Now Reading A Book On How To Profit From High Inflation
I am currently doing one of the two major assignments for my online MBA Financial Management module. I am to write about the economic impact of United Kingdom (UK) on the world and itself. So I have been reading a lot on United Kingdom, their entire economic history from as far back as the 18th century. It was a big eye opener.
United Kingdom is a country with big problems. Maybe not as big as ours but big nonetheless. They used to be the global power, controlling the quarter of the world directly (via colonialism) just about a 100 years ago. They were devastated by the two world wars though they won. Their global power status waned and never recovered. Then the rise of other economies especially the Asian ones killed their manufacturing and physical goods export economy.Took them decades to adjust properly to that global shift as they were no longer a comparative advantaged producer of many physical goods, from steel to clothes. By the time of Margaret Thatcher, they successfully compensated for that drop in manufacturing and agricultural sector with a phenomenal rise in their financial services sector. UK became the global financial services HQ. House to the international arms of over 500 banks, and the foreign direct investment that came along with that status was huge. It became like what crude oil is to Nigeria. Unfortunately, it made them very vulnerable to every financial crisis even in other parts of the world. The same way we are at the mercy of global crude oil price as 80% of their GDP come from services and financial services is a significant component of that with over-sized national importance due to its FX influx/gateway role. All these grace to grass global significance of UK has been the source of their never ending political revolution. The leading party is always being ousted by another party taking the advantage of these problems. And all recently came to a new head when they politically decided to quit the EU.
After reading all these deep insights into the UK’s transition from a global power to a shadow of its former self with greatly reduced global influence, I took out one key lesson. That all countries have their own bags of problems and opportunities, and I am better off picking where I feel most at home and learn how to max out the opportunities there rather than being obsessed with a search for greener pasture. And one practical decision I made immediately was to buy a book on how to profit from high inflation.
The developed world live in an entirely different financial world than us. They have very low inflation rates, usually less then 2%. And that makes a universe of difference between what you can attempt there and here. It is why their governments can afford to borrow money crazily since the interest payments are very low when you borrow at 1% to 3% rate compared to the rate our dear Nigeria borrows at. Also, the special credit facilities like mortgages and educational loans will have a tough time working in a high inflation environment like ours. Finally, if one doesn’t learn to manage his financial resources well he will see inflation lay its corrosive hands on everything.
I bought The Return of High Inflation: Risks, Myths, and Opportunities by Wolfgang Hammes.
It has been a very interesting read though I am just one-tenth into the book. It explains what assets to avoid and which to buy into if one hopes to retain the purchasing power of his money. It explains how high inflation changes the rules for all financial games/investment.
I am sure that by the time I am done reading the book I would be a lot more prepared to take advantage of the unique opportunities that lie in our high inflation country.
Originally published at www.olafusimichael.com.