Dateline: Budapest, Hungary
Having been all over western and central Europe – save Slovenia and the microstate of San Marino – I’m convinced after just one day that Budapest is easily the most beautiful city in Europe.
One individual I met with here suggested Budapest had the cheapest real estate of any capital city in the European Union.
Considering my recent suggestion that European assets outside of the Eurozone are some of the best values available, this makes a lot of sense.
However, there is a dark side to the cheap prices here in Hungary’s gorgeous capital city. And it should serve as an ominous warning to Americans, as well.
While Hungary is one of a number of non-Eurozone countries using their own currency – the Hungarian forint – the country has had a disastrous history with their currency and hyperinflation.
After World War II, the Hungarian pengo turned into the worst case of hyperinflation in modern history. The pengo was introduced after World War I and barely lasted twenty years before it was shuttered.
However, the pengo barely lasted three years before it had to be devalued. The effects of Depression in the Land of the Free hit agriculture in Europe hard, and the government insisted on a series of ridiculous programs that impacted the Hungarian economy and devalued the currency in a huge way.
After World War II, the Hungarian government put more boneheaded moves into place, such as imposing a 75% capital levy on Hungarians. Yep, please line up and turn over three-quarters of your wealth to the state… all because they couldn’t manage their own fiat currency.
Eventually, the pengo started losing most of its value every single day. This led to the printing of the milpengo (one million pengoes) and bilpengo.
It wasn’t long before the Hungarian government demanded that some of those zeroes be taken off in order to save face, and the adopengo was born.
Of course, no government involvement in this hyperinflation worked, and eventually the pengo crashed under the weight of hyperinflation. The photos of people sweeping banknotes down the sewer are from post-War Hungary, as Hungarians preferred the dead currency for use in their fire or their bathroom.
Today, unfortunately, Hungary is in somewhat of the same predicament.
Sitting at a cafe in central Pest (across the river from Buda, the other half of Budapest), my lunch tab ran up to 4,200 Hungarian forint. The government here replaced their pengo with today’s forint at a rate of 400 quadrillion pengoes to the forint.
Imagine knocking 29 zeroes off of your currency.
Yet swapping one worthless currency for another – WITHOUT changing the fiscally irresponsible government underneath – did nothing but cause the new Hungarian currency to end up in shambles.
Today, one Euro will buy you more than 300 forints.
After the global recession began six years ago, Hungarian legislators vowed to “get tough” on the banks in a way almost no other country did. The government went back to capital levies on institutions like banks. They implemented a financial transactions tax. And they confiscated money directly from the financial system.
Hungary, as beautiful as it is, has been one of the biggest proponents of wealth confiscation in Europe.
One of the issues is that local homeowners took out loans in foreign currencies before the economic collapse. Thanks to their governments horrid economic policy running Hungarian debt to junk status, interest rates on loans denominated in forints were quite high.
However, loans denominated in Swiss francs or Euros were cheap – as low as 1 or 2% in some cases.
When the government tanked the forint to try to boost imports (I’m not sure exactly what they actually manufacture here), those borrowers got the shaft.
One 80-year-old gentleman told the New York Times he had to choose between food and medicine after losing his home, only to rent it back from the new owner – at a cost of 80% of his devalued government retirement check.
Hungary is living proof of how government devalues the future of its citizens.
Unfortunately, the United States and other western countries are singing off the same sheet of music.
After all, the US government also attached big banks and forced them to pay billions of dollars in fines for kicking delinquent mortgage debtors out of their homes. The government claimed it was asking “in the public interest”, but it only hurt investors and pensioners.
The US government is currently devaluing its currency at a rate of $1 trillion per year, with no sign of slowing down and some signs of actually speeding up. Unlike the Hungarian legislators who act swiftly and with confidence to steal peoples’ money, Janet Yellen wallows around clueless as she continues to sink the value of every US dollar you hold.
And a growing number of US legislators view their $125 trillion in unfunded liabilities not as fault with a government that has spent was wanton abandon on things that don’t work, but as a sign that the evil rich have too much money.
That is why more wealth confiscation is coming to The Land of the Free. Write it down.
If you run a business in the west, you are already getting the “Hungary treatment”; being blamed for failures of backward government economic policy. In the USSA and elsewhere, economic failure such as a rising unemployment rate will be pinned on anyone with a dollar to their name.
Even if you’re not rich now, it will eventually be “your fault”.
As foreign banks reduced their exposure to Hungary, the government had no choice but to devalue the currency AGAIN, causing more people to lose work and lose part of their life savings.
This is part of what sent Hungary’s economy to shambles.
Today, there are some interesting opportunities in Hungary. For one thing, the beauty of Budapest highlights the need for Flag Theory; this city is a great place to live so long as you don’t keep more than your monthly expenses in a local bank account.
I did see a gorgeous flat rather close to the city center selling for exactly US$100,000 today. It was well-appointed and had a beautiful view. Unfortunately, there’s no way I want to hold an asset with exposure to a currency that has been trampled on by the local government for political gain. (And, let’s be honest, a bit of good old ineptitude.)
Earlier this month, I interviewed a highly sought-after trader on how to hold a mortgage in OTHER countries in worthless currencies such as the Japanese yen. If the Hungarian forint was more widely traded I suspect he wouldn’t oppose denominating your local debt in forints, either. That interview, if you’re interested, is available to Members of The Nomad Society.
All of the things happening here in Hungary are unfolding around the western world. As we’ve discussed before, countries like the USSA simply have the luxury of a larger, more significant economy which can be used to hide their fiscal irresponsibility.
Hungary doesn’t have that luxury, which is why their politicians have to act like straight up thieves.
However, it’s only a matter of time before the exact same things, from wealth taxes to wealth confiscation, hit your shores.
For nearly 24 hours of highly actionable video presentations from speakers including Peter Schiff, Jeff Berwick, and others on HOW to protect your money from the fate that befell Hungary, you’ll want to get your hands on my Passport to Freedom video series NOW.