Protect Against Hyperinflation
What exactly is hyperinflation? In a nutshell, it is a massive and rapid increase in the amount of money available that is not supported by a corresponding growth in the amount of goods and services. In other words, there is an imbalance between supply and demand for paper money. Given these facts, how can one protect against hyperinflation?
The most important thing is to take advantage of the above formula and exchange depreciating paper money for increasing finite assets. What are finite assets? One the most common finite asset would be raw land. The government can print trillions of new dollars, but it can't print one acre of new land.
So let's provide a simple example of how buying raw land would protect against hyperinflation.
Let's take the case of two hypothetical people, Mr. Jones and Mr. Smith. Mr. Jones has $1 million cash in the bank and he uses this cash to purchase 2,500 acres for $400 per acre. Mr. Smith also has $1 million in the bank, but he elects to leave it there. Thereafter, let's suppose, for illustrative purpose only, that the federal government prints enough new dollars to match all the existing dollars currently in circulation.
What does all of this mean?
It means that being as there is now twice as many paper dollars available, the value of previous dollars are worth half of what they used to be. It also means that since no new land was created, the same amount of land still exists. Therefore, if there are twice as many dollars to buy the same finite supply of land, that land will sell for twice as many dollars as it did previously.
The end result for Mr. Smith is that he still has his $1 million cash in the bank, but it is only worth (in buying power of goods and services) one-half of what it was before the government printed the new dollars. Mr. Jones, however, had 2,500 acres worth $800 per acre, or $2 million. Mr. Jones knew how to protect against hyperinflation by exchanging his dollars into an asset that the government couldn't reproduce.