currency devaluationIn light of the recent events in Cyprus, where the banks will reportedly remain closed at least through March 26th and the likelihood that Cyprus will exit the Eurozone, re-institute the Cypriot pound and devalue the currency is growing by the minute, we thought it apropos to republish LRS’ first hand account and experiences recognizing, surviving, and even profiting from the devaluation of the Mexican Peso in the late 1970′s.

For those unfamiliar with the account of the 1976 Mexican Peso devaluation (and anyone who has not experienced a currency devaluation first-hand), this is an ABSOLUTE MUST READ as while the Cypriots may be the first, they will undoubtedly not be the last to devalue their currency before the global financial debt crisis is over.

LRS, who successfully saw the Peso devaluation coming and side-stepped loss of wealth by converting his funds into US dollars, states that Americans must:
Read the writing on the wall, and extricate yourselves from your US dollar positions. 
Physical gold and silver bullion and coins will be the ultimate protection and wealth preservation assets during the coming devaluation of the US dollar.
My experience with the peso devaluation makes it necessary for me to move my investments away from paper into physical gold and silver.
  It is going to be a very tough time for the US and I anticipate the Mexican devaluation will pale in comparison to our dollar devaluation.

LRS’ full first-hand account of the Mexican Peso devaluation is below:

 

In 1976 I was managing an American subsidiary of a successful large US Company in Mexico. It had been a financial turnaround for our team. Cash flow had accumulated in our bank in Mexico and corporate didn’t want the money repatriated to the US. Although we had already paid a 35% income tax to the Mexican government, we would have to pay an additional 30% exit tax to repatriate the money. In addition, we would have to pay high fees for the peso/dollar exchange, in order to make the transfer. The company wanted to expand our successful business and so we decided to keep the money in Mexican pesos to be used for further expansion.

One morning, as my wife and I were on a trip driving on the highway, we heard a national message from the President of Mexico, Luis Echevarria, one of the most corrupt presidents in Mexican history. “It is a lie that we are going to devalue the peso,” he said.

I stopped at the nearest motel to make a collect call to the US headquarters and I asked my boss, the head of the International Division, to allow me to immediately open a new US dollar account in Mexico. I wanted to convert the pesos into dollars for deposit. My boss, laughing, asked me why I wanted to do that and I responded that the peso was going to devalue. He asked me how I knew this and I told him that the President of Mexico had gone on the radio and announced that rumors of a devaluation of the peso were false, which meant they must be true. He continued to laugh but allowed me to open the account.

I then called my CFO and directed him to go to the bank and get everything ready for me to sign leaving only the necessary funds to continue to operate. We immediately returned to Mexico City in time before the bank closed. Everything was ready for my signature, but the bank manager was rather bewildered and probably thought I might be overreacting.

One week later the peso was devalued from 12.50 pesos to $1 USD, where it had been for decades, to 26.00 pesos to $1 USD. A few days later it improved to 24.50 pesos to $1 USD. The reason for the devaluation of the peso was simply that it had been pegged to the USD for too long and they rose and fell in unison. Because of better economic conditions in the US, the dollar continued to go up in value and the peso increased in value artificially. Mexican goods were too expensive to trade with other countries and hence the devaluation, which allowed exports to increase. For the first time in decades the peso was allowed to float and since then it has been allowed to freely rise and fall against the dollar. The decision to devalue the peso was made by the president, which made him unpopular, as well as his economic advisers, which included the Secretary of the Treasury and Chief of the Central Bank of Mexico.

Everyone in the country was in shock. People’s net worth had devalued more than 53% overnight. The value in savings accounts dropped in half and neither merchants nor consumers knew how to react because they had never been through anything like it before. Luckily for me, I had also exchanged my money and my salary had been set in US Dollars when I signed my contract with the company to work in Mexico. For me, it was like getting a 100% raise, since for a long while; my house rent remained the same as well as utilities, clothing etc. I remember that on my boss’s next trip, he bought himself a couple of nice suits at a nice discount.

Businesses were unable to immediately raise their prices. They had to raise them slowly, and through many sacrifices. The positive side was that the company had a loan in Mexican pesos for an expensive property and was able pay it off with the new dollars at practically a 50% discount. Before the devaluation, we had been leasing other properties, some of which had expired and had been on a month to month basis. Thankfully, immediately before the devaluation, I renegotiated and signed some of the leases with modest increases for a term of 5 years. After the devaluation occurred, the landlords wanted to renegotiate these leases, but because of the terms, we enjoyed low rents for that period. Later, as we leased new properties, the owners introduced clauses tying the annual increases to the value of the US dollar, which appreciated every year until the recent fall of the dollar in the exchange rate.

Our attorney in his 50s, of German descent, who spoke English and Spanish with a German accent, didn’t take my advice on the oncoming devaluation. After the devaluation, he was so desperate that he came into my office one day, accompanied by another attorney that worked for him, carrying an old-fashioned suitcase, which he placed on my conference table. He opened the suitcase, which was completely filled with high denomination peso bills. I had never seen that much cash in my life and I was completely surprised. He pleaded with me to accept the money right then and allow him to purchase shares in our company. I told him that this was not the proper procedure, but he asked me to consult with corporate headquarters and insisted I put the money in our safe. As I expected, corporate said no and much to his distress, I returned the money to him.

People were so desperate to exchange their pesos into dollars that the supply of dollars dried up and some, who had them, sold them at a premium in the black market. (editor note: As the US dollar is currently the global reserve currency, this would likely play out in the US by gold and silver becoming immediately unavailable, and selling at massive premiums for the physical metal on the black market)

The situation was so dire that a presidential order was passed banning the banks from allowing customers to open US dollar bank accounts. A few years later, when the peso stabilized, this practice was reversed.

Of course, on my next trip to corporate headquarters, I was received like a conquering Roman hero. My boss kept asking me to tell other executives why I decided that the peso was going to be devalued. My answer was simply that I didn’t trust politicians and had decided that the president was telling a lie in his address to the nation. This, of course, was very funny to them after seeing the results.
Today, Mexico’s financial situation is very much improved and the peso has been appreciating against the USD. Mexico holds more than $120 billion in USD reserves.

Commodities are still mainly priced in dollars worldwide and this doesn’t fare well for other countries where there is a growing unrest amongst the population. The world governments blame this on the US government for passing laws allowing the Federal Reserve to print trillions of dollars out of thin air. This money has been used to bail out the banks and to purchase US bonds that countries like China, Japan, Russia, etc. are refusing to continue to purchase. The money received by the federal government is spent in the expanded military wars and countless pork barrel programs. The government is unable to control the budget deficits by cutting expenditures because of poor presidential leadership and irresponsible and politicized congress.

The US has agreed that something needs to be done. One of the most favored proposals at the G-20 meetings is to use a basket of currencies which would includes the USD, backed partly with gold to serve as a new world currency. This proposal would mean a further devaluation of the USD of 50% for the US to be able to participate in the program.

As long as we don’t repay our national debt, cut government spending, increase interest rates or stop the Federal Reserve from printing more dollars out of thin air, the dollar’s role of international reserve currency will soon end. China and Russia are already using their currencies to trade with each other, especially in oil purchases, bypassing the purchase of US dollars to make the payments.

Numerous countries are buying gold and silver to replace some of the dollar reserves and hedge the value of their dollar reserves. Mexico recently purchased nearly 100 tons of gold to replace some of their dollar reserves. We still don’t know how much American gold is in Fort Knox as no audits have been completed since the 1950′s. The rumors are that there are no gold reserves remaining. We know that the US mint is purchasing gold and silver blanks from Australia as domestic production is not enough simply to satisfy the demands for US Mint production! Either way, this is bad news for the US dollar and also for any of us living in the US.

My experience with the peso devaluation makes it necessary for me to move my investments away from paper into physical gold and silver. I am doing this more as a defense mechanism to ensure my net worth is not devalued. Economic think tanks are already conducting feasibility studies to predict the ramifications of the devaluation both domestically and internationally.

It is going to be a very tough time for the US and I anticipate the Mexican devaluation will pale in comparison to our dollar devaluation, not only to this country, but worldwide. What is the answer for Americans?

Read the writing on the wall, and extricate yourselves from your US dollar positions.

Physical gold and silver bullion and coins will be the ultimate protection and wealth preservation assets during the coming devaluation of the US dollar.

 

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  1. As long as we don’t repay our national debt, cut government spending, increase interest rates or stop the Federal Reserve from printing more dollars out of thin air, the dollar’s role of international reserve currency will soon end. China and Russia are already using their currencies to trade with each other, especially in oil purchases, bypassing the purchase of US dollars to make the payments.
    Basically the strong point for me. 

     

    • Worldwide fiat currencies are in trouble and the easy way out would be to devalue the derivatives market to zero. Would kill the TBTF banks but hey they need to be broke up anyway

  2. I am feeling a bit like a refugee here.
     I have been posting at TF metals for a long time, but the site has become so unreliable, I have decided to spend some of my time elsewhere.
     The people here have a good grasp of what is happening, and it seems to be a much smaller, but well-informed Group of contributors.
     I am by no means a professional, but I’ve been following these markets for years. I am certain that we are in the final stages of the “endgame”.
     It is nice to meet all of you.
     

    • I used to read TF metals but I came to the point the technical analysis is voodoo.  Turd is wrong because he believes in that witchcraft.  It doesn’t work in a manipulated environment.  He has some good interviews but that is all I use his website for.  The people on site are great.  There can be a difference of opinions but most of the time it’s civil.  AGKIIK is one of the best posters on any site.  He has great opinions and I have learned a lot not only from him but many others.  Basically, we all have a understanding that this ship is sinking.  We are taking on more and more water everyday.  How this whole thing will play out is hard to figure out.  It does seem like it’s going in light speed now compared to just a few years ago.  If it wasn’t for sites like this, I would be very bored, confused, pissed off, scared.  It’s a great way to have a conversation with people who see the world in a different light.  Personally, I have only a few people that I can have a physical conversation about these topics.  Most of my friends are truly ignorant to these issues and are brain washed into the system.  I have a hard time just talking to them anymore.  I feel sad for them because their future is bleak.  I can’t do anything for them because they won’t listen or even try to hear me out.  I kinda have given up until the system crashes.  They will wake up then.  I will try to help as much as I can after the crash but they will be held responsible for not acting now.  I can only do so much but I wish I could do more.

    • Duckvision. Glad it’s not just me then. Cyprus was the topic of conversation at work one day last week. Colleagues are aware I’m a PM stacker / end of the financial paradigm nutter. Yet STILL seem reluctant to acknowledge that the latest Mediterranean episode is nothing more than a blip. There STILL isn’t a bullet with their name on it so to speak. Even though they watch the MSM news on one of the rare occasions it does actually give a warning, it just doesn’t register. While talking about the rush on Cypriot ATMs, one comment in reply was “well they should just do an electronic transfer, move it to another bank that way”. There’s none more blind than those that won’t see.
       
      I’m not sure I’ll be as helpful to those who wouldn’t allow themselves to wake up. At times I sense an almost condescending edge to their attitude. I’m not one to normally gloat but do admit I will enjoy just a small touch of satisfaction to hear the words “OMG you were right what can I do?”…..Too late mate.

    • Duck… your despair is familiar to many of us on here.  A great many people are suffering from terminal normalcy bias and this is a condition that only a giant kick in the nuts will solve.  Since we can’t deliver it to these people, we cannot awaken them.  They simply HAVE to FEEL it to believe it.  I handle this by setting aside some extra goodies, whether than be PMs, food, or what have you, for them because I KNOW that they are going to need it badly before this is all over and done.  It is painful that we can’t help everyone who needs it but we must realize that despite our good intentions, we can’t save everyone.  Instead, we must concentrate on our family first, then friends, then neighbors.  In no way can most of us afford to do more than this.  But, be cheered by the thought that there are quite a few people out here who are in your situation and who understand what is happening now.  Just do the best you can and leave the rest to The Big Guy Upstairs.

    • Indeed so, Charlie, but a lot of folks out there are like the guys in the V8 commercials.  They keep getting smacked in the head and told “You could have had a V8!”.  In this case, it’s more like “You could have had silver!”.  lol
       

    • Read the introduction in the header
       
      we thought it apropos to “REPUBLISH” LRS’ first hand account and experiences recognizing, surviving, and even profiting from the devaluation of the Mexican Peso in the late 1970′s.

  3. A devalued Fed. Note is the only way for government to pay down the debt so that is what they will do, when THEY decide the time is right. Savers and holders of these notes be damned. It is and has always been about them. When politicians we know to be crooked are selling everything “like Harry Reed for example”, one had better already be out of the paper chase! But why wait? Get out now if you haven’t already.

  4. I’ve seen devaluation up close and personal.  Its heart-wrenching to say the least.  This is for those visiting this site for the first time:
    START STACKING GOLD AND SILVER AS FAST AS YOU CAN.  TAKE MONEY OUT OF BANKS, SAFETY DEPOSIT BOXES, TRASH YOUR 401K.
    You’ll thank your lucky stars you saw this site today! 

  5. I remember this true story! I think I heard about it on the old SilverDoctors’ blog. Too bad that the majority of the people still believes their corrupt governments even with all of the damages that these politicians and banksters have caused.

  6. History shows that gold & silver have been used a currency for thousands of years and fiat money is only temporary. I’m no “expert” or “financial guru” but I really believe the fiat currency / global ponzi-scheme will end soon because it 1) the lame-steam media/experts keep saying the financial system is “OK” with nothing to worry about; 2) recent events in Cyprus; 3) the manipulation by the Govts/Bankers of gold/silver paper markets while Counties/Govts are trying to stack PM’s and 4) the debt all Govts are in is soooo deep. My friends and family tell me I’m wasting my money on PM’s and land purchases, useful (strategically) tracts of land around Texas. My response is that I’d rather be prepared than wishing I was prepared; and if nothing happens, then my children will benefit in the future from my PM’s stacking & land acquisitions. Nice to know there are others in the world who have a similar mind-set.

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