A Tango 2 Learn From

February 23, 2010 GoldSilver No comments

Same Problem, Different Country?

For those that study history the following recent article might have them sit up and take serious notice.

Citigroup Warns Customers It May Refuse To Allow Withdrawals

Business Insider – 2/19/2010

“Effective April 1, 2010, we reserve the right to require (7) days advance notice before permitting a withdrawal from all checking accounts. While we do not currently exercise this right and have not exercised it in the past, we are required by law to notify you of this change,” Citigroup said on statements received by customers all over the country.

We suggest an astute person compare what is happening right now with what happened just a few years ago in Argentina:

Argentine Currency Crisis 2001 – Review & Reflection

“Those who cannot remember the past are condemned to repeat it.”
- George Santayana

If you are curious about what a monetary crisis could look like in your country we encourage you to simply look for clues from other countries economic pasts, those that have already been through such a phenomenon.

This article offers a quick glimpse at a modern history example. Here is a brief recount what occurred only a few years ago in Argentina:

In July of 1989 – Argentina’s currency at the time was going through a hyperinflation. The austral (image below), recorded a 200% inflation rate in July alone, topping a 5000% rate of inflation for the year. It was for this reason that during the 1989 and 1990 hyperinflation peaks many Argentines began rejecting the austral as payment, demanding U.S. dollars instead.

To reign in ruinous price inflations, the government in 1991 adapted a new Argentine peso establishing a fixed dollar-pegged exchange rate (one Argentine peso per U.S. dollar). The initial aim of the measure was to ensure the acceptance of the new Argentine peso currency:

This 1991 enactment, the Law of Convertibility (La Ley de Convertibilidad), helped establish the peso and sharply reduce price inflation, restoring stable prices throughout the remainder of the 1990’s. This fact raised the quality of life for many Argentine citizens. As a result, many citizens could more easily afford to travel abroad, buy-imported goods at lower prices, or ask for credits in dollars at very low interest rates.

Meanwhile, Argentina’s government deficit spending remained high and public debts expanded rapidly but the country showed no true signs of being able to pay for their growing debt load. However the IMF (International Monetary Fund) continued to lend funds to the Argentine government while postponing scheduled repayments. The Argentine financial markets became saturated in dollars and foreign debt.

In 1999 Argentina’s GDP dropped 4% and unemployment levels were rising, a recession had begun. The economic downturn continued onward through 2000 and 2001.

In December 2001, the call on Argentina’s debts came forth, the government couldn’t pay their loans and obligations. Argentines becoming aware of the situation began withdrawing from their bank accounts preparing for the worst. Bank Runs had began.

To quell bank runs (citizens withdrawing large sums of paper currency from their bank accounts, and or converting pesos into dollars and sending them abroad) the government enacted a set of measures that effectively froze all bank accounts for 12 months, allowing for only minor sums of cash to be withdrawn. These government banking measures became informally known as the corralito – or crudely translated – an “animal pen“.

The citizens were livid at the rationing of withdrawals and the forced devaluations of their savings. As the country’s economic collapse took hold people took to the streets in mass, violence and vandalism ensued:

The vast majority of the public’s savings were caught in the financial quagmire (the “animal pen“) – they lost roughly 50% to 75% of their purchasing power.

In January 2002, after a full decade, the Law of Convertibility was finally abandoned. The Argentine peso plummeted in value going from a fixed 1 to 1 ratio with the US dollar, to as high as a 4 to 1 ratio. Effectively, this devaluation reduced the purchasing power of the Argentine peso to 25% or 1/4th of its 1990’s purchasing power.

The wealth transfer was vast and swift. The people’s savings were crushed:

There were some who understood what was happening and took action before the bank freeze occurred. Many of these folks moved their capital offshore before the crisis played out, they were thus able to more than triple their purchasing power over those who strictly held Argentine pesos.

This is what tends to happen during currency crises, there are many on the inside who not only duck debasements and or devaluations, they exploit it to their advantage.

Wealth transfers from average savers to financial insiders.

Those with direct access to foreign currency exchange floors or first hand access to the fiat currency printing press tend to have an advantage over the average worker and saver.

But Here’s the Key… You Don’t Have to be An Insider

Examine what happened to an Argentinean who purchased Gold or Silver when the recession was quickening and the run on the banks was commencing:

	Gold in Argentine pesos	Silver in Argentine pesos	Gold in US dollars	Silver in US dollars
August 1, 2001	$265 Argentine Pesos*	$4.22 Argentine Pesos*	Gold $265	Silver $4.22
August 1, 2002	$1120 Argentine Pesos*	$16.84 Argentine Pesos*	Gold $302	Silver $4.57

In 2002, once the Law of Convertibility was abandoned, Argentines who held physical Gold and Silver not only protected their wealth and their purchasing power, they enhanced it 3 to 4 fold:

Here Is the Secret:

You don’t have to be an insider to protect your wealth during a currency crisis.
You don’t have to be stuck in failing banks trapped in a financial “animal pen”.
You only need to study history and take action so you are not condemned to repeat the mistakes of those before you.

Don’t let history’s rhyme and repetition steal your hard earned wealth.

Physical Gold and Silver are unquestionably the solution for us.

What’s yours? -> Take action while there is still time remaining.

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