Hedge Against Inflation - Don't Let Your Purchasing Power be Destroyed

As we have mentioned, the argument for alternative investing is a compelling one from an asset diversification perspective.  One other factor that we believe investors should also consider is that GreenWorld’s investments are also an excellent inflation hedge.  If you believe inflation may result from centrals banks’ printing money (QE) during the financial crisis , then ask yourself the following question:   What type of investments would you want to have to hedge against any inflation – or even hyperinflation created by QE?

Inflation in the UK reached 25pc in 1975 - could QE cause a similar spike?

Many well-known economists on both sides of the Atlantic (such as Paul Krugman for example) argue that a “moderate” amount of higher inflation now is an ideal debt reduction solution as it allows debtors — especially governments — to pay back their loans in devalued currency by eroding the real value of debt.  As noted Telegraph commentator Ambrose Evans-Pritchard has pointed out,  the UK and US are using QE as a strategy to inflate away debt, which is essentially a form of stealth default.  For those who do not remember, however, the 1970′s are proof that inflation can quickly skyrocket – just to take one example, it peaked at 25pc in the UK in 1975!

Why do we bring up this whole subject of QE??  Because throughout history, the preferred solution of heavily indebted governments and societies is to inflate away the debt through printing massive amounts of new currency as central banks are doing today. In some cases – take Weimar Germany for instance – so much money was literally printed that hyperinflation resulted.  In the past, most currencies – at least in the West – were actually backed by something of real value, usually Gold.  Today, however, all currencies in the world are fiat currencies.

What is a fiat currency?  A fiat currency has nothing behind it – no gold or any other asset – and hence that fiat currency only possesses value because the government says it does.

If unlimited QE continues, even the Dollar could end up as toilet paper

Under a fiat money system, there is literally no limit on the amount of money that can be created by the government, as the money is tied to nothing at all but the government’s decree.  It is the existence of fiat currency that allows governments to print as much new money as they want through QE.  What happens if there is a widespread loss of confidence in a fiat currency?  In a worst case scenario, we could  even see something as extreme as hyperinflation, where paper currencies like the dollar are (perhaps literally) used as toilet paper.  While hyperinflation may sound far fetched, one need only look at the example of Weimar Germany to see how printing unlimited amounts of money can lead to high inflation, and ultimately the complete collapse of the currency.

Consider the debts that have been built up in western countries – Greece’s government debt is over 160% of GDP.  Likewise, in many western countries, total debt to GDP now exceeds the level of the Great Depression.  In the UK, total societal debt is projected to hit £10 trillion by 2015, a ratio of GDP to debt of nearly 400%.   Meanwhile, the European Central Bank is about to print new money to buy unlimited amount of bonds from Southern European countries to prevent the crisis from spreading.  The reality is, there is no way debt of this magnitude can ever be paid back, and the reality is it will either be defaulted on and/or inflated away.

Inflation has reduced living standards as everything from gasoline to food continues to rise in price

This means that any investor considering alternative investmentsshould be thinking about “real asset” investments that cannot be printed by global central banks.  This means that even if inflation rises considerably, the nominal value of your investments will keep pace with inflation and protect you from the hazards of QE.  In a worse case, in the unlikely event that it occurs, real assets will hedge against hyperinflation.  The reality is, if you do not have a strategy to hedge against inflation, you have are leaving yourself at the mercy of the same governments who contributed to this ongoing crisis.  The nice thing is, GreenWorld’s investments were also chosen with this perspective in mind..

Furthermore, as global instability continues to develop, individuals – especially those in countries such as Russia and China where governmental action can be more arbitrary – would be wise to add at least some offshore investments to their portfolio as part of a proactive asset protection strategy.  GreenWorld and our partners understand the challenges facing higher net-worth individuals in developing countries, and are prepared to construct customized offshore investments solutions that provide for secure asset protection strategies that take advantage of the full range of global investments available.  Rest assured – we will protect you and assist you in your asset protection strategy.

We encourage you to contact us at info@greenworldbvi.com