remained in place.
I know, just the notion that hyper-inflation can rescue your retirement sounds counter-intuitive. But bear with me for just a second. I guarantee this new perspective will open your eyes to a very real possibility.
Even the president and his cabinet have been tempering their economic message lately, cautioning us to expect a weaker economy during the “transition” to a “booming economy”. He’s moved from the message of prosperity to austerity mighty quick and 5 pencils instead of 250 pencils for your child will just have to do. For a month, a year, a semester, he didn’t say.
The above picture depicts what hyper-inflation wrought on the Weimar German Republic, many decades ago. Wrong-headed policies led to distrust that spread throughout Germany, causing the value of the German Mark to plummet. In order to purchase just one loaf of bread, people were forced to wheel barrows full of virtually worthless money to their local bakery shop.
Dial forward a few decades and the Arab nations of OPEC decided to place an embargo on oil shipments to America. Miles-long lines formed at service stations to buy what little gas was available, also at sky-high prices. This time, drivers’ wallets bulged with devalued dollars to pay for their purchases.
Because oil is interwoven so tightly into our economy (in utility services, electricity and countless other products) very low supply clashed with very high demand that could not be met. Prices, not only for gas, but for everything went through the roof.
If there’s one lesson we all learned in school or in life it is the law of supply and demand: where there is little demand and much supply, prices will fall.
And of course the corollary: Where there is strong demand and little supply, prices will skyrocket.
Back to the present time, this is the situation we now find ourselves in. Because the president has made one whopper of an unforced error by starting a trade war with friends and foes alike, shipments from around the world have come to a halt.
Even with a rolled-back tariff of 145% (from 245% originally) a $10 t-shirt from China will now cost you $14.50 in tariffs plus $10, or $24.50. Would you pay that?
The American importer who has to pay that extra $14.50 tariff just to import it has no choice but to pass it on to you. He knows you won’t pay it either, so he’s cancelling his orders.
I didn’t think you’d pay that enormous price. China knows you won’t either, so they’ve stopped shipping these and millions of other formerly cheap products that American consumers benefited from.
Shipping to LA ports are already down 80%. In just two weeks shipments will be down 100%. No more shipments, no more deliveries to American ports. This amounts to an embargo on America, again. Only this time, it’s not just on one commodity. This is a full-scale embargo on everything that consumers buy.
And on top of all this, China has embargoed shipments of rare earth minerals that our high-tech companies require to build all manner of advanced chips for AI as well as your beloved iPhone.
As it is, because shipments have declined so precipitously, dock workers who unload those ships are being laid off in the thousands. And truckers who will soon have nothing to transport will also be laid off. Unemployment numbers are sure to begin reflecting these data within weeks.
Small companies are beginning to lay off workers and file for bankruptcy. Unable to source the basic materials they need to manufacture their own products at cheap enough prices, they have no alternative but to close their businesses.
Companies that relied on just-in-time fulfillment of products to stock the shelves in their stores are scrambling to find replacement sources. Since tariffs have been placed on every country, this has not been a fruitful avenue for them to pursue.
Time is running short along with this lack of supply. Shelves will be emptying soon. Remember that economics lesson we all learned? Small supply will quickly lead to much higher prices. This is why the president has informed you that you’ll only be able to afford two dolls for Christmas.
In other words, as those shipments grind to a halt and America’s shelves are emptied, hyper-inflation is on its way back to America just as we suffered in the 1970's.
Even the president and his cabinet have been tempering their economic message lately, cautioning us to expect a weaker economy during the “transition” to a “booming economy”. He’s moved from the message of prosperity to austerity mighty quick. He reinforced the hyper-inflation that’s coming by letting parents know “their girls don’t need 30 dolls; they can live with 2 dolls”. In other words, your weaker dollar’s poorer buying power that formerly bought you 30 dolls will only buy 2 dolls now. That’s more than 90% inflation coming for those dolls!
This is why most economists and analysts, including me, have concluded that recession clouds are on the horizon. Supply chain disruptions are already evident with layoffs at the docks, trucking companies and retailers. Consumers are already putting the brakes on spending. Car sales have spiraled and even MacDonald’s has reported slowing sales. The wheels for a slowdown are in motion. Even if the trade war was called off today, global economies cannot react fast enough to stop a recession now.
Here’s What I Did Then
When the oil shock hit thanks to the OPEC embargo of the ’70s, interest rates skyrocketed along with the rise in prices throughout the economy. Bond investors are not stupid. If you were going to commit your money, to lend it for many years in the future, wouldn’t you demand to be compensated for inflation going forward? Wouldn’t you demand a much higher rate of interest to loan your money? Of course you would.
Knowing that the Federal Reserve would have to eventually step in to stop spiraling inflation and bring rates back to earth, I stepped up and bought a large amount of 30-year U.S. Treasury bonds. For 30 long years, the U.S. government paid me 15% interest, year in and year out.
When Paul Volcker, head of the Federal Reserve instituted monetary tightening, money supply contracted and put a noose around the neck of inflation. He brought the rate back to the Fed’s preferred rate of 2% and finally broke the back of inflation.
Since the government had committed to paying me a fixed rate of 15% on the safest paper on the planet, and since inflation stayed in the range of 2% for most of the next 30 years, I had wrangled a real rate of return of 13%. Not just for one year, but for most of my adult life, for 30 wonderful years.
15%- 2%= 13%
Strategy Session: What You Can Do, Today
This scenario is again on the near horizon. Investors whose retirement plans were ravaged by this tariff war will have another opportunity to repair their future retirements.
In order to carry this out, it is necessary to begin NOW to start accumulating cash, from work, rents or dividends. Invest them for now in high-yield savings accounts like from Marcus Goldman Sachs. Use this special referral link to get 4% or more on your deposits. If you belong to AARP you’ll get another .1% on top of the 1% bonus by using my referral link.
When the time is ripe and interest rates on the 10 year or 30 year Treasury go to 8% to 10%, start transferring money from your high-yield cash accounts to the purchase of Treasuries.
Where To Buy Treasuries
You can set up an account now at Treasury Direct and be ready to simply transfer funds and buy bonds directly from the U.S. Treasury.
You can also buy them at your brokerage. Yet another place to purchase Treasuries is at your local commercial bank, where you have your checking account.
Whether you are 10 years out from retirement or 30 years, this is setting up to be a sure fire way of ensuring a steady, reliable income stream that will outstrip inflation once prices come back down to earth as they always do.
If your retirement is right around the corner and your 401K equity portfolio has shrunk to a 201K, this is your chance to repair the damage and get the comfortable retirement you were striving for, your entire working life.
Caveat: In addition to rising prices, another reason Treasury yields have been rising is attributable directly to the loss of confidence bond investors have begun to express in America. There is a feeling amongst some investors, both foreign and domestic, that America can no longer be trusted to honor its commitments to pay interest as well as principal upon maturity of these bonds.
And there’s also this: China, our biggest trading partner and adversary in the current trade war, holds the biggest amount of U.S. Treasuries in the entire world. If they decide to begin dumping their holdings on the market, the bottom will fall out and prices will plummet. In the bond market, when prices fall, yields rise!
After all, under the current administration, the U.S. has shredded many agreements and treaties and has pulled out of several international organizations. NATO could be next.
Know this going into this investment. Also know that America, unlike many other countries like Russia, has never, in almost 250 years now, defaulted on its bonds. That’s saying something.
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George Schneider, M.A.
Founder and publisher
Retirement: One Dividend At A Time
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