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Currency Exchange Rates, Trade Wars, and Shortages

 Copyright © November 3, 2016 by Robert Wayne Atkins, P.E.
All Rights Reserved.

Introduction

Since the 1980s several major nations have experienced currency devaluations (or hyperinflation) and they have suffered the consequences. For example:
  1. Mexico (Central America): The following table summarizes Mexico's historical volatile annual inflation rates:
    10,000 Peso Mexican Bill
    YearsAnnual Inflation
    1970 to 1972Between 5% to 6%
    1973 to 1981Between 11% to 30%
    1982 to 1988Between 59% to 159%
    1989 to 2000Between 7% to 52%
    2001 to 2015Between 2% to 7%
    The living conditions for the average person in Mexico has become intolerable. People are crossing the border into the United States at an increasing rate. People do not abandon the country of their birth unless they have some very good reasons, such as a corrupt weak government, powerful crime organizations, extreme poverty, and a high death toll among the children of the lower class. (Note: On January 1, 1993 the value of the 10,000 peso bill in the above picture was changed and it became worth 10 of the new Mexican pesos.)

  2. Argentina (South America): Since the year 2000 Argentina's worst "annual" inflation rate was in the year 2002. From 2011 through 2015 their annual inflation was between 10% to 38%. Projections for 2016 show an expected annual inflation rate of approximately 40%. Crime has sky rocketed, water quality has plummeted, electricity is not provided at a consistent reliable voltage, the availability of electricity is unpredictable, and the number of people living in poverty is unmeasurable. However, most of these facts are denied by the government.

  3. Zimbabwe (Africa): The following table summarizes Zimbabwe's volatile annual inflation rates:
    YearsAnnual Inflation
    1980 to 1990Between 7% to 19%
    1991 to 2000Between 16% to 57%
    2001 to 2005Between 112% to 599%
    2006More than 1,000%
    2007More than 66,000%
    2008More than 1 Billion %
    2009 and AfterForeign Currencies have been Used
    Since 1999 Zimbabwe's farm output has fallen by at least 45% and unemployment has increased to at least 80%. In addition, the average life expectancy of a Zimbabwe citizen has significantly decreased but there is no official data because the government censors this information for obvious reasons.

  4. Greece (Europe): Greece uses the EURO and this has helped to control inflation in their country. However, between 2009 to 2013 the average household income has declined by approximately 30% and the unemployment rate has increased to approximately 20%. Approximately 30% of the citizens complain about the quality of their water. These are the "official" statistics that can be verified.

  5. Venezuela (South America): The government reports no increase in prices (because "official" prices are fixed by the government) and the government reports that food is readily available to most of its citizens. However, non-official sources consistently report ongoing severe food shortages (on basic foods such as milk, bread, and meat), and approximately 21% of the most common foods are no longer available anywhere, and people are standing for many hours in long food lines in the hope that food might become available sometime later in the day, and food riots are erupting when food does become available and those riots sometimes become deadly. The projected annual inflation rate for the year 2016 is estimated to be somewhere between 180% to 475%. In Venezuela a significant percentage of the people have literally starved to death in the year 2016 and many of them have been children.
What do the above countries have in common?
  1. Statistics: The official government statistics misrepresent the truth and they do not accurately reflect what is truly happening in each country.
  2. Unemployment: A lot of people have lost their jobs and they have no source of legal income.
  3. Food Prices: Real prices have increased while wages have remained stable or have decreased.
  4. Heath Care: The quality of free medical care has declined, some free medical care is no longer available, and the cost of voluntary medical care has gone up significantly.
  5. Utilities: The quality of water, electricity, and gas is consistently decreasing, and the availability of these utilities is becoming unpredictable.
  6. Crime: The number of robberies, murders, and rape are increasing significantly every year. Organized crime has a more significant presence than the government's law enforcement employees. People are having to defend themselves, their families, and their property more often and their homes are no longer a place where they can live in peace and safety.
  7. Starvation: The number of people who are starving to death is increasing each year.
  8. Quality of Life and Average Live Expectancy: The majority of the people in each country are now living in extreme poverty and a lot of these people do not survive for very long due to malnutrition, disease, and crime.
  9. Politics: All of the above issues are categorically denied by each country's government and they have official government data to prove the absurdity of the above accusations.

The British Pound Sterling

The following table shows that Great Britain has experienced a low rate of inflation each year since the year 2000.

YearsAnnual Inflation
1990 to 1999Between 1% to 8%
2000 to 2009Between 1% to 3%
2010 to 2015Between 1/2% to 4%

However, in the year 2016 the British Pound Sterling has experienced serious declines in its exchange rate against other currencies. This has resulted in an increase in the price of imports.

There are only a limited number of manufacturing facilities in Great Britain and almost all the products that the British people consume are made in other countries. When a nation's money declines in value internationally, then the cost of its imports increase. This has created significant problems for the British people because their wages and their income did not increase in proportion to the increase in the cost of the goods and services that they purchase.

In my opinion, people everywhere should think very carefully about this because this situation could happen to your nation's currency next.

International Trade, Crude Oil, and Product Availability


International trade is highly desirable for a variety of products such as:
  1. Some Foods: Some foods grow extremely well in specific geographical areas because the climate, altitude, rainfall, temperature, and soil is ideal for that specific food. Examples would be coffee, bananas, wheat, and black peppercorns. Some of these foods have very short shelf lives and some have extremely long shelf lives. However, the cost and speed of transportation makes it possible to grow these items in one area of the world and ship them to another area of the world and still sell them at an affordable price.
  2. Some Labor Intensive Products: When the labor content of a product is a reasonable portion of the product's total cost then it becomes feasible to make those products in countries with extremely low labor costs. This is also desirable because a company can change its manufacturing processes and install better technology without having to negotiate these changes with anyone (labor union or government agency). Clothing and shoes are examples of products that are currently being made in countries with low labor costs and peaceful stable governments. However, labor costs and government intervention has been changing over the years and clothing and shoe factories may gradually appear in different countries in the future.
International trade is dependent of the availability of fuel. There are two basic steps in providing fuel:
  1. Oil Wells: For the past 50 years a lot of oil has been removed from some of the countries in the Middle East. The best quality oil was removed first and it was sold for the highest price. Now the lower quality oil is being removed and it is being sold for a lower price. The amount of Middle Eastern oil and the quality of that oil is not known for certain but we do know that the Middle East has a lot less oil today than they had 50 years ago. In addition, crude oil has to be refined to make it useful and the companies that process crude oil have not built refineries close to the oil wells in the Middle East.
  2. Refineries: Pumping oil out of the ground is a low technology process. Converting that oil into a variety of useful fuels is a high technology process. Oil refineries are an expensive investment and they are typically built in countries with a stable peaceful government.
Fuel is a necessary ingredient in order to move products from one area to another area. When fuel is readily available and relatively affordable then international trade is possible and profitable. However, if the availability of fuel becomes unpredictable, or if the cost of fuel increases significantly, then international trade becomes less profitable because the cost of transporting products long distances becomes more expensive and more problematic.

International trade can be seriously impacted by the following factors during periods of social unrest:
  1. Distance Transported: The further the product has to be shipped the higher the chance that the product will not arrive at its destination because of pirates (or thieves).
  2. Delivered Cost: When the cost of fuel increases then the delivered price of the product has to increase in order to cover the higher cost of the fuel.
  3. Time in Transit: The longer a product remains in transit between locations then the chance of spoilage (or deterioration) increases, the opportunity for theft increases, the cost of temporary storage space increases, and the turnover and reuse of shipping containers is decreased (which means fewer total products are moved each month).
  4. Political Intervention: The controlling political party may confiscate imports, or increase the tax on imports (tariffs), or prohibit imports and make certain imports illegal (Cuban cigars in the United States of America). This always results in a decrease in future deliveries and in shortages.
All of the above factors increase the cost of products and some of the above factors can result in a product never arriving at its destination, or only very small quantities of the product arriving at its destination.

If the Euro dollar continues to have problems, or if the world loses its faith in the United States dollar, then international trade will suffer. This means that any product that is not made inside the borders of your country could quickly become unavailable or it could become extremely expensive.

I suggest that you give this some serious thought and that you make some prudent investments in the things you know your family will need in the future. This would be things in addition to food and water.

Respectfully,
Grandpappy.

Grandpappy's e-mail address is: RobertWayneAtkins@hotmail.com

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