On today’s episode of the Forever Cash Podcast, I’m going to answer a question that’s on a lot of people’s minds right now: is hyper-inflation something we need to be worried about in the near future?
I don’t have a crystal ball, but I do have an extensive background in economics and finance, and I’m absolutely passionate about it. I’m constantly putting myself in a position to figure out what the market is thinking. So let’s dive in!
What Happens When You Keep Printing Money
A large number of people right now think that hyper-inflation is inevitable. Others are saying, “America is good. We’ll be fine. We’ve always been fine.” But one thing we can all agree on is this: inflation is coming, one way or the other.
Here’s the deal. You can’t expect to constantly print money without inflation happening in the near future. Now, the question is: will it be hyper-inflation or more like the 1970s where we had what we call a “stagflation?” A stagflation is where interest rates go up, prices go up, people don’t have money, and we have stagnation and inflation together.
Let Me Take You Back to Germany
Most of you know I’m an immigrant from Germany. In the 1920s, Germany started World War I, lost WWI, and then Peace Accords were held in Versailles. The other countries forced Germany to pay huge amounts of reparations. We’re talking the equivalent of trillions of dollars in today’s money. As a result, Germany started to sell off everything they could—their reserves of gold, whatever buildings were left standing, but it wasn’t enough.
So, they decided to just print more money. At first, the other countries didn’t notice. The population didn’t notice. But then they did. All of a sudden, Germans had a bunch of money. They had just survived the war and weren’t going on buying sprees, but there’s a point at which that balance tilts. They start realizing that they have enough money and they’re safe.
Or they start realizing that the government is printing money like crazy and their money is quickly losing value. Germans started spending their money and prices started going up fast
The Velocity of Money
If I have a hundred dollar bill in my pocket and keep it there, it’s basically taken out of circulation. If the government prints a trillion dollars, and everyone receives a $1400 stimulus check and everyone keeps it in their bank account, then nothing happens.
However, let’s say I take this $100 bill and spend it today at the grocery store, then the grocer spends it at the bakery, and so on. In the matter of a week, this $100 bill changes hands 20 times. Then it behaves like $2000 in the economy. As the velocity of money increases, it behaves as if it was more money than is in the market. That’s where the danger comes in. Once the velocity of money increases, the economy starts spiraling. Prices go up immediately.
During the 2008-2009 recession, there was a big bailout. Now, with Covid in 2020-2021, it’s going up again. Since the U.S. dollar was introduced, 30% of all the money that has ever been printed has been printed in the past 12-14 months (multiple trillions of dollars).
The big question mark of how much and how fast inflation increases: what are people going to do with the money from the government? If they start believing that the government is printing too much money, and the value of their money is going to decrease, and they spend all the money, we’ll go into an inflationary cycle. If they save the money for a rainy day, then we won’t see much inflation.
What the Rest of the World Thinks of Us
The U.S. dollar is still the number one reserve currency in the world. Ninety percent of all the reserves in the world that are not held with gold are held with the U.S. dollar. This will not change overnight. But, if the U.S. keeps printing money, soon these other governments will lose trust in the U.S. dollar and convert back to silver and gold. If they send U.S. dollars back, we’ll have hyper-inflation.
Definitely keep an eye on this, but I don’t see it happening any time soon. Our status in the eyes of other countries is safe for now.
What This Means for You
We don’t have to fear hyper-inflation, but is a 5%-10% inflation possible in the next 12-18 months? Absolutely.
How to protect yourself:
The outlook for land continues to be great, very bullish. People have money to spend, and they’ll buy land—for recreation or as an investment. This is good news for us in the land flipping business.
Mentioned in this episode: