Every person in the US and Mexico is about to feel at least some pain and suffering. It looks like the hyperinflation has begun. Here are the details…
Our neighbor to the South has already arguably descended into complete and total chaos.
Last month was the deadliest July ever in Mexico, with a record 3,017 murders, and those were just the murders that were officially reported and recorded. Of course, it’s all blamed on the cartel drug wars, and superficially blaming the drug wars is fine, but it’s too easy to just say that rival gangs are killing each other over some turf.
There is something else going on.
We really need to dig deeper to understand what is really going on.
You see, the increased murders in Mexico is just a taste of things to come.
It is about to get worse.
Stay with me to understand exactly why.
The United States and Mexico are interconnected in ways that most people don’t realize.
First off, Mexico’s principle source of income is not through the sale of oil.
The principle source of income for Mexico is money sent into Mexico from the United States. More specifically, it is money sent directly by friends and family in the United States to friends and family in Mexico. These money transfers are called “remittances” – think Western Union or MoneyGram. Remittances overtook oil as the principle source of income in Mexico in 2015. The significance of what the remittances have to do with the Mexican hyperinflation will come later on, but first, let’s look at the macroeconomics of the US and Mexico.
The Exchange Stabilization Fund in the US, while they operate in the shadows, they also operate in the open, and the ESF publicly states that it can “intervene” in any market it wants to, at any time, and for any reason. To appear transparent, the ESF releases various financial statements and reports.
In the footnotes of the monthly reports, I have noticed this for some time (yellow highlight added for emphasis):
And I never really thought much of it before.
I assumed the stabilization agreement was in response to the rise in the dollar since 2014. But with events that have unfolded, which I will get to in a minute, I needed to dive deeper into the intricacy of the US and Mexican currency swap agreements.
The ESF posts annual reports online in easy access going back until 2014. Recall the ESF was born out of the Gold Reserve Act of 1934, and the ESF was seeded with the Unconstitutionally confiscated gold, so many more annual reports are presumably out there, but that would require more research on my part when really what is easily found is sufficient for the purposes of this article. What is curious is that in those annual reports from 2014 to present, you will find that the only nation that has had a standing agreement with the US Treasury for currency “stabilization” purposes, is Mexico.
Additionally, those reports explain that the US and Mexico entered into the stabilization agreement in 1994. There are a few things to understand about the significance of that year and why it matters today.
The North American Free Trade Agreement, NAFTA, took effect on January 1st, 1994.
Now, it’s not like Carlos Salinas de Gotari, Jean Chrétien, and Bill Clinton were slamming down some cold Coronas in a strip club in Tijuana, and all of the sudden they decided they would like to trade more freely between nations. Well, on second thought, they may have been in the strip club enjoying a few cold ones and what not, but as far as the free trade agreement, that was something the nations began working on in 1992, and it took years to hash out the details.
Part of the hashing out of the details must have been Mexico introducing a brand new peso, which Mexico did on January 1st, 1993.
Mexico actually slashed three zeros off of the peso, and thinking it through with logic, it is obvious why the new peso would have been born into existence.
In a crude example, let’s assume the exchange rate was $4,000 pesos to the dollar. I pick that exchange rate because you will see the exchange rate was 4 to the dollar in a graph I share momentarily, so that is basically where it would have been at the re-denomination of the peso. Now, imagine an orange grower in Florida exporting oranges to Mexico. The grower is selling $100,000 USD worth of oranges. Imagine the headaches with converting $400,000,000 Mexican pesos to $100,000 US dollars. Now multiply that by not just one nation but two (Canada), and not just one industry (orange), but a whole slew of industries, goods and services. It would have been impossible for the math to work out in any scale.
Mexico had to shave some zeros off of the peso for the currency to work under NAFTA.
Here’s another example, Apple released the Power Macintosh 6100 personal computer on March 14, 1994, and it sold for $2,209. Imagine Apple wants to export 50,000 computers to Mexico. That would have a cost of $110,450,000 US dollars, which means the Mexican importer would need to convert $441,800,000,000 Mexican pesos into the $110,450,000 US dollars needed to pay for the computers.
Suffice to say, Mexico needed a brand new currency, and since it’s all fiat baby, what the heck.
Now, about that slashing of three zeros off of the peso in 1993, where $1,000 pesos became $1 peso.
What day did that take place?
And New Year’s Day to boot, so markets and the people were enjoying the festivities.
Side note: I keep harping on why bad things happen over weekends and holidays. It’s more convenient for the government because the people do not have the ability to react as the banking system is closed, and there is a general unawareness by the masses anyway as people enjoy holidays, sports, and those types of things they enjoy on holidays and on weekends.
In other words, over the weekend, most people aren’t thinking, is my money safe in the bank?
Nixon closed the gold window on a Sunday evening.
Back on track.
So in 1993, $1,000 pesos became $1 peso.
You might be thinking, well, what did that mean for the average Mexican?
The short answer is that it meant nothing.
The average Mexican didn’t feel it, and didn’t skip a beat, because the average Mexican had no savings, so one day it was, “use this peso”, and the next day it was “use the new peso”. What is it about the average Mexican having no savings that sounds familiar with today? How much savings does the average American have? Depending on where you look, such as the USA Today from October 6, 2017, half of all Americans couldn’t come up with $400 for an emergency. In other words, the average American is broke. So not if, but when, it comes time to slash a zero or two from the US dollar, the average American won’t skip a beat because they have no savings to speak of.
Here’s the next big thing to know about 1994. Between the new currency in 1993 and NAFTA going into effect on January 1st, 1994, Mexico was in currency turmoil. Sure, in the US, we felt a boom, because in the first year, its not like all those good manufacturing jobs just vanished in one year, so Americans enjoyed lower priced goods and services, and reaped those initial, immediate benefits of “free trade”. But Mexico, on the other hand, was in currency chaos in 1993 and in 1994.
In fact, there is even a common name for it – the “Tequila Crisis”.
As NAFTA got off to it’s start in 1994, and as the peso came under severe stress, by the end of the year, on December 20th, 1994 to be exact, the Mexican government came out with a shocking, surprise devaluation of the peso against the dollar.
Before you say it, because I can already hear it, “Hey Half Dollar, December 20th,1994 was a Tuesday, so you’re wrong about stuff going down on a weekend”, let me explain something.
In Mexico, Christmas is celebrated on the 24th of December, not on the 25th like it is here. Also, Mexicans do what they call “puente”, which literally means “bridge”, but it is basically a way of saying making days off between the weekends during holidays. My point is that the whole nation would have been on puente for Christmas from Monday the 19th all the way until Friday, January 6th, 1995. Why until then? Traditionally, Mexicans did not give the children presents on Christmas, but Mexicans gave the presents to the kids on January 6th, the day the Three Wise Men gave Jesus Christ gifts of frankincense, myrrh, and gold. So schools and government agencies would have been all closed down, and everybody would have been on holiday.
Back on track.
On December 20th came the shock 13.5% devaluation of the peso against the dollar.
Understand this because this is how quickly things can and do change on a dime, no pun intended.
By December 27th, one week after the initial devaluation, over those seven days the peso had gone from $3.46 to the dollar all the way up to $5.70 to the dollar:
Friends, stackers (and trolls, because they are not zombies, so I have hope they can understand the truth and leave the dark side), what I am talking about is the Peso losing about 64.75% of its purchasing power against the dollar.
In seven days!
Think about it a little differently just to understand the severity. Imagine that in seven days, gasoline here in the US went from $3.50 per gallon to $5.77 per gallon. That is the type of loss of purchasing power Mexico felt over those seven days. Now, imagine that seven days from now, things that you are used to purchasing at a certain price now cost 65% more!
This is utter chaos folks.
And it is not like Mexico had all this high-tech manufacturing. That came because of NAFTA, not before NAFTA.
OK, “Hey Half Dollar, you said Mexico was going into hyperinflation, but you’re sitting here wasting my time talking about history. Who cares! Build the wall already!”.
Not so fast.
We have to slow it down to understand where we have been, where the evil globalists are trying to take us, and where we are actually going.
Here’s where the globalists are trying to take us –
The globalists are trying to take us to a cashless society as they wage their War on Cash.
In the United States, when we were on the bi-metallic gold & silver standard, and all the way up until 1969, we had bank notes in denominations of $500, $1,000, $5,000 and even $10,000. Imagine how much one single $10,000 bill would have been worth in, say, 1930? Wow. A lot. So much so that I’ll do the math. $10,000 was equal to roughly 483 ounces of gold ($20.67/ounce). In today’s dollars, 483 ounces of gold would cost $579,600! And that’s not even adjusting for inflation! That’s just the straight up math! Sorry for the exclamation points! But imagine walking around with a $575,000 bill today!
Back on track.
The US Treasury Department, in conjunction with the Fed, decided to kill off those denomination bank notes on July 14, 1969. We all know the largest denomination bill in circulation today is the $100 bill. If people with influence have their way, such as Paul Krugman and Ken Rogoff, the latter of whom recently wrote a book called The Curse of Cash: How Large-Denomination Bills Aid Crime and Tax Evasion and Constrain Monetary Policy, when I say there is a war on cash, and a push to a cashless society, I’m not saying it lightly. As a reminder, in a cashless society, all privacy is lost, every transaction can have a fee and be taxed, people can get cut-off from the system, government and corrupt individuals can abuse their power to just click into existence some more fiat, and there are a whole host of reasons why the plan is pure evil, but yes, the globalists are pushing it.
It’s not just the US either.
The ECB stopped issuing the $500 euro banknote in May of 2016. At least they didn’t demonetize the $500 euro note, but whether they admit it or not, rest assured they’re pulling them out of circulation every chance they get.
Oh yea, and everybody by now remembers India’s shock demonetization where basically Modi, without warning, using the distraction of the US presidential election night in 2016, announced a shocker when he demonetized the the $500 rupee and $1000 rupee bank notes, and Modi ordered them to all be turned in to the banks at once, all in the name of fighting “black money”. India is still reeling in agony since the ploy nearly from two years ago.
So the point is that the War on Cash is real, and the cashless society is real.
OK, “So Half Dollar, what does that have to do with the hyperinflation in Mexico?”.
We’re getting there.
You see, they’re not going to just admit the hyperinflation has begun.
That would put the country in a total monetary death spiral from hell.
But if you see what they are doing, with all the things I have discussed so far, it is obvious.
Hyperinflation has begun in Mexico.
But don’t take Ol’ Half Dollar’s word for it, see it from Banco de Mexico yourself:
What are you looking at?
A total shocker.
Mexico has completely revamped its money, and it is rolling out the changes in waves.
First, however, let’s see that the peso has been under stress since the Global Financial Crisis:
Not only has the peso had a rough run since the GFC, but the peso has been terribly stressed ever since the dollar took off in 2014:
Which, in part, helps explain why remittances overtook oil proceeds in 2015.
To put the dollar strength into perspective, Chevrolet sells a car in Mexico called the Chevrolet Beat:
Notice the price – $141,500 Mexican pesos.
When the peso topped out at $22 to the dollar back in January of 2017(It’s at $19.15 today, August 30, 2018), this means that you could have taken dollars into Mexico and purchased a brand new vehicle (and not just this Chevrolet, there are many manufacturers with cars at this price point), in cash, for less than $6,500 USD.
Today, the car would cost $7,400.
For a brand new car!
OK, “Half Dollar, this is getting weird. Now you’re talking about cars”.
Stay with me, because you will find out why later on.
Back on track.
The point is that the dollar is very strong right now, historically speaking, and the peso is very weak right now, and that weakness has been slowly building, all the way back to the very initial, shock devaluation in 1994.
This is important, and I’m not sure who said it, but it is critical to understand: Things happen slowly, and then all at once.
Has the peso been slowly losing purchasing power over time?
Looking back the the Tequila Crisis up until today, we must conclude “yes”, the peso has been slowly losing purchasing power over time. It has been a slow build up, but that build up has really picked up speed since 2014.
Which brings us back full circle to Mexico totally revamping its money, and why I argue it means that the hyperinflation has already started, and remember, the globalists don’t want cash, and they certainly don’t want larger denomination bank notes.
The very first change, which has already taken effect, is that Mexico has killed off the $20 peso bill. That is basically $1 USD at today’s exchange rate. Sure, Mexicans still have time to get them turned in, but there will no longer be that small of a denomination in a bank note. There is still the $10 peso coin, but the smallest sized bill will now become the $50 peso bill.
Does this mean that ultimately, the $10 peso coin will end up becoming something like a dime, or a penny?
Under a hyperinflation, yes it does.
The second big change is that beginning in 2020, Mexico will have a bank note that is double the value of the largest bank note Mexico has today. They will introduce the $1,000 peso bill in 2020 (today the largest bill is the $500 peso bill).
Finally, the themes are already set for the $2,000 peso bank note as I showed in an earlier screenshot from Banco de Mexico, but, curiously, there is no date set for the release of the $2,000 peso note. It could be released in 2020, or 2022, but think about this – since there is no set date, who is to say the $2,000 peso bank note is not coming in 2019?
The central bank is not just going to announce something like that because the revamping of the currency is already raising eyebrows of the more money savvy people in Mexico.
Bottom line: Hyperinflation is not just coming to Mexico, it is already here.
Now, you may not know this, but Ol’ Half Dollar lived in Mexico for two years (2000, 2001), he lived on the border of Mexico (El Paso/Juarez) for nine years, and as such, has crossed into Mexico by car many times, and furthermore, Half Dollar’s wife of 17 years is from Mexico.
The point I’m making is that I know Mexico.
I understand Mexico.
So I will say this: Cash is King in Mexico.
When using cash, Mexicans, in general, hate using the $500 peso note because nobody ever has change for it. It is a pain in the butt to use.
So here’s a question: If they already hate using the largest bank note in circulation today, why in the world would they use the $1,000 or the $2,000 peso bank note?
It makes absolutely no sense that they would. If you can’t make change for a $500 peso bill, how in the world are you going to make change for a $1,000 or $2,000 peso bill? You can’t, and therefore that is not the point.
The point is that these bill will be widely used because of hyperinflation.
It’s in our backyard, folks.
When people look at the world falling apart today, it’s all about Venezuela, Iran, Turkey, Argentina, Brazil, Italy, and other places, and they all seem so far away, and disconnected, and so far, the crises in those countries have not weighed on or brought much pain to the average American.
I’m telling you that Mexico matters, and we will all feel the pain of this, and it will be a terrible pain.
We hear the talk of contagion. This is our contagion.
It will affect everybody living in the United States.
I can tell you this – in response to the crisis, I know for a fact, and I can say with absolute certainty that US citizens and immigrants who have a stake in Mexico will respond, and those citizens and immigrants will send as many dollars into Mexico as they can in order to help out. You see, there is no social safety net like we have here. Families of four aren’t getting, from the government, $600 dollars per month for food like they do in the US, or housing vouchers, or direct welfare payments.
It’s good old-fashioned family helps family.
So again, mad amounts of dollars will be sent to Mexico to help the situation down there.
OK, “So Half Dollar, how does this affect us here?”.
You see, when a person sends money to Mexico, that money is not spent in the United States, and the worse the situation becomes in Mexico, the faster the economy in the United States slows down because of all that money that would have been spent here is now going abroad. This affects businesses by way of lost sales, and it also affects local, state and the federal government by generating less tax revenue.
In addition to those two factors, it will negatively affect money velocity in the United States, which is already very low. Money velocity is how fast money moves through the system. If I work at Walmart, get paid, get my hair cut, tip $2, the barber buys two iced-teas at McDonald’s with the $2, the McDonald’s spends that money restocking the tea it sold, and so on an so forth, that is money velocity.
But if the money is not being spent here, but rather, sent to Mexico, money velocity is really going to slow even more.
This is also critical to know – net migration has not been from Mexicans coming into the United States, but rather, the net migration has been of people going back to Mexico, with data supporting this and showing that on net, more Mexicans returned to Mexico between 2009 to 2014 then came into the United States.
Sure, the MSM wants everybody to think the Mexicans are just pouring into the United States, when in reality, they have been pouring out of the United States.
So the next logical question is, when the hyperinflation gets bad, will there be a massive wave of Mexicans trying to come into the United States?
Yes there will.
Look at Venezuela right now.
There is a massive flow out of Venezuela and into Brazil and Columbia. Now, Mexicans are not going to leave Mexico for the “safety and opportunity” of Guatemala or El Salvador. Of course now. They are going to come to the US.
Just as the US is stressed for reasons I’ll get to in a moment.
President Trump has to know this. Sure, the talk of the wall has subsided somewhat, but why is that wall so important?
It’s becoming clear now, isn’t it?
Looking at Venezuela, we can see that just this month, as group of Brazilians on a border town where Venezuelans had sought refuge became angry (Brazil has their own collapsing currency you know) and the group drove out the Venezuelans by burning down the encampment and literally chasing them away:
Folks, I keep repeating it, but it is important – the hyperinflation has already started in Mexico.
Now, why did I say this will be happening just at the time when the US is severely stressed?
Because the US, financially, can’t handle a Mexican hyperinflation.
How is the US going to deal with a Mexican hyperinflation when the US has record debt, huge deficit spending, a tightening Fed, rising interest rates, generous tax cuts just enabled, and if this hyperinflation unfolds like I think it will, we are about to have a very ugly, and very expensive, humanitarian crisis, which is no longer in our backyard, but in our yard.
OK, “Hey Half Dollar, It’s not our problem, and the IMF or the BIS can just handle it with a bail-out package or something.”.
Good point, however, with everything that is already going on in Argentina, Brazil, Iran, Italy, Turkey, and all those other places where either their currencies or their bond markets are blowing up, the IMF and the BIS have already bitten off more than they can chew.
Besides, like I said before, the United States and Mexico are interconnected in ways that most people can’t even imagine.
So it will be our problem too, even if somehow people think Mexico can be saved by the IMF or the BIS.
Back on track.
Not only does the United States have all of those internal problems, but this phony “recovery” the government, Fed, and MSM shills constantly pump is already long in the tooth. We have the longest stock market bull run in our history, home prices are at record highs, and there are bubble everywhere except for in gold, silver and the commodities.
In other words, the US is due for a recession, just as the hyperinflation starts picking up speed in Mexico.
How does the US have the money to pay for such an unavoidable humanitarian crisis?
Let’s come full circle to those remittances,
President Trump has been adamant, as a candidate, and also since he took office, of levying a special tax on money sent to Mexico. That’s another reason to know the hyperinflation is coming – because they’re already thinking about ways to increase revenue, under the guise of “building the wall” and of slowing the outflows of dollars from the US into Mexico.
So again, you can see why President Trump is so adamant about the wall.
It has nothing to do with keeping the “bad hombres” out, and everything to do with trying to stem the tide of Mexicans entering the US as this hyperinflation unfolds.
Now, I know I have said the wall is actually designed to keep us in, and I think that in a normal, US police state creep kind of way, that would be the case, but upon understanding that hyperinflation is beginning in Mexico, I now understand the wall is intended to stem the flood of immigrants/refugees/illegals, or however you want to call them, or maybe a new word will be made up by then?
But the wall won’t work.
Like I said, when things get bad enough, if the Mexicans “storm the gates” so to say, they will simply flood in from the vehicular points of entry.
Are we simply going to unload on poor, starving, and fleeing Mexicans, millions of which do have a stake in the US because they have family here, with .50 caliber machine gun fire?
All that’s left are body parts when you get hit by those bullets you know.
I don’t think so.
It will be a humanitarian crisis the US is not ready for and has not seen within our borders. I will say this though – at the very least, it will be a way to “bring the troops home” because the US military has the experience in dealing with the humanitarian crises, and the military will be needed for this one to maintain order, especially at the border.
So let’s come back full circle and revisit the whole NAFTA 2.0 thing, or the USMTA, as Trump likes to call it, the United States Mexico Trade Agreement.
This is huge, and it’s been in the news a lot lately.
But let’s transition into NAFTA by transitioning out of the border wall one last time. We can see that “the wall” has been politically incorrect in the eyes of the neo-socialists, and we also see that the whole border wall thing has been a deeply divisive topic in general.
But all the devisiveness is for the wrong reasons.
If the President comes out and says, “we’re building a wall because we need to stem the tide of Mexicans, who will be literally fleeing Mexico by the millions, for the United States, because of the hyperinflation down there, just like the way the hyperinflation is affecting Venezuela today”, well, if Trump says that, the cat’s out of the bag and financial panic and monetary chaos follow pretty much immediately.
So the wall has kind of faded from being the topic of the day, but since the Trade War is a hot topic, President Trump can continue to hammer away on the planning with Mexico for how to handle the hyperinflation, and he’ll have the cover of the “trade wars” to do so. Again, President Trump may be saying things like, “We are re-doing NAFTA for the benefit of the US, and to make better trade deals for the US to help US companies and workers”, but what is really happening is since this hyperinflation cannot be avoided, they are really hashing out their contingency plans because remember, nothing has actually been done with NAFTA. It’s all been nothing more than talk. All that has been done, that we know of, are some high level talks between President Trump and President Pena Nieto. Besides, come December 1st, 2018, Mexico will have a brand new president anyway (Andres Manuel Lopez Obrador).
Bringing the hyperinflation all the way back to the Exchange Stabilization Fund, we know that this December, the currency stabilization agreement with Mexico ends.
Since the ESF is under the direct orders of the President, Trump has leverage to use with this whole NAFTA re-negotiation thing. President Trump could renew the agreement, sure, but he could also let it expire. He also has the ability to increase the dollar amount of the stabilization efforts, but printing dollars to buy pesos is hardly a long term plan. We have seen the slow deterioration since 1994, when that plan was first implemented, and since 2008 generally, and really since 2014, we have seen a rapid increase in the loss of value and purchasing power of the Mexican peso.
It’s danged if you do, danged if you don’t.
Finally, what does this all mean for the dollar, gold & silver?
Well, for the dollar, initially, we would see the dollar strengthen against the peso.
But the dollar strength could also be offset by the remittances back into Mexico. That is to say, the dollar could strengthen, but that just means more dollars will be sent back into Mexico to counter the hyperinflation. Said differently, it won’t be like “oh yeah, this is great because it means avocados and cilantro will be dirt cheap”. It won’t be like that at all. It will be pure pain and suffering.
There will be a natural balance too. Remember that brand new Chevrolet Beat I highlighted? If the dollar keeps soaring, massive amounts of dollars will leave the US to buy up all the durable goods in sight. You see, it builds up slowly, and not everybody recognizes it at first. The peso hit $22 to the dollar a couple of years ago. Right now it’s at $19. When it goes to $25 to the dollar, the reality of the hyperinflation may not have yet sunk in, so let’s say that car ends up costing $142,000 pesos, but at an exchange rate of $25 to $1, we’re talking about a brand new car for $5600.
After those initial arbitrage opportunities, the hyperinflation will start picking up more and more speed, and eventually, those purchases won’t be made. Eventually, we will simply see friends and family sending ever more dollars back to friends and family to simply help them survive.
Gold & silver will protect Mexicans (and Americans, and anybody really) as they are the ultimate hedges against inflation and hyperinflation.
But there is one saving caveat – the Mexican Libertad.
We know why the Libertad gold and silver coins of various weights do not have face values, and it has to do with the fact that gold & silver float “freely” in price in the “markets”, so you can’t put a face value on a coin because the value of the metal fluctuates. This is because no country is on the gold (and/or silver) standard anymore, and there are no fixed “weights and measures” to gold & silver as they are called. In other words, until the world goes back on a gold & silver standard, and until the price suppression fails, there is no way to know the true market values for gold & silver.
It’s pure genius on the part of the Mexicans to make their coins that way – they are truly set up to re-introduce a bi-metallic gold & silver standard. Mexico could nip the hyperinflation in the bud, pretty quickly, if they follow Hugo Salinas Price’s proposal for how to re-monetize silver.
So in reality, Mexico could be spared from turning into Venezuela. However, does the Mexican government have the cajones to do the right thing?
All un-backed fiat currencies fail.
There is a 100% guarantee the unbacked Mexican peso will fail, and I think the hyperinflation in Mexico has just begun.
Yes, but it has begun.
Governments never return to a gold (and/or silver) standard by their own accord, and certainly not without a crisis first.
The people will go back to gold & silver.
They always do.
So Mexico will not do the right thing at first to nip the hyperinflation in the bud. There will be much pain and suffering, and we will share in that pain and suffering right here in the US. Whether anybody personally has a stake in Mexico or not, everybody in the US will be affected by this.
The entire world will eventually do the right thing, but which nation does it first?
Will it be Mexico in response to the hyperinflation?
Only time will tell.
– Half Dollar
About the Author
U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.