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Hyperinflation starting? What's happening in your area? Post your ground reports.

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Anything related to investing, including crypto

pat9000

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I don't really see this ending well with the USD. Inflation "6.2%" right now a year, plus taxes. So sickening how our system works anyway...

So if you make $100,000 in income a year, in the State of Tennessee in America, you'd end up with 22.7% tax rate:
Total tax
- $22,659
Net pay
* $77,341

Let's say you buy $10,000 in stocks and sell a year later at $12,000 for 20% gains.
15% capital gains
- $ 300
So you're left with
- $ 11,700
Then inflation takes a bite (6.2%)
- $ 725.40
Total
- $ 10,974.60 or an actual gain of 10% | RIP 50% of investment gains...

Then let's say you use the remaining $ 67,341 for expenses
TN has a tax rate of roughly 10% so..
- $ 6,731.40 state tax

Total left is $ 60,609.60 + $10k invested so $ 70,609.60 - about 30% in taxes a year + $ 4,377.80 inflation and that goes towards healthcare? No. Education? No.

Healthcare and education are interest bearing for-profit items! So fun.

I'm sure my math may be off or I'm missing other things but this game sure is tough if you don't do tax write-offs, charity, etc.,

It's like walking down a road with a basket of apples and by the time you're at the end, you only have half an apple left to eat after laboring all day to pick them.

Really sucks....
 

GIlman

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If 40% of all USD was printed this year, why would inflation be more than 40%?
Inflation is impacted by two primary things. The quantity of liquid capital in the market, and the velocity of money. It is the velocity that you really have to watch. What is velocity, it is how quickly money changes hands.

As inflation increases, people start to lose faith in the ability of the fiat to store their "value" over time. When this happens, people start spending money quicker and quicker when they receive it. If you study history, such as the Weimar republic, you find things such as workers demanding to be paid daily because the money would lose too much day to day. You find people when they went out to eat would insist on paying before they were served because the prices could and would increase during the duration of their dinner. These are examples of extreme velocity, when money becomes a hot potato and literally people try to spend it as quickly as they receive it.

If this happens, then inflation from a 40% increase of money can be almost unlimited bounded by the ever increasing velocity that money takes on as peoples faith in it holding value evaporates.

This is the tipping point event to watch, look at the sentiment of people holding money. As you see that sentiment get worse and worse you would see inflation accelerate, which can be to unimaginable levels. Again looking at the Weimar republic, they say that all of the money in circulation at the before the inflation was not enough to purchase something basic (I don't remember what it was but say a sandwich or a radio, some common object) at the end of the inflation.

1637040161901.png

Am I claiming this will happen in the US, no, but it very well could and there are many other examples of this in history. So yes it's something to be aware of and it's smart to invest at least a portion of your net worth in hard assets that will go up significantly during a hyperinflation.
 

Zaratustra

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Inflation is impacted by two primary things. The quantity of liquid capital in the market, and the velocity of money. It is the velocity that you really have to watch. What is velocity, it is how quickly money changes hands.

As inflation increases, people start to lose faith in the ability of the fiat to store their "value" over time. When this happens, people start spending money quicker and quicker when they receive it. If you study history, such as the Weimar republic, you find things such as workers demanding to be paid daily because the money would lose too much day to day. You find people when they went out to eat would insist on paying before they were served because the prices could and would increase during the duration of their dinner. These are examples of extreme velocity, when money becomes a hot potato and literally people try to spend it as quickly as they receive it.

If this happens, then inflation from a 40% increase of money can be almost unlimited bounded by the ever increasing velocity that money takes on as peoples faith in it holding value evaporates.

This is the tipping point event to watch, look at the sentiment of people holding money. As you see that sentiment get worse and worse you would see inflation accelerate, which can be to unimaginable levels. Again looking at the Weimar republic, they say that all of the money in circulation at the before the inflation was not enough to purchase something basic (I don't remember what it was but say a sandwich or a radio, some common object) at the end of the inflation.

View attachment 40757

Am I claiming this will happen in the US, no, but it very well could and there are many other examples of this in history. So yes it's something to be aware of and it's smart to invest at least a portion of your net worth in hard assets that will go up significantly during a hyperinflation.
In this case Weimar republic would be an irrelevant comparison, as it was after the loss in WW1, country was destroyed, their economy was small and currency was not world reserve. I don't think America has any of those issues. Americans probably forget that USD is not only used in USA, but in other countries too, more than their local currencies. E.g. I use USD for almost all transactions, for pricing. Everybody I know does the same and covid made this trend even stronger due to unstable local currency.
Another reason why everybody holds USD, is that when purchasing anything outside the country, you get the base price in USD, while you need to pay additional fees for other currencies.
 
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GIlman

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In this case Weimar republic would be an irrelevant comparison, as it was after the loss in WW1, country was destroyed, their economy was small and currency was not world reserve. I don't think America has any of those issues. Americans probably forget that USD is not only used in USA, but in other countries too, more than their local currencies. E.g. I use USD for almost all transactions, for pricing. Everybody I know does the same and C0VlD made this trend even stronger due to unstable local currency.
Another reason why everybody holds USD, is that when purchasing anything outside the country, you get the base price in USD, while you need to pay additional fees for other currencies.

The extent of the problem may may not be as bad, but the dynamics of how and why the problem of increasing money supply, and velocity of money rapidly expanding leads to uncontrollable hyperinflation is the same, it is universal, and it is consistent regardless of all the facts on the periphery.

All fiat currencies always go to their intrinsic value of $0, the question is simply how long it takes - sometimes it's hundreds of years, sometimes it's a matter of a year or two.

Read about the inflation and struggles of the roman empire, although they are not identical today, there is clearly an echo of what we are seeing now...and history knows how that turned out.

 
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Zaratustra

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The extent of the problem may may not be as bad, but the dynamics of how and why the problem of increasing money supply, and velocity of money rapidly expanding leads to uncontrollable hyperinflation is the same, it is universal, and it is consistent regardless of all the facts on the periphery.

All fiat currencies always go to their intrinsic value of $0, the question is simply how long it takes - sometimes it's hundreds of years, sometimes it's a matter of a year or two.

Read about the inflation and struggles of the roman empire, although they are not identical today, there is clearly an echo of what we are seeing now...and history knows how that turned out.

Appreciate your explanation.
There happened to be full audio version of it in the end, just in case somebody is interested too:

Inflation and the Fall of the Roman Empire | Joseph R. Peden
 

lludwig

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I think governments are more interested in sacrificing their citizens than controlling them.
Altruism is a powerful force and is the basis of many things we see in the world.
 
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socaldude

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Imagine if we have another recession. Yields are pointing to slower growth. Also, if you have fixed-income securities don’t think rising yields will protect you. If it wasn’t for the Fed that 10 year would probably be 6.5%.

Say goodbye to the US reserve currency status. Rates are gonna have to go up. Stocks and bonds will probably go down together.
 

MoneyDoc

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Imagine if we have another recession. Yields are pointing to slower growth. Also, if you have fixed-income securities don’t think rising yields will protect you. If it wasn’t for the Fed that 10 year would probably be 6.5%.

Say goodbye to the US reserve currency status. Rates are gonna have to go up. Stocks and bonds will probably go down together.
I don't see how USA rates can go up. The Fed would shoot themselves in the foot. There is no way the Government will be able to service their debt at increased rates. This will likely make things worse.
 

lludwig

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I don't see how USA rates can go up. The Fed would shoot themselves in the foot. There is no way the Government will be able to service their debt at increased rates. This will likely make things worse.
The FED is boxed into a corner. Inflation is the only way out. So... more printing.
 
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jdm667

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I don't see how USA rates can go up. The Fed would shoot themselves in the foot. There is no way the Government will be able to service their debt at increased rates. This will likely make things worse.
I also don't see how they can raise rates and pay the debt, but on the other hand, who is going to keep buying all of their crummy bonds at close to zero interest rates? Unless they threaten negative rates (which some countries already have).
 

socaldude

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I also don't see how they can raise rates and pay the debt, but on the other hand, who is going to keep buying all of their crummy bonds at close to zero interest rates? Unless they threaten negative rates (which some countries already have).

Yeah of course they’re gonna print more money and push rates lower(they’ll try). They printed money the last 10 years even with unemployment low. And the stock market went up like a penny stock. But if they’re gonna push their stupid spending bills through the senate, interest rates will have to go up. Or, say goodbye to reserve currency status.
 
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GPM

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I am in Mexico now. The last I was here was from may-june of 2021. So like 5 months ago.

I can't believe the prices here. Movie tickets have increased by close to 50%. Gas looks close to the same. Cell phone pay as you go plans are up 50% as well. 28 days was 100 pesos, now that plan lasts 14 days. The 28 day plan is 150 pesos
 
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socaldude

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LOL stocks went up and interest rates went down on the news. Investors cheer a reckless central bank. Mind you stocks trade at lower multiples when inflation runs hot, and look where we are.
 

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MJ DeMarco

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Nothing like being off by the "expected increase" by a whopping 60%.

They're so removed from reality it's not even funny.

The US Producer Price Index added 0.8% in November following a 0.6% increase in October, above the 0.5% gain expected in a Bloomberg survey. The 9.6% year-over-year gain was the largest on record.
 
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thechosen1

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This all sounds lose-lose, like a vicious cycle. Other than buying defensive assets, how are y’all playing this?

I can see people buying gold, crypto, and using debt for real estate and business acquisitions.

The fixed rate debt may make the most sense as inflation knocks out the real cost of what you owe.
 

eamo

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Housing supply shortage and debasement of euro is causing housing prices to soar.
Bought a house in Q1 of this year for ~400k , I think it would go for 500k today judging by other similar properties being sold.
Fuel prices are at all time highs.
Agricultural supplies at all time highs including fertilizer, nitrogen and general hardware.
 
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YanC

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This all sounds lose-lose, like a vicious cycle. Other than buying defensive assets, how are y’all playing this?

I can see people buying gold, crypto, and using debt for real estate and business acquisitions.

The fixed rate debt may make the most sense as inflation knocks out the real cost of what you owe.
This is exactly my play. Although gold and cryptos are only a small part of my portfolio. Gold because it hasn't gone anywhere for more than a year which I don't understand given what's going on, and cryptos because I'm just getting started and maybe too risk averse to get more exposed (still adds some nice return overall). Biggest part is fixed rate debt for cash-flowing real estate. Given recent news, I guess I'll soon discover how it plays out !
 

biggeemac

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Just came out of an auction in Las Vegas..... Lots of crypto hardware and goodies from a failed investment. Everything was total high end. I thought I was gonna go it with 30k and make a killing. I ended up spending like $2k. Literally, anything I wanted sold at market or above market (motherboards, ram, processors, gpu's, power supplies). I had no idea that computer hardware had gotten so expensive. $3200 video cards......a few $7200 gaming computers. Ridiculous.
 
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thechosen1

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So, we are clearly experiencing unprecedented inflation (at least for recent history).

I'm wondering how high they will raise rates (they mentioned TRIPLING THEM on the latest meeting), and why their actions have been so different compared to thehigh rates of the 80's? Is it political activism on the part of the Fed?

Anybody have insight to this? I'm looking at @WJK in particular :D

Just watching for how BIG things could shift. If they went to double digit rates, wow.
 
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WJK

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So, we are clearly experiencing unprecedented inflation (at least for recent history).

I'm wondering how high they will raise rates (they mentioned TRIPLING THEM on the latest meeting), and why their actions have been so different compared to thehigh rates of the 80's? Is it political activism on the part of the Fed?

Anybody have insight to this? I'm looking at @WJK in particular :D

Just watching for how BIG things could shift. If they went to double digit rates, wow.
They announced that they are cutting back on the easing actions -- they are still systematically pumping money into the financial system. I read that they had increased the money supply by around 30% during the last year. And then they wonder why we have inflation!!!! The Feds are going to have to raise the rates because this inflation is not going away any time soon -- and they are starting at almost a 0% prime to the member banks. They were talking about a quarter of a point quarterly over the next year -- which is a drop in the bucket compared to what is needed to put the brakes on this situation. They are between a rock and a hard spot. These interest rate increases will increase the debt service on the national debt -- causing a lot of other problems. In my mind, the people who are in charge just don't get it! The inflation rate is similar to 1979, but we're not even close to putting on the brakes as they did then.

Some history -- in 1979, the mortgage rates for home loans were 9.5%. We took our normal Christmas season break. When we came back in January 1980, the rates jumped to 21% and 22% or more. EVERYTHING stopped cold.
 

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