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The Costa Rican Central Bank would have you believe that they are supporting the US dollar. So, how do you do that ? Well, you print up a bunch of colones and you create an unusual demand for dollars. i.e. you are paying an extraordinarily high number of colones for a dollar. But what is really happening is that Banco Central is spending an extraordinary amount of dollars to buy colones.
First, they were spending their dollars, in the form of currency reserves. Now, they are spending yours and putting restrictions on your ability to access your dollars. If the FOMC arm of the US Federal Reserve raises rates in December, as they are widely expected to do, the USD will spike upward and the problem in Costa Rica gets a whole lot worse.
To prove that what I’m saying is true, we need to find some other stable economies in Latin America, no small feat in itself. Let’s concentrate on the period from early 2014 when the US Dollar index troughed and began it’s upward move.
[img]http://www.galtsgulch-cr.com/images/dxy0.jpg [/img]
Note the Mexican Peso and how it requires more than 30% more pesos to buy a dollar now than then.
[img]http://www.galtsgulch-cr.com/images/mxn.jpg [/img]
Now, look at the Chilean Peso and you’ll see the same thing. Note how each chart shows a steady weakening trend as the USD got stronger. Note the steady increase in volume.
[img]http://www.galtsgulch-cr.com/images/clp.jpg [/img]
Finally, have a look at the CRC. This is what a currency chart looks like when it is being manipulated to a peg range.
[img]http://www.galtsgulch-cr.com/images/crc.jpg [/img]
Without this manipulation the CRC would be trading at around 600 CRC/USD. If all happens as expected, there are going to be much more stringent controls on US dollars or we’re going to see 700+ CRC/USD, or both.
So, why are they struggling to keep the value of the CRC artificially high? Because their external debt is denominated in US dollars. If the CRC weakens, they owe more.
The FX markets are huge. When they jump on the CRC again, like they did in early 2014, there’s not enough money in all of Costa Rica to even slow them down.
I would not be at all surprised to see all USD denominated bank accounts in CR involuntarily converted to CRC at a value to be determined by Banco Central instead of the free market.
Take care and and be prepared,
Bill
Interesting commentary BillNew, thanks for that.
Unfortunately when it comes to the financial state of affairs of 90% of the countries around the world, it would appear that government and their parasitic lackeys LIE through their teeth all day long for a living.
If we managed our own personal finances like most governments, we would all destitute, homeless and literally starving to death!
[quote=”Scott”]
If we managed our own personal finances like most governments, we would all destitute, homeless and literally starving to death![/quote]True enough … but …
We don’t get to enslave the masses and force them to feed the machine …
They do …
Just the same outright market and financial manipulation that’s been going on for years. If big brother (insert whatever country you want) didn’t do so they wouldn’t be able to keep housing, feeding, and providing for the walking dead in society that they promise the world to. And when that happens anarchy follows. Unfortunately as Bill has pointed out the endgame is coming, a mathematical certainty that is unavoidable. Kicking the can down the road works for a while, manipulation and lies work for a while, but in the end reality always wins out.
Rewarding reckless and irresponsible behavior just encourages more of the same. The international banking disaster was NEVER resolved, just postponed. It’s going to be a rough ride, are you prepared?
What a disappointment. My wife and I are making our first exploratory trip the first 2 weeks of April for the purpose of moving there later this year. I keep up with global central bank/govt attempts to keep floating but I sure thought CR was underneath all that. One of the reasons for moving is of course the wonderful things about CR but growingly important is escaping the US. I retire in 2 weeks.
I’ve got a bit of gold and silver, is there a way to bring it?
Taxa Rica is a puppet of the US. Don’t expect anything else.
[quote=”slackerbill”]
I’ve got a bit of gold and silver, is there a way to bring it?
[/quote]Cruise ship passengers typically aren’t subject to immigration and customs. Since they sleep on the ship, it is often looked at as if they are not really entering the country. Don’t know if this is the case in Taxa Rica … but it may be.
The national budget is about one third debt service … and about half is borrowed money.
So …. if you’re leaving the US because it’s a train wreck …
[QUOTE]President signs law to cap rent hikes
By the A.M. Costa Rica staff
Casa Presidencial says that the new law that ties rent increases to the rate of inflation will not go into effect until the first of the year.
The summary of the new law came as President Luis Guillermo Solís signed the measure in a ceremony.
The law will prohibit owners from raising rents over the course of a rental agreement more than the inflation rate as long as the rate is less than 10 percent.
[B] The current law provides for a 15 percent ceiling per year because when it was passed the expectation was that the colon would continue to inflate. But the currency has been stable because the Banco Central is protecting the colon. [/B]
Rental agreements in foreign currencies already are frozen at the initial rate over the length of the agreement, which usually is three years.
The measures does not apply to vacation rental.
There is a possibility that landlord organizations will challenge the new law in the courts. And some have already said that the owner will set the initial rent high enough to compensate for the inability to get substantial annual increases.
When the inflation rate is higher than 10 percent, the government in the form of the Ministerio de Vivienda y Asentamientos Humanos would be empowered to set the cap.[/QUOTE]
That is the first time that I’ve seen that admitted.
Just a few months ago they claimed that they were supporting the USD …
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