The morning after: What happens when a government destroys its currency

Here at the-Coaching Chronicle-run by Gerard O’Donovan, our aim is to constantly bring value to those seeking to improve their lives. Therefore we have a policy of publishing articles and materials by guest authors whom we value and appreciate. Today’s guest author is from: Simon Black
September 1, 2014
Dallas, Texas
Imagine this scene:
“Everyone in the country was in shock. People’s net worth had devalued more than 53% overnight.”
“The value in savings accounts dropped in half and neither merchants nor consumers knew how to react because they had never been through something like it before…”
This is how an American business executive described living through Mexico’s devaluation of the peso exactly 38 years ago on September 1, 1976.
Looking back, it was so obvious.
Mexico had a mounting debt, destructive policies, and a woefully unsustainable fixed exchange rate with the US dollar. All the writing was on the wall.

11807_piggy-bank-smashedPhoto Credit:

But most people ignored the warning signs and kept their money in pesos.
Mexican President Luis Echevarria even went out on the radio to reassure people that the currency was safe.
Finally, under intense fiscal pressure, the government reached its breaking point. And on August 31, 1976, they made the decision to devalue the peso.
People woke up the next morning on September 1st to a 50%+ decline.
Coincidentally today is also the 75th anniversary of the Nazi invasion of Poland, the event that ultimately dragged the world into war.
Germany had already invaded Austria and Czechoslovakia in the months before.
By May 1939 Hitler had stated very plainly, “the decision remains to attack Poland at the first opportunity.”
Even a week before the invasion, Hitler told his military commanders, “I have prepared . . . my ‘Death’s Head’ formations with orders to kill without pity or mercy all men, women, and children of Polish descent or language.”
Germany had 60 divisions massed on the Polish border ready to invade.
Yet people in Poland were told to keep calm, remain in place, and have confidence in their leaders.
Finally, on August 30, the Polish government ordered a partial mobilization to meet the German threat.
Needless to say, it was too little, too late. Germany invaded only hours later.
This is a familiar story that repeats across history. Despite obvious warning signs, people almost universally allow themselves to ignore reality.
It’s human nature to want to believe that everything is going to be OK. And when our political leaders whisper soothing words of hope and optimism, we take the bait.
Looking back, it was plain as day that Mexico was going to devalue the peso. Everything about the economy and currency was totally unsustainable. Deep down people knew it.
Similarly, it was plain as day that Hitler was going to decimate Poland. And people knew it.
Yet millions allowed their confidence to be misplaced in leaders who assured them that everything was OK.
Are we so different today?
The raw numbers tell us that most banks in Europe are insolvent. Bank in the US are dangerously illiquid.
Most western governments are bankrupt. Pension and social security funds are insolvent.
Financial markets are at precarious valuations. And the dollar is beginning to unravel as the dominant reserve currency.
These are data-driven assertions. And my guess is, deep down, your instincts are also telling you that something is seriously wrong with the system.
Yet we’re all told to keep calm by our leaders. There’s nothing to see here, nothing to worry about.
Looking back, it’s all going to seem so obvious. If a major, global currency crisis hits within the next 12-months, people will think, “duh, how did I not see that coming?”
Unfortunately by then it will be too late.
It takes only a little foresight and planning to insulate yourself from an event that can have disastrous consequences.
If you knew the Mexican peso was at an unsustainable level, why would anyone continue to hold pesos?
Similarly, if all the objective data suggests that the dollar is in store for an epic decline… and that the entire world is on a path to shift away from the dollar, why in the world would any rational person base his entire life savings in dollars?
It takes little effort to actually do something about it. Hold stronger currencies overseas. Own real assets. Move your retirement account abroad where your bankrupt government can’t steal it.
These are common sense steps, just like putting on a seatbelt when you get into a car.
The time to act is now. Why play Russian roulette when the odds are clearly in favor of the house?
Don’t try to time it. Nobody has a crystal ball. It’s irrelevant whether the trend unfolds over weeks, months, or years. It’s pretty clear where this is all headed.
Until tomorrow,
Simon Black
Credit source: Simon Black of


  • Chris C.
    September 19, 2014 at 12:27 am

    I can’t possibly imagine waking up one morning and realizing that my net worth has devalued by more than half overnight. I would feel completely helpless. It would be a shocking situation to find yourself in, but most of all, it would be a disappointing one. If you had all the warning signs right in front of you and just chose to ignore them, I’m sure you would feel like kicking yourself for not being more careful about your finances. I hope this is a situation that I never find myself in, but I will have to be more alert to make sure that this doesn’t happen. Like the author of this piece said, foresight and planning are so important.

  • Dana Davis
    September 19, 2014 at 12:55 am

    This is an interesting article and something to look into in regards to your retirement. It really makes you think about your money and your investments and your government.

  • Rose
    September 20, 2014 at 6:14 am

    I think people ignore signs like this because they are just too scared of the unknown. They stick to what they know; what they are used to. Because of this, history seems doomed to repeat itself over and over. So I suppose the real question is, how do we get ourselves out of the harmful mindset that the familiar is always what’s best? Even given the current state of the American economy, the US dollar still seems to be generally thought of as a reliable form of currency.

  • Britanica
    September 21, 2014 at 6:55 pm

    I wouldn’t know how to act if I suddenly had half the amount of money I had. I never understood why people allowed their money to remain in Mexico knowing how bad the market is crashing all over the world, especially in Mexico! Hello! I hope this serves as a wake up call to everyone, specially Americans. Being greedy has no pay off.

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