The Fiscal Cliff and Hyperinflation

Focus: MARKETS

John Reed Image John Reed Author and Publisher, John T. Reed's Real Estate Investor's Monthly

What could happen if the US can't pull back from the fiscal cliff? John Reed discusses the implications for investors.

How can you protect yourself against hyperinflation or even depression? We are talking about that today with John Reed. Now John, you have actually written a book with that very title. Tell us your ideas.

I wrote the second edition...I just finished this week because the first one sold out. Basically, I could see a lot of trouble coming up, and I'm not the only one-everybody says the current fiscal policies are unsustainable, but they don't talk about what that means. So my book is 320 pages about what unsustainable means, and it means they are going to stop, what we are doing is going to stop.

Congress and the President basically have two choices: they can cut spending about 50%, because that is about what the deficit represents in terms of federal spending; or they can print money, which is sort of illegal and immoral. But I think that is the choice they will make: they will print money when they can no longer sell US government bonds.

They need to pay Social Security recipients and Medicare, and when the bond buyers stop buying the bonds, they either have to cut spending drastically or print money. I think they will print, and that causes hyperinflation.

Now given all that then, what are your suggestions for the citizens to protect themselves?

Well, hyperinflation makes the US dollar worthless fairly rapidly. In Germany, for example, when they had hyperinflation, before it started you needed four German marks to buy a US dollar.