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Letter Re: Lessons from Brazil, Circa the Late 1990s
James,
I was chatting with a friend of mine who lives in Sao Paulo, Brazil and we
got to talking about their economy. What really caught my attention was what
life was like about the time they went their economic collapse, I think he
said around 1998.
Brazil had several years of increasing inflation and finally reached 50%
per month! At that rate people were paid weekly instead of monthly and everyone
would convert paychecks to hard goods and consumables. I told him there would
be riots in the streets and marches on the White House if we ever had 50% per
month inflation. He replied the Brazilians would complain but pretty much accept
whatever came along.
Finally when inflation was so bad the president called in a cousin of his who
was an economics professor and she recommended a drastic measure to save
the government. One day it was announced that all banks accounts would be limited
to $50 and all other funds would be “loaned” to the government.
Can you imagine having this happen in the US ?! Fortunately his father was
a small business owner and sensed something bad coming down, so days before
the bank confiscations he had incrementally withdrawn his life savings of $60,000.
The mother was frantic because they could lose 50% - 60% every month the cash
was not earning interest in the bank. A few days later and most people lost
all their cash while this father was sitting pretty, comparatively. My friend
and his family survived fairly well. A friend of theirs had just sold his business
and left all the proceeds, about $150,000 in the bank! He was wiped out and
several days later committed suicide.
Sao Paulo is a densely populated city of about 15 million so it is amazing
there was not widespread rioting, looting and social deconstruction. Supposedly
the saving grace was that jobs were not slashed so everyone just picked up
the pieces after the confiscation and moved ahead with their next paycheck.
Lessons to consider:
* Governments can act swiftly and unpredictably, and usually to the detriment
of the individual
* Don’t keep the majority of your savings in any form of bank account.
Stock funds are a bit safer but would have been next in line.
* Cash on hand, even evaporating with inflation, is a must. Keep a good amount
of cash on hand to get through the initial shocks.
* Material goods are the king of survival. In Brazil wage earners immediately
converted paychecks to material goods. They are the only thing that holds value.
Gold was not in widespread use in the city except for the shadier parts of
town. You did not want to be walking around Sao Paulo with any amount of cash
or gold.
* Like in the stories of Argentina, urban life can continue in a SHTF situation,
but you should still be prepared. I don’t doubt that Brazilians outside
the city were much less impacted and already much more reliant on natural resources
and tools than the average city dweller. - JB in Oregon
