If the peso devalues at a rapid rate, then construction items might be the next bargain. Instead of raising prices to compensate for the collapse in the peso, construction items especially have a logical limit to which prices can not surpass. That limit is the point where raising prices to compensate for a peso collapse prohibits the sale of construction items. As a result, the sellers would rather sell at a price that represents a loss rather than not being able to sell at all.
The reason being is that a peso collapse as experienced during Hipolito's regime could have gone to a point where the sellers would have lost it all at any price whether high or low. Unable to tell at that point in time if the peso was going to 100, sellers were desperate to gain some currency at a loss price rather than no currency at all at a very high price.
Now food items are different. In a peso collapse, food items would be demanded in earnest by the populace. The demand side or the purchasers of food items would essentially bid the price ever higher for fear that food products would soar to rates that they could not afford. In this scenario, the sellers of food items could price gouge the population without the adverse effects that occur under the previous scenario.
What about housing prices? A rapid collapse in the peso would be accompanied by a sharp decline in housing prices. It could reach a point where houses in a hyper-inflationary event would drop to levels of worthlessness. The demand for food items by the populace would exceed the demand for housing. Those that have homes would want to get out of their homes in such a massive rush to garnish food items that housing would drop dramatically. In essence, those who bought at the top of the Dominican housing bubble would lose most of their value.
Lastly, those who owe money would be rewarded because in such a rapid peso collapse, you could pay back loans with hyper-inflated cash. The speed with which the peso collapses would exceed any bank attempts to compensate with onerous rises in interest rates. If you have dollars, then the payback would be a fraction of what you initially started with. During Hipolito's term, I knew of some Dominicans that paid back many tens of millions in a dollar-peso swap that essentially dropped their loans to close to half of their value.
These scenarios presented are one of some possible alternatives in an hyper-inflationary trigger event. As in all such crisis events, timing is crucial to catch you on the winning side.
Additional Hippo effects:
- Foreign Investments in the DR fall 25% year over year during his term in office.
- Robert of DR1 leaves permanently for Columbia
In an hyper-inflationary event, no country will be spared nor will any offer solace. The interconnectedness of the main financial institutions has produced in essence one economic system. Central banks and the IMF have equalized all economies in a desire to create an economic pseudo-stability arena. Even small nations like the DR are being given the same prescriptions that are given to key nations which if they falter could lead to global crisis. I'm not saying if the DR were to fall, it would bring down the world order.
Nothing of the sort. What is happening is that when the DR falls, the rest will fall in tandem, not out of a domino effect, but the synchronicity with which economic prescriptions are given. Or other nations will fall in a domino effect and the DR being given the same remedies will fall as a result. It's what I wrote about in the correlation of all asset classes being eerily similar as to a point in time just prior to LTCM's collapse.