Non-sterling savings (how to avoid hyperinflation)

Charles1968

Although there's a lot of talk about deflation hitting the UK economy, an increasing number of commentators think the UK could be heading for a bout of hyperinflation. If the government resorts to printing money to get the economy moving, then sterling will get trashed.

For anyone with substantial savings - for instance funds from sale of a house - this is an absolute disaster as hyperinflation will decimate wealth held in sterling.

I'm wondering what other forum members think is the best solution to protect yourself from this fate. There are several options: invest in property (though that's currently losing value quickly); buy gold; move savings into a foreign currency. The last option is the one I know least about. Any advice would be much appreciated.

amcluesent

>There are several options<

All of your options overlook futures, spread-bets and other hedges where the amount committed is far less than the principal being protected.

If gold takes off to $2000, options on gold will be stratospheric.

jon3001

Charles1968 wrote: »

I'm wondering what other forum members think is the best solution to protect yourself from this fate. There are several options: invest in property (though that's currently losing value quickly); buy gold; move savings into a foreign currency. The last option is the one I know least about. Any advice would be much appreciated.

Yeah - you're on the right track. Hard assets and foreign currencies are definitely defensive measures against local currency depreciation.

A simple way of getting exposure to the latter could be to buy a diversified global bond fund. Click for some examples on the market here.

A mix of reserve currencies (e.g. Euro/Dollar) and hard currencies (Yen/Swiss Franc) could be considered. Yes - they've all got their own risks too but thems the choices you make.

Inflation-linked bonds would be another asset class to consider.

I'll_Be_Frank

Charles1968 wrote: »

Although there's a lot of talk about deflation hitting the UK economy, an increasing number of commentators think the UK could be heading for a bout of hyperinflation.

Which commentators would those be? Do you have any links, quotes, sources, etc?

TIA.

Frank.

RayWolfe

Probably the Mail on Sunday!

Charles1968

I'll_Be_Frank wrote: »

Which commentators would those be? Do you have any links, quotes, sources, etc?

TIA.

Frank.

Link to the most recent article I've read is below. There are many others. If you didn't see episode 2 of "The Ascent of Money", I'd recommend watching it online for the piece about hyperinflation in Argentina. Anyone with savings or bonds or fixed income from pensions saw their wealth annihilated very quickly. Scary stuff. Same could happen here if sterling tanks and the gov't starts printing money.

http://seekingalpha.com/article/108421-is-bankrupt-britain-trending-towards-hyper-inflation?source=feed

Charles1968

Well, it looks like sterling is plunging again:
http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/currency/default.stm

Very bad news for anyone with substantial savings in sterling. And very good news for anyone who moved their savings into a foreign currency in the last few months, as the returns they would have achieved would vastly outperform even the highest interest rates.

As the trend is likely to continue, it still makes sense to get your savings out of sterling and into something safer.

Voyager2002

Charles1968 wrote: »

Well, it looks like sterling is plunging again:
http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/currency/default.stm

Very bad news for anyone with substantial savings in sterling. And very good news for anyone who moved their savings into a foreign currency in the last few months, as the returns they would have achieved would vastly outperform even the highest interest rates.

As the trend is likely to continue, it still makes sense to get your savings out of sterling and into something safer.

It does depend which foreign currency you chose. I doubt if many people who chose to invest in Zimbabwe dollars are celebrating right now, and yet I can remember when they were seen as a reasonably safe currency. And I think the comparison with Argentina is pure fancy.

Charles1968

Voyager2002 wrote: »

It does depend which foreign currency you chose. I doubt if many people who chose to invest in Zimbabwe dollars are celebrating right now, and yet I can remember when they were seen as a reasonably safe currency. And I think the comparison with Argentina is pure fancy.

who suggested investing in zimbabwean dollars? Seems like a straw-man argument to me. US dollars, Euros or yen would be the sensible choice. All safer than sterling at the moment. The UK is looking very exposed.

My original post was intended to elicit advice from anyone who knows how to shift savings conveniently from sterling to a safer currency, but so no clear answers so far... hopefully someone out there knows a bit about this.

purch

However, the more probable outcome of stagflation for many years (low economic growth, high inflation and interest rates) that erodes the value of domestic debt and savings

Is the Conclusion of that piece you linked to;

how to shift savings conveniently from sterling to a safer currency

Go to your Bank and ask them to sell your GBP and to buy whatever you want.............it's not rocket science.

As for the USD.....remember the U.S. has many of the same fiscal problems faced by the U.K. and also remember Ben Bernake is an expert on the 1930's and often looks to that era for answers to current problems, he is on record as saying the U.S. must avoid deflation and he credits the revaluation of the USD against Gold in the 1930's as being the key to the avoidance then.........so the U.S. do not want the USD to be overly strong..........something to bear in mind.

If you have faith in the EUR :rotfl: ..............I just hope the experiment stays around long enough.....

JPY............alot of the recent upmove is the deleveraging and unwinding of carry trades, and repatriation of funds by domestic Japanese investors......I don't see that continuing for ever.

Lansdowne

I suppose one option is to buy funds that invest in equities/bonds worldwide or that are priced in the currency of your choice.