(Readers: In 1990, inflation in Brazil was running at 3000% per year. At that rate, a loaf of bread that cost $3 on New Year’s Day would cost $93 by December 31. With that in mind, one of my readers, Leasi, had told me that she lived in Brazil during its hyperinflation event in the 1990s. So I asked if she would be willing to share her experience with us, and she graciously agreed. This is her story. — Len)
I was born in Brazil and have listened to people talk about inflation for as long as I can remember. When I was in my early teens I remember that my mother sometimes bought things that she thought would be more expensive the next day.
Despite graduating from college in the early 1980s, I could not find a job in my chosen field. I finally took a job a secretary for a CEO of a Brazilian company. I had a reasonable income at the time, but by 1984, high inflation began to get out of control and prices started increasing every few days.
Back then, I did not save anything. I didn’t even consider saving because the interest on a savings account was less than the rate of inflation.
By 1990 the situation was terrible, and we were living with hyperinflation. Prices began increasing more than 100% a month. For example, if you used a credit card to buy clothing the payment would double each month.
The city that I lived in was cold during the winter and the houses still do not have heaters. At one point, I needed a coat, but I could not afford to pay for it in one payment. So I paid it off over a six-month period and ended up spending more than six times the original price.
We lived day by day; we had more than 3000% inflation in 1990. As a result, everyone hurried to the grocery store on payday and bought everything they could. We had to because prices would be much higher the next day. Every can, jar, or box in a grocery store had a stack of price labels. By peeling them off, you could tell that the price had tripled during the short time on the shelf.
We also bought all of the nonperishable food we could because we knew it would be more expensive by the end of the day too. We tried to keep our pantries filled with vegetable oil, dry grains, canned goods, cleaning products, toilet paper and milk. (Brazilians buy milk in tetra-packs that have a long shelf life.)
Deception and Illusions
The real inflation rate was much higher than the official government inflation rate. As things got worse, the government passed laws to control prices on basic products like pasta or vegetable oil, but it was hard to find these products in any grocery store. As a result, many store shelves were empty or filled with uncontrolled items that we did not need.
Eventually, the government allowed the vegetable oil industry to sell 900-milliliter bottles instead of the traditional 1-liter bottles in order to keep prices from rising. It was just an illusion though — the price was the same, but we got less.
Industry adapted to hyperinflation by reinventing products with new names, labels, and packaging so they could sell them for higher prices. The government was not able to freeze the price of the “new products” at least not immediately.
When the hyperinflation was at its worst, the government required companies to adjust the salaries of its employees for inflation. The “salary shot” was created to increase employees salaries by 2% less than the monthly inflation rate. For example, if inflation was 40%, I would get a 38% raise! Even so, that meant I still lost 10% of my effective salary every five months.
Millionaire Paychecks
Eventually, I was earning “millionaire” paychecks that bought very little. A loaf of bread cost thousands.
We purchased basic food, rent and utilities. Payments were readjusted monthly. I eventually had to sell my car, because the payment increased each month until it was more than half of my salary. After that I had to walk or use public transportation when it was available.
During that time if you left money in the bank you would lose most of it over night. Each night we would check our balance and call a special broker who would invest our leftover money overnight. The money, plus interest, would then be back in your account the next morning, but it never quite kept up with inflation.
People who had money bought US dollars. The rest of us just did the best we could to pay our bills, hoping that things would get better … someday.
The government was always passing laws to control the economy. It didn’t work. I think Brazil has had six or seven different currencies during my lifetime. I remember coming home from work and listening to a new name and value of currency on TV. It always took awhile for the paper to change, but old notes of 100,000 became new notes of 100. Making all of those conversions made us good mathematicians. And although there were coins, nobody used them because they had no value.
Finally, in 1993, there was yet another plan to change the currency. This time there was advance notice. The new currency had its value attached to the US dollar and, over time, Brazil abandoned its old currency and converted to a new strong currency called the real. By 1994, hyperinflation was over.
Since 1996, inflation has been under 10% a year.
Old Scars Run Deep
My generation still has many scars from hyperinflation. After coming to the United States in 2003, I had the impulse to buy basic necessities because they were cheap. It took me a long time to realize that I could save money to buy things when they were needed, that I didn’t have to buy them on payday.
Most people have not had to live with the hyperinflation that we had in Brazil, but I see signs that it is coming here. It is something that I survived, but I don’t want to live through it again.
Click here for Part 2 of Leasi’s story.
Photo Credit: Free Grunge Textures at www.freestock.ca
I am glad you shared this, Leasi. It was very interesting!
Strange things happen when people lose confidence in their money. I remember reading a story about a man who had a letter from the bank telling him that they couldn’t give him his savings of 60,000 marks because the smallest note they had at the time was 1 million marks. So they just rounded up his saving to a million marks and sent it to him in a letter. But the stamp on the letter cost 5 million marks!
There is also the story about the guy who carted his cash in a wheelbarrow. He walked in to a store to buy what he was looking for, but when he came outside to get his money to pay, a thief had stolen the wheelbarrow — but he left the large amount of cash it was carrying behind.
Interesting story Leasi. I’ve seen many people here recommend debt thinking if we’re hit with massive inflation, it could be paid off with cheaper dollars down the road (the same plan the govt uses).
Unfortunately, I suspect what happened in Brazil will also happen here … the banks will index inflation into the original loan amount (contracts meaning nothing anymore) PLUS that line of thinking assumes one will have an income that keep up with inflation, (where yours did not) … OR have an income AT ALL.
Pretty risky plan to put yourself in debt, and base your payoff plan on banks and govt !
Wife and I have always had an aversion to debt … using it sparingly, paying it off as soon as possible. We use credit cards, mostly for the convenience & cash back rewards, but I can truthfully say we’ve never paid a dime interest nor any other fee to have them.
Adam Fergusson wrote an excellent book on the Weimar hyperinflation of the early 1920s called When Money Dies. In it, he notes that the German government passed an ordinance in 1924 that revalued existing mortgages and industrial securities at 15% of their original price in gold. The same law also revalued mortgage bonds, and savings deposits in banks at slightly higher rates. But by then, the horse was already out of the barn, as the hyperinflation event had mercifully ended with the creation of a new currency, and many people had already paid off their debts with the worthless hyperinflated-paper long before then.
An additional law was passed 15 months later (in July 1925) that retroactively covered previously-retired mortgages and other collateral-backed securities which had been held in good faith as far back as five years prior to the law’s enactment; those mortgages were revalued to 25% of their original price in gold. But in most cases, the debtors still made out at the expense of the creditors, even after the revaluation.
Not sure such revaluations will happen here in the US, as I thought ex post facto laws are supposed to be unconstitutional. I assume contract law will remain sacrosanct, but I guess you never know — especially in these corrupt days we now find ourselves in.
Whenever money suffers from hyperinflation the best thing to do is to buy up real estate and any hard assets. Worst case, buy whatever you can that is real. If you don’t live on a farm, food is also a good choice, as it makes sense to use the cash for stuff that can be used to keep you going.
Fergusson notes that in the Weimar hyperinflation — although I am sure this happens in all hyperinflations — people were buying everything and anything, whether they needed it or not. Then they would use it to barter later.
Of course, this manic buying led to mass shortages of everything. Hyperinflation truly is a living hell; I pray that we can avoid it here in the US. Anchoring the dollar to gold can short circuit that path, if it is done early enough. Let’s hope our politicians have the courage to do it before its too late.
I remember I had an uncle who lived through the Hungarian hyperinflation in WWII and he said the money lost value so fast at one point that even items with short shelf lifes like fresh eggs were a better long term investment than the pengos (Hungary currency at the time) they were using because they could be used for barter for a longer time than the pengos he was being paid DAILY for his job.
Interesting. I never gave a lockdown or virus a thought. It’s all really about faith to me. Being spiritually and emotionally prepared for death is the greatest investment. I continue to invest in with amazing returns. As a kid I remember the cover of Time magazine with Jim Jones! Profound effect on me. Missplaced faith. I do wonder why south America and under developed nations have this currency issue? To me if the dollar goes so does the world economics. Can the whole world lose faith at once? Think the thing to do is invest in a private farm with others so we have food. But this scenerio feeds on itself. Then I would need to hire and feed an army to protect it. The sky will fall on me someday and I rather go up than down.
That inflation story makes us all stronger and shows that down times don’t last. Penzonians are prepared but for what? What I think thats coming or what I didnt see coming? George Karlen received it and shared it. Yes I am a teacher. Got a math teacher down the hall gave his 12-14 year olds a math project. On line They are building an economy! Balance that equation!
Why would the payments on the credit cards and car loan change? Once you buy those things the prices are fixed and you would actually see a benefit by paying the loan back in currency that was worth less. Did/does Brazil have some sort of strange clause in their loan agreements that they can increase payments/prices after you have bought something?
I read part two, that’s crazy that they have loans where they can increase the principal balance for inflation…
You’re right, Steve … when hyperinflation strikes, everybody is forced down the rabbit hole and enters that strange financial world where nothing makes sense.