Outsmarting hyperinflation

Very few people understand inflation, and of those, only some expect a hyperinflationary scenario. Of this small crowd, some think that the best way to "win" from a hyperinflationary scenario is to buy a big expensive house with a large mortgage.  The idea is that your debt gets inflated away and you end up with a house, essentially for free.

Now, I'm not going to profess to know how hyperinflation will turn out, but I would like to present a scenario for your consideration.

Let's look at the how those with a large mortgage will fair. Let's focus on the percentage of disposable income going to mortgage repayments, and how that will change during hyperinflation.

Let's consider a reasonably likely hyperinflation scenario. Each month, the price of food goes up 100%, price of petrol goes up 50%, your wage goes up 5%, and your house price goes up 10%, interest rates go up to 15%, and the tax rate goes up.

How long does it take before you can no longer afford to make the mortgage repayments, and are forced to sell?  How long after that does it take before that money runs out, and you are spending 100% of your after tax income on food alone?

And that's if you get to keep your job!

And house prices don't fall!

Note that  in most Australian mortgages, the bank can foreclose on your mortgage if the price of your house falls below the amount owed on the house - even if you are fully up to date with your repayments.

Beware - any changes in the law will be to help out the banks, not the common man.

Another common "bad" strategy to outsmart hyperinflation is to wait for  some symptoms before acting. Most people will be looking at the wrong place for the symptoms. CPI is a trailing indicator of inflation - the last place that will show inflation. It's designed that way.

The leading indicators are the gold and oil prices. Gold has gone up 15% pa for the last 10 years.  Those looking for symptoms should be able to see them right now.

So, the way I see it, the way to outsmart hyperinflation is to get out of debt, buy some gold, and get on a bike..