Published on May 04 2018

Has the Next Major Currency Crisis Begun?

By Justin Spittler, editor, Casey Daily Dispatch

“We love installments here.”

“If you can get 12 months, that’s good. But 24 months is even better.”

An Argentine lawyer told me that last week. We were chatting in a pub in Palermo, a neighborhood in Buenos Aires.

Now, you might be wondering how we got on the riveting subject of payment plans. I’ll tell you. We were talking about Argentina’s money problems.

In case you haven’t heard, inflation in Argentina is off the charts right now.

Inflation measures how fast prices for everyday goods and services rise. A high inflation rate is bad. It means that the money in people’s wallets doesn’t go as far.

Last year, the official inflation rate in Argentina was 25%. The year before, it was 37%. Everyday goods and services in the country are 71% more expensive than they were in the start of 2016.

This is why Argentines love installments. It allows them to pay off purchases over time using a devalued currency. In other words, it helps them reduce the harm caused by inflation.

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• But why should you care about this?

After all, Buenos Aires is over 4,000 miles south of the United States.

The answer is simple. Argentina isn’t the only place in the world where government-issued paper money is failing. Right now, currency crises are happening all over the world. And there are many more in the making.

The good news is that there’s a monetary revolution underway right now… one that will allow millions of people to protect their wealth from reckless governments.

I’ll explain what I mean by this in a second. But let me first say a few more words on Argentina.

Sky-high inflation isn’t the only thing wrong with this country’s money system.

• It’s also very difficult to get money here…

You see, ATMs in Buenos Aires are stingy. Most only let you withdraw 2,000 pesos at a time. That’s about 91 U.S. dollars.

To make matters worse, most ATMs stick you with a 10% withdrawal fee. That adds up quickly.

Because of this, many locals have a “cash guy.” This is someone who you send money to through your bank. Then they give you cash, and charge you a comparatively modest fee of 5%. They’re basically “dealers” in Argentina’s underground money market.

In short, Argentina’s monetary system has serious problems. And they’re only getting worse.

• The Argentine peso is in free fall…

It’s down 16% on the year. That makes it one of the worst-performing currencies on the planet this year. It’s also now trading at a record low against the U.S. dollar.

Argentina’s government is doing everything it can to stop the bleeding.

Two weeks ago, Argentina’s central bank spent $4.3 billion to prop up its currency. When that failed, it took even more drastic measures.

Last week, it raised its key interest rate by 300 basis points (3%). That’s an incredibly aggressive move. Most major central banks raise their key rates by just 25 or 50 basis points at a time (0.25% or 0.50%).

This monster rate hike came out of the blue. The bank didn’t even have a meeting scheduled.

Argentina’s central bank did this because it desperately wants to generate demand for Argentine pesos. It hopes this sky-high interest rate will lure investors to Argentina.

But it didn’t work. The peso crashed on the news.

So, Argentina’s central bank surprised the world by raising its key rate by another 300 basis points (3%) yesterday. The country’s benchmark rate now sits at 33.25%. That’s 20 times higher than the Federal Reserve’s benchmark rate.

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• The Argentine peso plummeted 5% yesterday on the news…

That’s an astronomical move. Remember, we’re talking about the money that people carry in their wallets. Not some penny stock.

If Argentina can’t get a grip on the situation soon, the peso will fall even more. Life could become extremely difficult for everyday Argentines.

Of course, Argentines have been here before. The country’s had about one major financial crisis every decade. The government has destroyed the country’s currency four times in the last century.

This is why fathers in this country tell their sons that “the peso isn’t for saving.” It’s also why wealthy Argentines have historically stored wealth in “more stable” currencies like the U.S. dollar and British pound.

But here’s the thing. None of today’s paper currencies are truly sound. They’re all backed by broken promises. Not to mention, every major economy in the world is sinking deeper into debt.

So, what’s an Argentine to do? Well, I expect many will shift their wealth into gold and silver. These metals, as regular readers know, are tried-and-true safe havens.

• I also think many Argentines will take shelter in bitcoin…

You might think I’m crazy for saying this.

After all, most people don’t see bitcoin as a safe haven. They view it as a speculative vehicle. This is because its price swings wildly. In fact, bitcoin is coming off a huge crash during which it plunged 71% between December and January.

That’s a staggering decline. But you must realize something. Bitcoin’s crashed 30% or more 11 other times since 2010. Each time, it bounced back stronger than before.

We’re also still in the early days of the cryptocurrency revolution. So, you should expect a healthy dose of volatility.

You’ve got to ask yourself: Would you rather own the Argentine peso (or any paper currency, for that matter), which has been steadily losing value… or bitcoin, which has been steadily rising in value?

To me, it’s a no brainer. And I’m not alone…

• Tim Draper thinks Argentines should own bitcoin, too…

Draper is a venture capitalist, and an early bitcoin investor.

Last December, Draper met with Argentina’s President Mauricio Macri to discuss cryptocurrencies. During this meeting, he reportedly said that bitcoin is “already a valuable part of society.” He also said bitcoin could act as a crisis currency of sorts.

If the local currency implodes, as it once did here, whoever has bitcoins will be fine.

Draper said this because he’s extremely bullish on the price of bitcoin. In fact, he thinks bitcoin could hit $250,000 by 2022. That’s more than 25 times higher than its current price.

That might seem like an outrageous prediction. But Draper has made bold calls like this before, and nailed them. In September 2014, he said bitcoin would hit $10,000 by 2018. At the time, bitcoin was trading under $500. Many people thought Draper had lost his mind. But bitcoin topped $10,000 last December.

So, don’t rule out another monster rally in bitcoin, especially if it becomes a crisis currency in places like Argentina.

Just remember that cryptocurrencies are highly speculative. So, don’t bet more money than you can afford to lose.

That said, if I’m right about this, you won’t have to own a lot of bitcoin. A small bet could make you a fortune.

Regards,

Justin Spittler
Buenos Aires, Argentina
May 4, 2018

P.S. I want to make something very clear.

We’ve been getting a bunch of emails from Casey readers over the past few weeks about our stance on bitcoin and other cryptocurrencies. As you may know, Strategic Investor editor E.B. Tucker recently released a presentation where he warns of a potential bitcoin ban. He even warns that bitcoin could go to zero. I shared his view last week in the Dispatch here.

Why did I share that if my thoughts on cryptocurrencies are different? Simply put, I’d be doing you a huge disservice if I didn’t.

Our goal at Casey Research is to give you the information we would want if our roles were reversed. Occasionally, that might mean giving you well-reasoned, yet conflicting, opinions on the same stock, trend, or macro view.

We simply wouldn’t be doing our jobs if we didn’t.

No one knows for sure what will happen with cryptocurrencies… but we’re prepared either way.

And we will never censor any of our gurus’ ideas.

Doug Casey said it best regarding the recent confusion. Remember, Doug’s made a lot of money in cryptos and believes there’s a tremendous opportunity. But he also realizes that many coins will be worthless as this trend plays out…

“In my opinion, both Justin and E.B. are right—and that’s not copping out or weaseling. It’s the truth.”

Cryptos are one of the biggest trends in the market today. And we’ll continue to give you the unfiltered ideas from the best minds in our business on them.


Reader Mailbag

Today, readers respond to our recent DispatchWould You Like Marijuana With That?

Hi Justin, I enjoyed reading your article Tuesday. I had forgotten that hemp oil is a marijuana derivative in my opposition several months ago. I have found the CBD product to be of great benefit. This natural plant product offers the cure for various ailments at a reasonable price. Thank you for reminding me and bringing this to my attention. It comes as good news that there are controlled proportions in place for the THC and CBD product that you also mentioned. I have had my experience involving a controlled THC product that took place over 41 years ago. I still have concerns regarding the recreational product. I am much more interested in the Holy Spirit. He is very much a gentleman. You can get a feel of Him in the song, “Take Me Over” by David Ingles. Try it, you will like it!

– Lee

That’s a big point… because like casinos, the first two states may do well, but as more and more supply is added, the revenues per state will decline. I was in Las Vegas last month. I went to one of the stores. Very disappointing. There was one person ahead of me, and none behind me. There is no Gold Rush in Vegas. Colorado may have soaked up most of the potheads with money. I think you visit Las Vegas and see their experience before you write any more glowing articles. It’s a weed, it’s not like growing orchids.

– Robert

If you have any questions or suggestions for the Dispatch, send them to us right here.