The Inflation King

Porter Comment: I’m turning today’s Journal over to Handre van Heerden. Handre is a young Austrian School economist from South Africa. He’s become my favorite writer on X.com (@Handre). This week he wrote about why using debt is so powerful during times of high inflation. In my personal investment account, I’m using between 50% and 300% leverage. I believe that learning how to use leverage wisely in a low-beta, balanced portfolio (like Porter’s Permanent Portfolio) is one of the few true secrets of the world’s current financial system. In “hard” money systems, it pays to save. In paper money systems, it pays to borrow.

Here’s Handre…

Hugo Stinnes built the largest private empire in Weimar-era Germany.

He did it by doing something most people thought was reckless. He borrowed. Constantly. Aggressively. In German marks.

Stinnes came from a coal family in the Ruhr Valley. He ran a solid industrial operation before World War I. When the war ended and Germany began printing marks to pay its reparations debts under the Treaty of Versailles, most citizens watched their savings dissolve. But not Stinnes.

While German citizens hoarded paper marks in mattresses and savings accounts, Stinnes borrowed enormous quantities of those same marks from German banks, then immediately converted them into real assets: coal mines, steel plants, newspapers, shipping lines, hotels, forests, paper mills.

By 1923 his conglomerate, the Stinnes-Konzern, controlled over 1,500 enterprises across Germany, Austria, Luxembourg, Belgium, England, and the Netherlands. He employed roughly 600,000 people. The inflation that ruined an entire generation of German savers made Hugo Stinnes incomprehensibly wealthy.

How did he do it?

When a government or central bank expands the money supply, the purchasing power of each existing unit of currency falls. Prices across the economy do not adjust simultaneously. The new money flows into specific assets first, before it filters through to wages and consumer goods. Thus, whoever holds those assets during the transition captures a windfall. (Economists call this the Cantillon Effect.)

Stinnes borrowed in a currency he correctly identified as dying, bought hard assets whose value was tied to physical reality rather than government decree, and then, later, repaid his loans in marks worth a fraction of what he had borrowed.

After the Weimar hyperinflation, the value of what he owed was virtually nothing. He got the hard assets he bought with loaned marks for free.

The same thing happens today too, most commonly in housing. You take out a mortgage denominated in dollars, a currency the Federal Reserve has expanded by over 50% since early 2020. You hold a fixed-rate liability in a debasing currency while the asset itself reprices upward. The bank receives dollars of diminished purchasing power over 30 years. You own the land and the structure.

The reason property specifically has captured so much of the post-2020 inflation is that new money always travels along the path of least resistance toward collateral-eligible, financeable assets. Residential real estate sits at the center of the credit system. Banks lend against it readily. Institutional buyers treat it as a store of value.

When the Fed slashed rates to near zero and Congress distributed trillions in fiscal transfers, that purchasing power flowed directly into housing markets with predictable results: U.S. median home prices rose from $329,000 in early 2020 to over $420,000 by 2022.

When Stinnes died in 1924 he was the wealthiest man in Germany.

Tell me what you think of Handre’s contribution to today’s Daily Journal: porterstansberrydirect@gmail.com

Good investing,

F. Porter Stansberry
Stevenson, Maryland

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