Greeted by Rooster
There’s an endearing quality to a steadfast rooster call at the crack of dawn when overheard from a warm country farmhouse. There’s a reassuring charm that comes with the committed gallinaceous greeting of daybreak that’s particularly suited to a rural ambiance. The allure of a morning cock-a-doodle-doo somehow falls flat in all other settings.
Good morning everyone! Before meteorological forecasts were available on TV and smart phones, people had to rely on the wisdom of rugged outdoorsmen to get their weather-related updates. In this context we would like to let you in on this valuable old piece of Mexican country lore: “When from the compose pile you hear the rooster declaim, the weather will change – or it will stay the same”. OK, we actually made that up, but you cannot deny its elevated wisdom coefficient [PT].
Illustration via wakeup-world.com
Early this morning we suffered a rude awakening from brash, dedicated rooster crowing. The calls, however, weren’t emanating from a barnyard hen house. Rather, they came from rooftop chicken coops sitting atop the staggered flats of a highly urbanized Mexico City borough.
To be exact, we are presently at Calle Norte 86, in Colonia La Malinche, of the Gustavo A. Madero borough, of the Distrito Federal (Mexico City). What it is we’re doing here is less exact. Still, we’ve narrowed it down to two main intents.
First, we’re visiting numerous in-laws – and several outlaws – who live here. Second, we’re conducting field research on your behalf. Specifically, we’re investigating the chronic effects of what happens when a government spends too much borrowed money, and then attempts to lighten its debt burden by inflating its currency.
You know how it is… outlaws are actually wanted.
Certainly, there’s adequate documentation on the subject. But at the Economic Prism we’re after something more. Mainly, we’re after empirical, firsthand experience of the sort of future that over a half century of financial mismanagement is methodically bringing to the United States.
A Downright Disgrace
Several weeks ago, in an article titled Adventures in Currency Debasement, we briefly chronicled the rise and fall of the “Mexican Miracle” economy. Our endeavor was short and to the point: What happened? Why? And what it wrought?
An extended version of the article with numerous charts and annotations by Pater Tenebrarum was published on Acting Man and can be accessed here (the data visualization and additional comments are capturing the demise of Mexico’s economy more fully).
One of the insights documented in the article is that less than 100-years ago, when both dollar and peso coins were comprised of silver, the exchange rate was real simple. Based on their silver content, two pesos equaled one dollar. These days, as both pesos and dollars are mere paper promissory notes, their exchange rate and overall value are far different.
Today it takes about 19.56 pesos to buy one dollar. As you can see, the Mexican government has been less upright in managing its currency than the U.S. government has over the last 100-years. But when you use silver as the measuring stick, the picture changes…
In the 1920s it took about $1.29 to buy an ounce of silver. Today it takes $17.75 to buy an ounce of silver. This means silver presently costs 1,276-percent more in dollar terms than it did in the 1920s. This also means the U.S. Treasury, with aid from the Federal Reserve, has done an abysmal job managing the dollar.
In pesos, however, it’s a downright disgrace. In 1922, it took 2.58 pesos to buy an ounce of silver. Today an ounce of silver costs 347.19 pesos. Astonishingly, in peso terms, silver now costs 13,356-percent more than it did in the 1920s.
The Mexican peso has lost 95% of its value against silver since late 1994 alone. The numbers on the upper end of the scale are a bit hard to read on a log chart due to the extent of the decline: at the late 1994 peak, one peso was worth 0.62 oz. of silver, today it is worth a mere 0.03 oz. Mexico’s citizens have definitely become a lot poorer in silver terms over time – click to enlarge.
The Mexican government’s success in vaporizing its currency over the decades has led to many unintended consequences. Namely, it has successfully vaporized the country’s middle class. This is one of the tradeoffs of deficit spending based government stimulus that politicians fail to mention when promising free lunches.
Since mid-2013 the peso has fallen nearly 50 percent against the dollar. This trend initially accelerated after the election of President Trump. Over the last month or so, the carnage has subsided. Still, we suspect lasting damage has been done.
Off the Beaten Path in Mesoamerica
Next week, if all goes well, we’ll share some of our high level observations. In the meantime, we’ll be investigating the insides and outsides of this mega-city, conducting our research as we go. So far our wanderings have taken us far off the beaten path – though our efforts are not without merit.
Yesterday, for example, we made a short trip to the small pueblo of Tepoztlán, roughly 80 kilometers south of Mexico City. There we visited Tío Carlos (our mother-in-law’s brother); a man with unique capabilities.
Photo credit: Christian Cesped
Tío Carlos has never taken a medical course or formally studied medicine. Certainly, he can’t perform open heart surgery. We don’t know if he can even use popsicle sticks to set a broken finger. But to the entire pueblo he’s El Doctor.
When someone fears their body has been overtaken by evil spirits they visit El Doctor for “Limpia” – spiritual cleansing. With no more than a raw egg he’s able to transfer negative energy from a person’s body to the egg. We were told the egg acts as a sponge in this process.
Indian shamans dispensing limpia treatments on a street somewhere in Mexico. The activity on the left-hand side looks like it may be directed against insects suspected to be dwelling on the customer (we are just guessing of course, but it does remind one a bit of a pest exterminator in medias res).
Photo via chessbase.com
This all sounds a little crazy, we know. But, apparently, these healings have been taking place in Mesoamerica since pre-Columbian times; much longer than central banking has been around.
We doubt Tío Carlos knows much, if anything, about central banking. Though we’re certain he fully appreciates that, within his lifetime, his country’s bank notes have been transmuted to toilet paper.
As far as we can tell, while a bit crazy sounding, Limpias are generally harmless. Central banking, on the other hand, is categorically insane. What’s more, it’s utterly destructive too.
Chart by: StockCharts
Chart and image captions by PT
MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.
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