John Williams of Shadowstats.com has just made public his 2012 Hyperinflation Special Report and it reveals the importance of making preparations. He specifically mentions that the economy will likely be reduced to a barter economy for a short period. Members should login to our site and download our Barter Tycoon report and begin sharpening their skills. If you are not a member yet you can subscribe by clicking here:

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Here is an excerpt from John’s latest hyperinflation report:

Hyperinflation Nears

As previously noted, before the systemic-solvency crisis began to unfold in 2007, the U.S. government already had condemned the U.S. dollar to a hyperinflationary grave by taking on debt and obligations that never could be covered through raising taxes and/or by severely slashing government spending that had become politically untouchable.  Also, the U.S. economy already had entered a severe structural downturn, which helped to trigger the systemic-solvency crisis.

Bankrupt sovereign states most commonly use the currency printing press as a solution to not having enough money to cover obligations.  The alternative here would be for the U.S. eventually to renege on its existing debt and obligations, a solution for modern sovereign states rarely seen outside of governments overthrown in revolution, and a solution with no happier ending than simply printing the needed money.  With the creation of massive amounts of new fiat dollars (not backed by gold or silver) comes the eventual full destruction of the value of the U.S. dollar and related dollar-denominated paper assets.

The U.S. government and the Federal Reserve have committed the system to its ultimate insolvency, through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, gross mismanagement, and a deliberate and ongoing effort to debase the U.S. currency.  Yet, the particularly egregious fiscal and monetary responses to economic and solvency crises of the last five years have exacerbated the government’s solvency issues, bringing the great financial tempest close enough to making landfall that the hairs on the backs of investors necks should be standing on end.

Numerous foreign governments/central banks have offered unusually blunt criticism of U.S. fiscal and Federal Reserve policies as the crisis has expanded, but the perceived self-interests of the U.S. government and Fed always will come first in setting domestic policy.  Where both private and official demand for U.S. Treasuries had been increasingly unenthusiastic, the Fed—the U.S. central bank—effectively has been fully funded Treasury needs for most of 2011, with its “quantitative easing,” becoming a euphemism for Fed monetization of U.S. Treasury debt.

Further easing by the Fed is likely in the months ahead, as the ongoing economic turmoil triggers significant further fiscal deterioration.  Those actions should pummel heavily the U.S. dollar’s exchange rate against other major currencies.  Looming with uncertain timing is a panicked dollar dumping and dumping of dollar-denominated paper assets, which remains the most likely event as proximal trigger for the onset of hyperinflation in the near-term.

The early stages of the hyperinflation would be marked simply by an accelerating upturn in consumer prices, a pattern that already was initially in response to QE2.  Also, money supply velocity (see Inflation and Money Growth) will spike, as the U.S. dollar, again, comes under heavy and even disorderly selling pressure, with both domestic and foreign holders getting rid of their dollar holdings as quickly as possible.  One factor that can contribute to rising velocity is the current circumstance where U.S. investors cannot get a safe return that beats inflation, as reported by the government.  Investors can do better by buying a store of products that are rising price, rather than by holding cash or a Treasury bill.

Given the current lack of political will by those controlling the U.S. Government to address the fiscal solvency issues, the U.S. has no way of avoiding a financial Armageddon.  Various government intervention tactics might slow the process for brief periods, and the system always is vulnerable to external shocks, such as wars and natural disasters.  Government actions could include supportive dollar intervention, restrictions on international capital flows, wage and price controls, etc.  Effects of any such moves in delaying the onset of full hyperinflation, though, would be limited and short-lived.  There is no obvious course of action or external force at this point of the process that meaningfully would put off the nearing day of reckoning.

What lies ahead will be extremely difficult, painful and unhappy times for many in the United States.  The functioning and adaptation of the U.S. economy and financial markets to a hyperinflation likely will be particularly disruptive.  Trouble could range from turmoil in the food distribution chain and electronic cash and credit systems unable to handle rapidly changing circumstances, to political instability.  The situation quickly would devolve from a deepening depression, to an intensifying hyperinflationary great depression.

While resulting U.S. economic difficulties would have broad global impact, the initial hyperinflation should be largely a U.S. problem, albeit with major implications for the global currency system.

For those living in the United States, long-range strategies should look to assure safety and survival, which from a financial standpoint means preserving wealth and assets. Also directly impacted, of course, are those holding or dependent upon U.S. dollars or dollar-denominated assets, and those living in “dollarized” countries.

Physical gold (sovereign coins priced near bullion prices) remains the primary hedge in terms of preserving the purchasing power of current dollars.  In like manner, silver is in this category.  Also, holding stronger major currencies such as the Swiss franc, Canadian dollar and the Australian dollar, likely are good hedges (see Financial Hedges and Investments).

In terms of survival on a day-to-day basis, U.S.-based individuals should be building a store of goods in preparation for a manmade disaster, much as they would for a natural disaster such as an earthquake.  Economic activity probably would devolve to a barter system, but such could take months to become fully functional (see Barter System).