(In Part 1, Leasi shared her account of life in Brazil during the hyperinflation that raged there between 1980 and 1994. For Part 2, I have a Q&A with Leasi that sheds a little more light on what she endured during that time.)
Len: Thanks for taking the time to share your story with me and my readers, Leasi! You mentioned that you had trouble finding a job in your chosen profession after graduating from college back in the mid-1980s. What degree did you earn?
Leasi: I got my first degree in Journalism. Later on, I went back to school and got a degree in Social Studies and a major in History. It made me a teacher. Teachers DON’T make good money in Brazil but I got a career that I like.
Len: One of the cruelest attributes of hyperinflation is that it punishes savers and otherwise financially responsible people; at the same time, it rewards debtors — especially those with big debts. Were you lucky enough to have any large loans — like a home mortgage — that you were able to payoff early with nearly-worthless hyperinflated currency?
Leasi: I didn’t have any loans, Len. And I was a renter. But all loans in Brazil were connected to the rate of the inflation. The banks never lost anything. Most Brazilians live in apartments or townhouses. To buy one of them back then you had to have a good down payment ( at least 30%) and then get a mortgage that was connected to the rate of inflation. The mortgage payments were adjusted yearly almost like a lease. During the hyperinflation, after of several years of payment, the principal was higher than at the beginning of the loan.
Len: One of the first actions desperate governments impose during hyperinflation is rent control. Did the authorities in Brazil pass any rent control laws?
Leasi: The rent in Brazil is similar to a lease here. During the hyperinflation, leases were readjusted on an annual basis and they were based on projected (very high) inflation. In the early months of a lease, renters would overpay for the property — but by the end of the year they would be underpaying.
Len: You mentioned buying clothes on credit and then having the payments double each month. Was that because the credit card company was increasing the interest rate? Or was there a special law passed that enabled the credit card companies to keep up with inflation?
Leasi: The stores worked with the banks to extend their own credit that was not related with a credit card. In every store, every rack of clothes had a sign showing how much a clothing item would cost if you paid for it over two, three, four or more months; the choice was yours. Each clerk could tell you how much the interest rate was at that particular moment. And the rate could change several times during the day. I didn’t have a credit card at that time. Only rich people had credit cards. I was not rich.
Len: When hyperinflation was raging, Leasi, did you try to spend most of your entire paycheck — if not all of it — at the grocery store?
Leasi: Yes, we spent most of our money at the grocery store. Everything else went to rent and utilities.
Len: Was there a black market for goods that were in short supply? If so, did you buy anything on the Black Market?
Leasi: The only black market that was strong was for dollars. So when I found a basic necessity in the market I bought everything I could. For example, I’d buy ten cans of vegetable oil (or the maximum that the grocery store allowed per person) and I had to keep my eyes in my cart, because people would steal things from it if the store ran out while I was shopping. When I could, I’d sell some of my cans of vegetable oil to relatives, and they would do the same for me with other products, like milk, that they were able to buy in quantities of ten.
Len: Wow! How devastating. This is why I advocate people have precious metals like gold and silver. You mentioned that Brazil went through seven different failed currencies back in the 1980s and early 90s. Can you remember all of their names?
Leasi: Yes, but I’m not sure about the order: cruzeiros, cruzeiros novos, cruzados, cruzados novos, cruzeiros (again), real. Maybe there were more. It is crazy!
Len: Yes, it is, Leasi. And all of those failed currencies represent the government’s refusal to live within its means. How did the government implement all of these new currencies? For example, did they just set a date when the old currency would no longer be accepted? Or did you have to turn the old money into the bank?
Leasi: We rarely knew when a new currency would come. The news and rumors were always that the government was creating a new economic plan that would control the inflation “this time.” Many times we discovered that we had a new currency from TV or the newspaper. They liked to make the announcements in the evenings because people were coming home and paid attention to the news on TV. The instructions to how the plan would work were exhaustively repeated for days on TV so everyone would understand the exchange. The paper notes to the new currency would come later. There was a due date to exchange “old paper” currency in the banks but, usually, it was a month or more after its announcement. We used the old paper notes with the new values until we saw the new paper notes in the market. Most of the time, the retail companies made the exchange. We got them as change to our daily transactions. I remember having and using two kinds of currency paper in my wallet, until the exchange due date. At the due date, some of the old paper notes were worth so little that we didn’t bother to exchange them, and we only kept the new ones.
Len: So how did Brazil’s hyperinflation finally come to an end?
Leasi: It ended after a complicated set of measures were enacted in 1994 known as thePlano Real.
Len: Hyperinflation is not “high inflation” per se, but rather the public’s loss of confidence in a currency. Were there people who did not initially trust Brazil’s newest currency — the one that finally stopped the hyperinflation — because they figured it would be just like all the other failed currencies?
Leasi: We were always skeptical. As I said, I still have scars. This week my mother, who still lives in Brazil, told me that she bought eight packs of coffee. She is noticing that the prices are going up and she wanted to save by buying them early. She wants to have her coffee for a reasonable price.
Len: You mentioned that you see signs of hyperinflation cropping up here in the United States — and I agree with you. The signs are everywhere worldwide confidence in the US dollar is rapidly waning. Which signs are most troubling to you now?
Leasi: The political uncertainty is the most troubling. There is no plan to deal with the national debt or government spending. The increase of prices in basic things and the masking of prices by repacking the products. One example is the Baker’s chocolate; an eight-ounce box sold for $2.88 at Walmart. Now, it comes in four-ounce boxes but the price is still $2.88. That is a 100% price increase — I was shocked! That’s just one example. I see it even in Coca-Cola. My husband remembers paying a nickel for a Coke. How much does it cost now?
Len: I’m imploring all of my readers to keep at least a little gold and silver in their portfolios because they’re the ultimate wealth insurance. What else should people be doing to protect themselves from hyperinflation?
Leasi: You shouldn’t have debt of any kind and you need to be as self-sufficient as possible. It helps if you know how to cook, if you can survive when the electricity goes out, if you can fix a toilet or a car, and if you keep your own garden. In other words, it helps if you know how to live with very little. Shopping is not entertainment during hyperinflationary times. It’s war. You spend money, not on things that you want, but on the things that you really have to have. It’s not fun at all.