How to protect against hyperinflation

My first trip to a Swiss bank was not at all what I expected...

I don't know about you, but I expected something out of a spy novel... You know, a beautiful young woman behind a wood-panelled counter, asking for your secret account number and whisking you down to an impenetrable vault. I expected to see guards everywhere, courteous... but packing heat.

I was a guest of a rare coin wholesaler. To get into the vault, we walked up to a counter that could have been in a bus station. The vault itself looked like a big locker room at the local gym.

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"Zurich ain't what it used to be," the coin dealer told me.

"When FDR made it illegal to own gold in America in 1933, all the smart or rich people sent their gold coins to Swiss banks," he said. "For decades, I'd come over to these Swiss banks, load up with pre-1933 US gold coins, and then sell them to coin dealers back in America."

This US coin wholesaler introduced me to the head of the bank's coin department. "We're essentially out of US coins," the banker told us. "We actually go to America to buy US coins. We bring them back to Switzerland to sell, because clients think we'll have them."

The bank had been picked clean. The few coins the bank did have were not desirable. They had mint Swiss Helvetias but these are widely available. And they had a few particularly old coins from Turkey and Colombia. Our host bought a couple of those for his own collection. I think he was just buying to be polite.

My friend Michael Checkan (of www.assetstrategies.com, one of my favorite bullion dealers) has also spent the last 40 years flying back and forth from Switzerland, dealing in precious metals and foreign currencies. Michael sent me some mail this week, with three bills inside... one crisp Iraqi dinar and two extraordinary bills...

A $50 trillion note and a $100 trillion note from Zimbabwe. (That's how I touched $150 trillion yesterday!)

The truth is, these notes are worthless... In August 2008, Zimbabwe lopped ten zeros off its currency so an old $10 billion Zimbabwe note became worth one Zimbabwe dollar.

You'd think that would have taken care of things... a fresh start. But seven months later, in February 2009, Zimbabwe had to lop off another 12 zeros.

I tell you this because the United States is following Zimbabwe's programme. The US is printing money at a faster rate than ever before, and hoping it does some good. The important thing to understand is this: Just because serious Zimbabwe-style inflation hasn't happened here doesn't mean it can't happen.

Michael Checkan often passes out "souvenirs" when he speaks. He passes out now-worthless bills from countries all over the world. I probably have worthless bills from more than 100 countries right now.

I get a kick out of million-peso notes from all over South America. The 50 million deutschemark note from Weimar Germany is interesting. But the Zimbabwe bill with "$100,000,000,000,000" written on it now takes the cake.

By passing these notes out at speeches, Michael is making a point about the power and danger of a government printing press... He doesn't say much. Worthless bills from over 100 countries are evidence enough. They make his case.

That's why Michael and my coin dealer friend are interested in gold...

It's getting harder to come by. The Swiss banks are out of pre-1933 gold coins. The premiums on "raw" gold coins are at record highs. And the mint now sells out of its gold coins.

It's no surprise gold has tripled in price in the last eight years. The old saying "you can print more dollars, but you can't print more gold" seems to finally be carrying some weight in the market. Let's hope our government doesn't go as far as Zimbabwe before it learns the lesson, too.

This article was written by Dr. Steve Sjuggerud for the free daily investment newsletter DailyWealth