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BookmarkRight now the whole world is focused on emerging markets. We have seen a number of currencies in turmoil, including the South African rand, the Turkish lira, and the Argentine peso.
All of these central banks are raising their interest rates in order to protect their currencies from going into free fall. Of course this is helping gold. We have also seen some nice upside action in the gold equities as well.
This emerging market turmoil is going to get worse from here. It’s hard to say where it’s going to spread. We haven’t seen anything happening in Europe yet, but circumstances would suggest that it is going to spread to the PIIG countries. This will put pressure on the euro.
But I’m traveling to Argentina later this week and I’m going to get a firsthand look at what’s going on. I have been reading that there has been an escalation of street violence, and the everyday person in Argentina is not faring too well.”
Eric King: “You’ve been warning about these currency troubles spreading around the world, and you’ve been in countries on many occasions where there have been collapses.”
Barron: “The Argentine currency has gone to zero on numerous occasions. I was in Argentina in the early 1990s when their currency collapsed and went to zero. I was in the adjoining country of Brazil when two of their currencies went to zero, before they brought in the real. I was also in Ecuador when the sucre went to zero and was replaced by a dollar-based economy. I don’t think America is particularly isolated from this, and the currency has gone to zero before, but a very long time ago. Meaning, it’s not within living memory.
I have a very funny story: I was in Zimbabwe around 2001 when the inflation just started to take off. And I was actually in a casino. I was with some friends waiting to have dinner at this casino and I won the jackpot. I was happy about this and they presented me with this massive tub of Zimbabwe coins.
Anyway, when I figured out how much it actually was in American money it was actually less than $20 (laughter ensues). This is what happens. That’s just a good illustration of how worthless the money becomes in those situations.”
Eric King: “What’s it like being in countries like that when they collapse?”
Barron: “What happens in countries like this is you have to go around with big wads of money to pay for things and nobody ever has any small change. So what’s happened in some of the Latin American countries, and I specifically remember in Argentina, people started to use candies as small change. You would buy a newspaper and they would give you 3 or 4 candies back (laughter ensues again).
I remember being in Kazakhstan and the small change was actually made out of cardboard. It was actually official money, but it was made out of cardboard. Kazakhstan didn’t have any metal to make the small change. This is the kind of thing that happens.
People get quite innovative as they go into ‘survival mode.’ When they get paid they go out and spend it right away. So the velocity of money becomes very, very high in these countries because you want to get rid of the money before it depreciates.
There is no waiting to pay. If you have a bill the collector is there that afternoon waiting to collect the money, and it becomes an all-cash economy. People routinely carry around large wads of cash with them. The wads are so large that in many cases they are done up with string or elastic bands, and the outside bundles of the money get frayed.
It gets so bad that people don’t even count the money any more, instead they just hand over bundles. I’ve done that in a number of countries before. It’s going to be interesting because I will be in Argentina in a couple of weeks looking in on U308 properties and it will be interesting to see how people are coping.”
