Sep 13, 2020

Cory Diary : Hyper Inflation Thoughts

Hyper-Inflation is when prices of goods rocketed so high that our saving in the banks has it's purchasing purchasing power deteriorate exponentially. A cup of coffee costing $1.20 today may cost $5 tomorrow. And probably $100 by end of the week. As you can see, basically our saving got burnt through like toilet paper literally.

So for folks out there who's complaining about inflation that a cup of Kopi that only cost $0.40 more than 20 years ago, compounded across 20 years is actually only 5.6%. This is not really a big deal considering this is small price item relative to our salary even though it may not enjoy same amount of rise in percentage. So we see nothing yet on what Hyper-Inflation can really do to our cost of living But it can happen if our country is mismanaged.

One of my kiasi theoretical thought is what-if we have a Hyper-Inflation or something that is large enough which are of concern. To clarify I aren't anticipating one but at the same time we can't guaranteed it won't happen in our lifetime. Say we decided to migrate to a less developed country where the financial management may not be as robust.

In the olden days probably from recent major wars to more than thousand of years ago, people will probably keep physical gold. In modern time, physical Gold is still quite relevant but I feel that we have much better option today than in the past to have too much gold or silver in our home.

First thing I would ensure is to have a property under my name. Basically it will just hedge through the increasing cost and I will still have a roof over my head with no escalating rental worries. The interesting thought process will be what happen to our housing loan while Hyper-Inflation do it's work ? Right, if you think as cunning as me, our payments to the bank will be drastically reduced in purchasing power term so it works wonder to have loan.

However, if the contract allows the banks to adjust the payment rate terms, we could also be receiving revision of interest rates at exponential level too ! Regardless the Gov will step in too to ensure the banking system remains sound. What this mean is the banks will still Win. This could mean the outstanding loan will be re-stated and we may be even larger hole after.

Secondly I would do better is to ensure I have stocks. This do well when inflation is moderate but in Hyper-Inflation scenario, any loans could also put the companies in big trouble as the loan could also be re-stated destroying shareholder values. So just with this two cases, if we are expose to country specific risk, then we will do well with diversification.

If we try to deduce and stay ahead in the game, don't face the Hyper-Inflation at all. Is not a game we can afford to play. If we have to go through it. No loans. Have foreign bank account and currency exchange and remit process tried. Maybe this will work ?


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