By the author of Street Survivalism: A Practical Training Guide To Life In The City and The Ultimate Survival Gear Handbook
This is a real story – a Brazilian inflation story. It’s a story not only of inflation, but also a cautionary tale of what governments do when things aren’t running in their favor. Hint: it doesn’t work in your favor either. And it is happening again.
The situation in Ukraine is monopolizing the world’s attention, galvanizing spirits, and splitting hearts. It’s absolutely normal to worry about an event that can potentially escalate and lead to massive devastation, possibly even the destruction of the planet. We’re entering uncharted territory.
Yet here I am, once again harping about the economy.
I’m not qualified nor informed enough to trace conjectures and emit opinions on the strategies, objectives, and actions of either part of the conflict. Nor am I minimally inclined to enter the merits of its historical and political aspects.
There’s a lot more to it than meets the eye and certainly than what we’re being told. Consequently, even long-time experts can’t reliably predict the odds of the war turning one way or another.
Therefore, I’ll stay in my field and do my best to address other facts I deem just as important and urgent. If something is sucking all the oxygen in the room, that’s when I feel like taking a healthy distance and looking around.
First, a quick preamble: things in eastern Europe aren’t looking good.
The possibility of escalation is real. But – and it’s no small but – while WW3 or a nuclear exchange can’t be ruled out, it’s also not a given. If leaders recover their senses and heads get cooler, the conflagration could fizzle out and come to an end soon.
Granted, it’s the Fourth Turning. The whole Grid is fragile. Global powers are realigning. Volatility is at an all-time high. The abysmal leadership currently in charge and the goading elites behind them don’t exactly lend much hope to the planet not getting blown up.
But however minimal, there’s a chance things take a turn to better in that arena. This is what every sane person is wishing for right now, and I’m with that crowd. I’m also counting myself with another group:
The one that believes the collapse of the economy is a mathematical certainty.
Out-of-control inflation, supply chain in disarray, disruptions, shortages, energy crisis, barrages of sanctions, social unrest… It’s already happening. Taking into account everything that has transpired recently, added to present events, I’d consider it a true miracle if the escalation of the collapse of the economy could be averted at this point.
And whether it comes in the form of a tortuous soft landing, or a cataclysmic bust, expecting a positive endgame, in this case, is not reasonable. The crash in the standard of living east and west is shaping up to be a true SHTF of epic proportions.
But wait, there’s more.
Because the supply chain is already stretched thin and significantly more fragile than it was in the 80s, this time, the fallout of any crash could be orders of magnitude worse.
The stratospheric debt level, stagnant growth, lockdowns, “health” restrictions, and of course, the war undoubtedly compounded and complicated the situation further.
And that’s leaving out unknowns related to false flags, demographics, and others. But for now, let’s stay with a very well-known: governments everywhere are poised to intervene in their usual unduly ways. There’s no bad that cannot be made worse (or, in this case, “worse-er”).
Inflation is a calamity, but some policies enacted to contain it can be even more disastrous.
Politicians and bureaucrats follow the same script when the economy and finance start unraveling or when things aren’t going their way. Price controls, bank freezes, higher taxes, confiscations, and lots more (Waging war is in their playbook too).
Unsurprisingly, these same-old, ruinous ideas are not only being pondered but openly discussed and even pushed by sly politicians and bureaucrats. How long until we start seeing more extreme measures that will, in all likelihood, exacerbate existing problems all the while creating new ones?
Let’s not forget technology has brought to the game a new arsenal of tools that can be employed by TPTB to perpetrate their deeds and try to control us at the same time. It’s more important than ever to know what happens and how it happens so as to be ready and prepared.
Surprise, surprise: as I put the finishing touches on this piece, Joe Biden introduced his “Billionaire Income Tax” budget proposal. It’s not a total surprise, really: Sleepy Joe and his cohorts hinted at this many times before. The objective is to tax the income of the wealthiest Americans and – get this, it’s surreal (and scary) – unrealized capital gains. It’s not just a dangerous precedent – it’s an ominous policy all in itself. If this passes, people just trying to defend themselves from this policy have the potential to botch a lot of things in the US economy.
Let’s see some history about the crap we’ve been through and that I see coming our way again.
Inflation was chronic in Brazil.
During the ’70s, yearly inflation hovered around 50 percent. In 1979, it jumped to 100% and parked at that level until 1982. Then in 1983, it leaped again, reaching a staggering 200 percent for the next two years. In 1985, as Brazil transitioned out of a two-decade military regime and back into democracy, inflation was running hot at 12 percent per month.
In February 1986, the newly elected government announced a set of policies aimed at countering inflation and stopping currency devaluation. It was essentially a price freeze: with the stroke of a pen, nothing could go up. A new currency was released as a “reset” to reaffirm the commitment of the authorities to the adopted measures.
These are common expedients in inflationary and hyper-inflationary environments. Last year Venezuela slashed six zeros from its battered bolivar, the third trim in three years. We had that happening many times here, too.
Price freezes are frequent when things go ugly as well. It’s been enacted countless times, even in developed nations: Italy, the UK, Belgium, France, and Canada are a few examples that come to mind. Nixon’s 90-day price-and-wage freeze that went along with the un-pegging of the US dollar in 1971 is a classic.
These “solutions” have failed every single time.
Attacking inflation (or hyperinflation) by stifling production and the free market while encouraging demand is akin to try putting out a fire by throwing gasoline at it.
It’s even more bewildering when we consider that opposing schools of economics agree that price controls don’t work. Yet governments in trouble and with low approval rates (usually by their own making) keep resorting to these failed ideas.
Not once in history has a government (democratic or otherwise) succeeded through a time of crisis by intervening and over-regulating the side of supply. Socialists believe it works, though – despite the abundance of evidence to the contrary.
Why is doing the wrong thing is so common?
This is a legitimate and pertinent question. The short answer: doing what’s right and effective requires delayed gratification. It’s all bad news, sacrifice, and austerity for the people – now. And politicians think short-term. They only care about being reelected.
Thus, they’ll do anything and everything to avoid dishing pain now, even cogitating it. These unorthodox policies kick the can down the road and buy them time while giving the impression that something is being done. History, though shows that more often than not, and rather soon, it kicks back with double force.
(Don’t be like a short-term thinking politician. Read our free QUICKSTART Guide to learn about how to build a 3-layer food storage plan.)
The boomeranging inflation.
Back to the story.
In the months following the institution of price freezing, inflation fell significantly. In October, right before the presidential elections, it was a modest 1.4 percent a month. This alone warranted the re-election of the president and his supporters (what a surprise…).
For comparison, the 1986 yearly inflation in the US topped at 1.1%. In Germany, it was -1% (further data can be obtained here).
Everyone celebrated and believed the dragon had been defeated. But in the background, the production chain was already under considerable pressure, squeezed between a rising USD and external costs, inflating commodities, and internal price control.
Public and private debts accumulated rapidly, turning the screws even harder on companies and public finances. Something had to give. Reality always asserts itself.
The blowback was massive.
After the election, inflation soared to a staggering 600 percent. Prices would rise twice daily. A $1 coffee in the morning would cost $1.10 more in the afternoon of the same day. Imagine that happening to a $300 grocery bill or mortgage payment. In supermarkets and stores, battalions of workers retagged stuff nonstop while people scrambled to buy bulk.
The whole economy took a nosedive. The government lost political support, and approval rates plummeted. Protests, strikes, and riots erupted. Finance ministers and advisors rotated fast, but no one was able to put the genie back into the bottle. Hopelessness returned.
Inflation doesn’t have to reach Weimar-Germany or Zimbabwe levels.
Just a side note: there’s some debate on the figures that define hyperinflation. None of that crap matters to the common folk: when inflation talks, bullshit takes a walk back to academia. Sure there are nuances. But if prices are jumping, the population is suffering. Period.
More practically, inflation and high inflation still mean a troubled-yet-functional economy. It’s possible to adapt and defend somewhat, as hard and painful as it might be. Hyperinflation, on the other hand, is SHTF: a sure sign of a failed, collapsed country and society. Almost nothing works. It’s basically survival mode for everyone.
The hardship began even before it reached that point.
Stuff started to disappear from the shelves months before the stabilization plan even began to derail. All kinds of stuff, from toilet paper to meat, and dairy – everything. That’s the most painful and damaging consequence of broken measures to tame inflation. It’s more brutal for the population than it is for the politicians in their summer homes.
Inflation wallops the system as well. Production and free commerce get disincentivized. Investments dwindle. Rationing becomes the norm. Premiums and overpriced spread everywhere. The black market surges. People lose the reference of value, cost, worth.
In short, it sucks a lot. But life goes on.
In my next article I’ll conclude the story and tell how Brazil finally beat inflation. It was a confluence of internal and external factors, and this will play a role again as the world economy dives into recession (or worse). Stay tuned as I’ll provide some lessons and tips on how to read between the lines and remain alert and prepared for what’s coming.
What are your thoughts?
Do you believe hyperinflation will hit the United States? How do you think it will happen? What policies do you expect to see that just make it worse? Tell us your thoughts in the comments.
About Fabian
Fabian Ommar is a 50-year-old middle-class worker living in São Paulo, Brazil. Far from being the super-tactical or highly trained military survivor type, he is the average joe who since his youth has been involved with self-reliance and outdoor activities and the practical side of balancing life between a big city and rural/wilderness settings. Since the 2008 world economic crisis, he has been training and helping others in his area to become better prepared for the “constant, slow-burning SHTF” of living in a 3rd world country.
Fabian’s ebook, Street Survivalism: A Practical Training Guide To Life In The City, is a practical training method for common city dwellers based on the lifestyle of the homeless (real-life survivors) to be more psychologically, mentally, and physically prepared to deal with the harsh reality of the streets during normal or difficult times. Also, check out The Ultimate Survival Gear Handbook for tried and tested gear choices.
You can follow Fabian on Instagram @stoicsurvivor
Outstanding article Fabian , I am very afraid that you will be writing a similar one about the former United States in a couple of years.
I’m with you here:
“The one that believes the collapse of the economy is a mathematical certainty.”
My state had a gas tax to fund cleanups of leaking fuel tanks. Businesses took bank loans to fund the cleanup, and the state paid off the loan when the project was complete. Eventually, interest on the loans exceeded the revenue. The state sold bonds to cover the loans; it was just one government program of many.
The feds already fund debt through bonds that are just IOUs to ourselves. Eventually the interest on the debt will exceed the tax revenue. Current interest is over half a trillion. The debt-to-GDP ratio continues to grow. Interest rates have been at record lows, but the historical average is triple the current rate.
Take that half-trillion of interest payment, double it to one trillion (for higher debt) and then triple it to three trillion for higher interest rates. Estimated tax revenue is about 3.7 trillion. As the interest eats up more revenue, the feds will borrow even more, increasing debt even faster. Maybe when interest is half the budget, some will wake up, but it’ll already be too late.
Political attempts to “solve” the problem will make things worse. When money is worthless, creating and spending more money isn’t a solution… but it is the only tool they have (beyond the obvious tax increases, price controls, and other failures). Their other option is massive spending cuts, but I’m not holding my breath.
Our government does not function on tax revenue. It functions on it’s ability to service the debt. Once that ends, the feds can no longer function.
This sovereign debt crisis is a world wide phenomenon which will have a domino effect around the world as private investors realise their government bonds are worthless because the issuer has no intention and/or ability to honour them. Martin Armstrong of Armstrong economics writes in detail about the sovereign debt crisis especially how money allocated for pension funds has been squandered on projects with little or no returns (see CALPERS for one). In this game of financial musical chairs, when the music stops the investor holding worthless government paper is the loser which will be many many pension funds.
“In this game of financial musical chairs, when the music stops the investor holding worthless government paper is the loser which will be many many pension funds.”
It upsets me deeply that this is an irrefutable truth. So many good people did the right thing by investing as advised for their retirement and it is being stolen. They won’t even get their initial capital investment- not a cent- never mind dividends.
Economically we’ve been on life support since ‘08. Now, we’re CTD.
The family is in the private room hoping for the doctor to come in with encouraging updates, meanwhile the priest is on the way to administer last rites.
I knew people that worked for Qwest when GW Bush was president. Their retirement fund was invested in Qwest stock, which had skyrocketed due to a then recent government contract.
GW and the government wanted Qwest to install servers that would allow the government to tap into every call going through Qwest. Joe Nacchio, CEO of Qwest refused, while the other big phone companies did not. The government pulled the contract in retaliation, Qwest collapsed, Nacchio went to jail and lots of Qwest employees lost most of their retirement. The person I know lost over $250,000.
I know other people that have lost money when the stock market tanked.
I’ve stayed out of the stock game for the most part, a bit here and there when it’s been employee stock and it benefitted me on my paycheck. The same with 401ks, of putting a few bucks in the 401k gets me more money each week then I’ll do it.
The stock market and retirement plans don’t work for the average person, their there to fleece you and give you a fals sense of security. Social security wont be there. You’ll be on your own.
I don’t trust the government to spend wisely or protect the Social Security money they force me to pay and I don’t trust the banks either. I’d rather take my chances and do my own thing, then I am in control and only have myself to blame if things don’t turn out as planned.
“When money is worthless, creating and spending more money isn’t a solution… but it is the only tool they have”
Actually, they could do other things. Governments are supposed to know how to organize stuff. Like, if there is a shortage of X somewhere and in some other place they have X, they could figure out ways to make sure that X reaches the right destination. Not saying that I’d expect the government to do that, just that at least in principle it can be done. Something to think about if you are operating locally and have the ear of your local authorities.
“ Do you believe hyperinflation will hit the United States?”
Indubitably.
“How do you think it will happen?“
As soon as Saudi Arabia begins accepting and trading oil for yuan,rubbles, or/and gold. Then, it’s over. The world will sell dollars and China will call in the note on $1.?TT of Treasury bonds and debt will be paid in commodities (food/energy).
“What policies do you expect to see that just make it worse?”
EO 11051
Remember, human resources also matter. China already owns significant portions of real estate here, including both residential & agricultural. They own major food production companies, such as Smithfield Pork and I think, Tyson. I think they’ll demand payment of that debt by taking over this country lock, stock, and human resources.
And don’t forget the NDAA, which allows for confiscation of everything we own down to the last can of Spam. While we’re being kept focused on one manufactured crisis after another, this country is being sold out and plundered. And it’s not just Sleepy Joe. It’s been happening for a long time under several Presidencies.
“They own major food production companies, such as Smithfield Pork..”
I had hog platforms and used to grow for Wendell Murphy. Murphy Farms (And others)were hostilely taken over by Brown’s of Carolina, owned by Smithfield Foods. How it was done was simple and genius and evil.
Follow the money from FSA to Production Credit to the NC House of Representatives to… the (China)word.
It’s all archived in Forbes.
Joe Luter, you stood on the shoulders of your father, never built a thing. The brand held you up. I was the sucker..then, a naive kid and you wounded me and others like me.
I’m happy now. Happier without the likes of your kind.
Big is not better all the time folks. Most times it’s just bigger is all.
The San Fran Fed recently announced the cause of the recent inflationary in the US:
“Though many of the pandemic distortions are common to other countries, we show that U.S. inflation has risen more quickly and increasingly diverged from inflation in other OECD (Organisation for Economic Co-operation and Development) countries. In seeking an explanation, we turn to the combination of direct fiscal support introduced to counteract the economic devastation caused by the pandemic.”
Oops.
Yes, the Guv blame was on assistance to those smashed by taking their jobs. But half of us noticed that the actual relief was maybe 10% of the funds. Most went to strange projects in other nations, believed to be payoffs for election fraud. The Republicruds were especially bad for denying relief to Americans. It was not the relief that broke us, but really wild waste on other things.
Fabian: great article on a very timely subject – one that most people seem to be studiously ignoring. And I strongly agree that there is NO situation that the government can’t make worse.
Now, the area that you haven’t talked about, and the one I’d like you to cover. Your articles on inflation in Brazil are great. We also have Venezuela to look at to see what is happening in real time – and how short of time it takes to go from top of the heap to bottom of the barrel. And please, don’t think that I am downplaying the seriousness of the situation in Brazil. For me, it just that even though Brazil is having these issues, it is only a relatively small country, while the rest of the world was, until recently, just humming right along. Things were being produced, supply chains were delivering, and the population was buying and consuming. What happens when the largest consumer in the world suffers and economic collapse due to hyperinflation? What happens when the world’s reserve currency goes into a hyper inflationary spiral? While Brazil has suffered the rest of the world has been producing the necessary commodities, and they are available ( on the black market if nothing else), but what happens when the largest economy in the world goes down this road? Yes, we’ve had times before where inflation, or interest rates were high, but we’ve never had a situation like this, with overwhelming debt, unprecedented money printing, and artificially low interest rates. This is, in my opinion, a recipe for disaster. And what happens worldwide when this collapses? If Brazil is having issues now, just imagine how much worse they could get if the world’s reserve currency were to collapse.
Thanks Lone Canadian. I’ll be addressing some of those topics in the second part, but for now I’ll try to respond directly because your comments are pertinent.
Don’t worry about downplaying the seriousness of the situation here, people here do that just as I see every other people in every other country downplaying it too (lol). And what is said about Brazil is “too big to be ignored by the markets and other countries, and too messy to be taken too seriously”.
But none of that matter much, because I’m talking about DYNAMICS and mechanics of these things. And those are the same, of course the magnitude of some events and places varies.
The events narrated in this piece took place in the 80’s and the whole world was crazy back then, not just Brazil. The distance between US or UK and Brazil back then was considerably bigger than today, not in matters of GDP or anything like that but infrastructure, public debt and above all, social markers.
Today, and right now, we’re quite good in fact: our economy has grown almost 5% last year, the USD x BRL ratio is better than its been in yrs, there’s plenty of food and inflation sucks but it’s following the worldwide trend, “not good but not terrible”.
Sure, we have a lot more poor people and unemployed than CA or US or EU, but it’s always been like that so I don’t know what to say. And our institutions aren’t as solid, though I’d argue I’m not very confident in what I’m seeing in most other countries too so there’s that. You know what I’m talking about.
Also, I’ve been warning about Thirdworldization of the First World, which means the population of developed countries will be seeing a lot of what developing and Third World countries already see.
I also try to make a distinction and add to the records that I don’t see Canada or US or UK turning into a full-Third World nation, not even to the level of a developing country like Mexico or Brazil, or even China.
But it seems evident that things will get a lot worse, and it’s indeed in many ways the situation is currently better in Brazil or Chile than in some First World countries, especially when it comes to freedom, shortages, “health” matters (C19) and other aspects. But I don’t take that for granted, of course. Everything is volatile, so I keep preparing.
But the whole world is crazy. And yes, a crash in USD or US would calamitous. In fact any other country crashing (China, India, Japan, EU/UK, or even Russia. Mexico, or Brazil) would spread and suck. That’s my point in this article. Heck, even Turkey going down now would suck globally. We’re fragile. That’s that point.
Stay safe.
I’d like to add a sidebar to this discussion. It’s mathematical, but apropos.
I had no real compression of the number “Trillion” until Dr. Chuck Missler disseminated it in a way that I could understand years ago in a seminar. I ask your indulgence, I’ll paraphrase as concisely and accurately as I can.
Numbers, the larger they get become qualitative. For example:
If I borrowed a sum of money from you, a dollar. One single American dollar, and I told you I would pay you back in one MILLION (1,000,000)seconds, would that be acceptable?
(1 million sec. =11.574 DAYS)
If I told you I would repay you in one BILLION (1,000,000,000)seconds, would that be acceptable?
(1 billion sec.=31.709 YEARS)
If I told you I would repay you in one TRILLION (1,000,000,000,000) seconds, would that be acceptable?
(1 trillion sec.=31,688.088 YEARS)
The answers are obvious. What is not obvious is the enormity of the numbers being so casually talked about and how there is not just a quantitive difference but a qualitative difference.
What happens, and I am certainly if not hopefully open to correction on this, but when money fails, or becomes worthless, and money is one of the strongest tools of government, then governments resort to other means, rationing, price controls, and police action to enforce those other measures. If police action isn’t strong enough, then they resort to the military with martial law.
In Venezuela, food is utilized by the government to enforce compliance. People who vote for what the government wants get the food, often in boxes with staples, or basic foods, and other people starve and become refugees. Motorcycle gangs with guns and other weapons may come into neighborhoods and beat people up or even kill them if they’re causing trouble.
The government will become corrupt, stealing what they want, dealing in the black market, drugs, and human trafficking, the narco state.
When the money is no good, the streets become unsafe, and are ruled by street gangs, or in places like the Weimar Republic, street battles, including guns, between communists and Nazis.
China went through something similar during the Cultural Revolution, millions of people may have died, industrial production, schools, hospitals, even farms closed down while different groups battled for control, although that wasn’t so much about a currency collapse as political upheaval.
Joe Biden has never been right about anything his entire time in politics. Like 99.99% of politicians he’s nothing but a grifter living off the people. I don’t think he’s mentally competent and I don’t think he’s running the show right now. We’re seeing the same leftist / communist economic plans being implemented that have been so successful in other countries in the past.
They didn’t work then and they won’t work now. Joe has ruined the US reputation in the world stage, those countries that had hooked their cart to our horse in decades past are in the process of unhooking their carts. When that happens the USD will no longer be tbe world’s reserve currency and it will be worth nothing because as a nation we don’t make anything concrete.
Hypertinflation is on it’s way. The masses that don’t make anything tangible and physical in America will be the worst off.
Short of a world wide depression or a world war there is no preventing it. One way or another it’s going to suck majorly and the average people will be hit hardest.
I am old enuf to remember Nixon’s price controls and the astonishing sight of empty shelves yards wide, especially for meat. Millions of us learned a lesson then, and millions of those are still alive. We aren’t going to support wage and price controls, and we will tell our descendants about it. Hopefully, that will produce enuf understanding to reduce the disaster a little.
But Americans have been so rich so long that our younger generations are unable to function at work. I fear that will kill millions of them when hard times come. They will be like the squirrel my father trained to eat out of his hand. One day, Dad ran out of food, and the squirrel bit him. That was the end of hand feeding it. Our young have never known privation, not even the “poor.” They believe themselves totally entitled to everything they need and totally entitled even to their whimsies such as cut-up chicken and other prepared items. These spoiled generations (most people under 40 or even 50) alone mean that the US MUST suffer extreme hunger in order to survive at all. They have got to figure out that goods must be worked for by somebody, in order to exist, and that means me. It will not be an easy lesson to learn.