Inflation will happen; there is no other way for our governments to pay off the debts except running the printing presses. Finger pointing and speculating how we got into this fix is not going to save us. We need to figure out how to preserve what little wealth we have been able to accumulate. We are in the here and now; not the then and there.
A lot can be learned from studying the German inflation of the Weimar Republic and other nations that have gone through this process.
In my father's day, the Mexican Peso was one ounce of silver, just like the US silver dollar. In fact, it was used in world trade, especially in China. After the revolution things changed. I guess someone bought printing presses.
However, when I was a kid, the Mexican peso was worth 12.5 US cents. This was real handy in that a US quarter (un toston) was two pesos and a US dollar was 8 pesos.
Then Mexico got into selling oil on the world market. The government signed contracts for future production with some Asian countries. The future looked good; politicians and union officials were living large.
But suddenly, the value of oil fell. Those countries that had signed on for future deliveries welched. Mexico was in a real bind. They had counted on the high price of oil to provide a rosy future and a wonderful present. The national debt was horrendous. Fidel Castro told the Mexican Government to default and walk away from their debt.
They chose the printing press instead.
Dollar denominated bank accounts were frozen. Mexican banks were nationalized. People owing debts abroad had to pay those debts in dollars, deutsche marks or pounds sterling. or whatever currency the loan was in. Times were really tough. Wealthy Mexicans were reduced to begging loans from their north of the border relatives.
Meat was off the table for several years.
I found a thousand peso note that had been stuffed into a road atlas. At the time it went into the Atlas, it was worth $125. By the time I found it, it would not buy a coloring book and crayons for the kids.
Who survived the inflation and even came out ahead?
Those that in those frantic days transferred their wealth out of the country and had it denominated in the currency of a stable country did well.
Those that did even better were those that had large outstanding peso denominated debts arising from the purchase of hard assets. They could pay them off in the worthless pesos. It was a great way to accumulate property and businesses.
Dope dealers and drug lords did well. Their product was sold north of the border in US and Canadian dollars.
Vegetable growers and exporters did well. A lot of their product was also sold north of the border, but their labor costs were in pesos.
Politicians and union officials did well. They always survive.
In the end, Carlos Slim ended up owning a good deal of the banks that had been nationalized. In 1990, Telmex was sold to a consortium centered around Slim.
What did we learn?
Don't pay off your debts; wait for the inflation. But, beware of charge accounts that can adjust interest rates and adjustable rate mortgages. Look for something with a fixed interest rate.
Buy land and hang onto it.
Buy stock in companies headquartered in and doing business in business friendly countries.
Buy gold and silver and hope the government does not take it from you. But beware, precious metals do not pay dividends and when you cash out, you will have a taxable gain. Even thought the real value of the metal is the same, you will end up paying taxes on the dollar gain.
There is the temptation to put funds abroad in stable countries' currencies. The IRS is on to this.
Any future ideas that anyone can suggest will be appreciated.
Rufus
I found
