Inflationomics

A Tale of Two Brothers

How do you prepare for hyperinflation?  Warren Buffett bought a railroad. 

Let me tell you a story…a tale of two brothers and how they faced hyperinflation.

It was 1919, just after WWI in Germany when two brothers inherited equally large sums of money.  (At that time, Germany used Marks, and the exchange rate with the U.S. dollar was roughly 32:1.)  The brothers were very different in nature—one was the successful, responsible businessman (like you), very conservative and well respected in town.  The other brother was more “care-free.” Some folks thought of him as a wino.

The businessman put his money in the bank to earn interest, while the wino bought bottle after bottle of…wine (of course).  Not long thereafter, the rate of inflation grew—15%, 30%, 200%, 5,000%—until the exchange rate with the U.S. dollar reached 4 trillion Marks per U.S. dollar, in 1923.  Naturally, the money held in the bank by the businessman brother became worthless.  The businessman lost his business as well—unable to keep up with price changes.  He was destitute, impoverished by the hyperinflation.

The other brother, on the other hand, had a warehouse full of bottles, which had become quite valuable, as they were no longer being manufactured locally, and yet they could be used to transport water (and wine), which was in great demand.

The moral of the story: during inflationary times, put your money into tangible assets, not the bank where your claims are for paper currency.

Robert Jackson Smith

P.S.  In 2008, when I interviewed Mr. Byron Zamasiya in Zimbabwe, during their hyperinflation, one of the things he said people were hoarding was bottles!  A coincidence or commonality?  Ever since then, we’ve been keeping our plastic (petroleum based) and glass containers rather than throwing them out.  Perhaps you should do the same, just in case…you can’t afford a railroad.

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