from Silver Doctors:

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…

Mexico matters.

Big time.

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.

Much worse.

Stay with me to understand exactly why.

The United States and Mexico are interconnected in ways that most people don’t realize.

How so?

First off, Mexico’s principle source of income is not through the sale of oil.

Nope.

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?

Yup.

Friday.

And New Year’s Day to boot, so markets and the people were enjoying the festivities.

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