Those fat years of the 70s in the Soviet Union had been followed by a long nightmare, one I see beginning here in America.
Gorbachev had been in office just a couple months when he ratified a new bills exchange. A bills exchange means exchanging the currency then in use for different money.
Well, you could ask, that is normal in many countries, right? Normal? Maybe. But the outcome was like they had pumped us dry of savings. Going through it was torture, seeing the savings of a life time drained in days, weeks, or months.
Current denominations of fifties and hundreds could be exchanged for new bills for only three days and only 500 Rubles could be exchanged at one time. So, what is a big deal?
Many honest people in the Soviet Union had escaped scrutiny, moving into the burgeoning middle class, by keeping their profits in cash. For example, at the time there were many 'underground milliners' whose enterprises were not in sync with ruling Communist Party. These were "illegal activities" though they harmed no one.
Gorbachev had decided, alone or based on advice, to kill these people as a class. And that action -- bill's exchange -- killed a segment of the middle class in Soviet Union.
The artificial currency exchange ratio (at the beginning of the Gorbachev tenure) was 69 kopeek (lowest USSR currency) for 1 US Dollar. It wasn't real, of course. In reality there were people who dealt with foreigners, buying from them and then selling to the general population (jeans, for example). These entrepreneurs were called "farcovshiki". Farcovshiki were risking their lives to support their families. The penalty for these activities were up to 15 years in prison, the same sentence that was applied by criminal law to rapists and killers.
To live in the Soviet Union was to live with danger. To be in business we needed to have a real currency, real US Dollars and Deutsch Marks. The new exchange rate had risen to 3 Rubles per US Dollar.
In the wake of these events, people were literally hiding their money under pillows, afraid to put their funds in the bank. The biggest USSR Savings Bank loomed as a threat to all savings. Instead those funds were kept close at hand, buried in a backyard or hidden in the attic. Imagine what shock we felt when it was announced the new bills would be valid and old ones void in three days!
Just like in the United States, there are always people who worked hard to build businesses and support their families. In the Soviet Union we called those people, who were like my parents, "hard working communists." Like all law abiding citizens they kept their hard-earned money in the USSR Savings Bank. At that time they had enough money in the bank to support them in comfort in their retirement. So, in a sense, these money were US 401K plans equivalent."
1985, everything changed. They figured out how to reach into the places we had used to hide the money we hoped would give us security.
The 'free market' overwhelmed formerly Soviet Union citizens. Overnight the world had changed, some for the good and some not. Now we, ordinary people, could say what we wanted, not just in own kitchens but out loud in public. Our world grew larger. Freedom gave us the ability to see beyond the borders of the USSR. Now we saw the world as it had appeared to to Party leaders, the Military Elite, and their friends. We could see R-rated movies and read different opinions.
However, with this new freedom brought with it hyper inflation, gangsters, and crooks.
Inflation was no longer controlled as it had been before. Because Gorbachev said that the "Free Market" was subject to any forces that came by 1989 the Ruble had fallen to a value only 1/6th that of the US Dollar.
By 1991 the Soviet Union had ceased to exist and Ukraine had become independent.
That led to more instability and new rounds of inflation through currency manipulation.
As an independent nation, the Ukraine decided to have its own currency. That 'currency, ' which we called, 'coupons,' was printed on low quality paper and was easily reproduced in basements using Xerox machines. Counterfeit currency became a reality, dooming the Coupons. Rubles were highly valuable in exchange because Russia had a strong infrastructure.
The Ukraine, on the other hand, had and has today, an economy based largely on agriculture.
There, Russia and Ukraine found a common ground. Ukrainians carried their bags of farm food to Moscow, where Muscovites bought with pleasure. Moscow, without a strong agricultural economy, was suffering from a reliable food supply. This was a win-win outcome for both with Moscow getting their food and Small-Russia, the name often given to the Eastern Ukraine, receiving Rubles for radishes.
However, trade and the possibility of profit stopped in August 19, 1991. The coup in Moscow severed these connections with the Ukraine.
Inflation was like an avalanche, a tsunami that destroyed businesses and savings. Before long the Ukraine announced a new currency and, on paper, everyone in Ukraine became a millionaire as the value of our Coupons plummeted to 200000 to 1 against the US Dollar. Money in your pocket was worth less every moment. We lived in a state of perpetual uncertainty and shock.
Half-legal currency exchange became a very profitable business. You could go to special a market and exchange your life savings, packaged now in packs of coupons with rubber bands, for crispy "greens." Greens were US dollars. Most prized were crispy new greens; This bias tremendously helped counterfeit US currency to conquer our shaky post-Soviet market.
Some of you may wonder why we needed US dollars in a first place? Well, because borders were much more open than before; many entrepreneurs started trade with other countries and former Soviet Union Republics, making the dollar the only currency we could use to trade. All of us were having the same problems with currency.
Then, in the end of 1995, a new Ukrainian currency arrived. That was the Grivnya. It was a better quality banknote that exchanged elsewhere in ratio 1 Grivnya = 100000 Coupons. It brought some stability for a short while. Far from perfect, the new currency was again counterfeited; these then flooded the markets. Inflation continued to escalate.
During the 1996-2001 period the Grivnya continued to lose its value until the US Dollar itself began to slip. What had been 1 US Dollar to 6 Grivnyas became 2 Grivnyas per Dollar.
Today, it is finally stable and the dollar is losing its luster. And there begins the warning I need to share with you.
There are parallels in those years I lived through in the Ukraine with what I see and sense with the current US market situation.
The law of "survival of the fittest" is still in power. You need to prepare yourself for what may come from uncontrollable US inflation and staggering political instability. Do as many of us, having survived through so many rounds of instability learned to do. Do not hold on to currency. Instead, buy and hold raw products and commodities.
In all countries that painted the map of the Europe after Soviet Union and later, Yugoslavia separation, the oligarchy raised their wealth on these natural products. Some of the oligarchs came from banking industry but in general – oil, gas, colored metals, and media. I am pretty sure that this pattern will apply to any future independent states with economics in turmoil.
Get ready. It will happen here.”
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