Saturday, August 28, 2010

Link of the Day

This is a must-read piece on what hyperinflation would look like in the US. It's absolutely fantastic. Here's a tiny tidbit.
One of the effects of Chile’s hyperinflation was the collapse in asset prices.

This would seem counterintuitive. After all, if the prices of consumer goods and basic staples are rising in a hyperinflationary environment, then asset prices should rise as well—right? Equities should rise in price—since more money is chasing after the same number of stock. Real estate prices should rise also—and for the same reason. Right?

Actually, wrong—and for a simple reason: Once basic necessities are unmet, and remain unmet for a sustained period of time, any asset will be willingly and instantly sacrificed, in order to meet that basic need.

To put it in simple terms: If you were dying of thirst in the middle of the desert, would you give up your family heirloom diamonds, in exchange for a gallon of water? The answer is obvious—yes. You would sacrifice anything and everyting—instantly—in order to meet your basic needs, or those of your family.
Definitely read the whole thing.

1 comment:

Kelly the little black dog said...

Isn't this contrary to the impact of the hyper-inflation of the 70's. Where there was a growth in wages, rising home prices and high interest rates. It was extremely good for those who owned old debit, since the inflation effectively devalued what was owed on homes.