Is Smart Business a Hedge Against Hyperinflation?


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4-12-11

There’s a lot of talk these days about hyperinflation. Hyperinflation is an economic term that refers to inflation that is very high or out of control. There are a couple of definitions of when inflation actually becomes hyperinflation. The International Accounting Standards Board says hyperinflation occurs when the cumulative inflation rate over three years is approaching 100%. That’s 26% per year, compounded for three years.

There are a few countries who hit that target last year, including Argentina.

What does hyperinflation mean in practical terms? It means that your salary lags behind the cost of food, fuel, utilities, clothing and other necessities of life. It means the money you have in the bank becomes less and less valuable, until you get to the point where the only way you can stay ahead is to create tons of debt and buy as much as possible.

How can you prepare for hyperinflation? The general strategy is that you buy gold if you expect hyperinflation. There is one big problem with this strategy. There is no cash flow. You can chisel little pieces of gold off of the gold bar but not without diminishing the value of the accumulated gold itself. So, while gold is a hedge against hyperinflation as far as protecting your accumulated assets, it’s not a plan for general living. You can’t create cash flow.

If you currently work for someone else, you will be hit hardest by hyperinflation. Every time you go to the gas station or the grocery store, the cost of items will be increasing, sometimes even doubling. But your paycheck stays the same.

How do you pay the bills each and every day during hyperinflation? My favorite plan is to have a business. A smart business that is agile and has systems in place to spot winners quickly and cut losers even more quickly, can be the best bet for any kind of uncertain economic times.

Some key points to take advantage of these unique times for your business:

  • Set up to sell globally
  • Take advantage of technology to increase speed and reduce costs
  • Use global resources
  • Keep close track of your stats and financial statements.

The more diversified your business can become for sales, marketing and fulfillment, the more choices you’ll have if the market takes a big change.



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