My personal view is that the USA is made of up of the same people that live everywhere else in the world and that we are no better or worse and in some cases not even as big a herd. But we do have two things that are special: we have the reserve currency of the world and we have broad gun ownership by the citizens (if anyone was demonstrably exceptional it was the founding fathers of the USA...). These two things interact to have given us (or U.S. if you like) a very high standard of living based on our ability to borrow from the underpaid peoples of the world without our leaders individually absorbing all of the ill begotten loot (trickle down scam-o-nomics does work to a degree). When our ability to borrow our prosperity from those who produce it ends, so does Obama's so called "American Exceptionalism".
Augustine can tell us what that might be like based on his first hand experience in Brazil. If you have specific questions, please ask them in the comments section. Remember, nobody on Economati gets paid anything. There is no revenue stream because there are no ads. There is no notoriety because we still post anonymously. There is nothing in it for us at all at this point except knowing we tried to help people when it was still possible to do so.
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PART I
I go by the Google handle Augustine. I'm a long time friend
of The Captain, with whom I commune many views on the economy, though
we come from different starting points.
In spite of both of us working in the same industry, where we firstly
met as colleagues, and sharing a similar education background, our life
experiences are quite different. Most
notably, I was born and grew up in Brazil, notorious for its fragile economy
and for having been assailed by hyperinflation and wrecked its currencies (yes,
plural). I got to experience the
Brazilian economic turmoil from a child through adulthood and into the workforce
as an engineer.
Firstly, a brief history of the slow motion train wreck that was the Brazilian economy between 1970 and 1995, a whole generation of one economic disaster after another. Starting in the late 1960s through the early 1970s, Brazil experienced a double digit GDP growth for a few years similar to what China sustained at its peak. The fuel for this growth was neither capital accumulation, surge in productivity or production, but rather cheap credit. As the military autocratic regime, that began in 1964, wanted to assuage the people’s unease with it, as popular demonstrations were popping up all over the world in 1968, it resorted to the economic methamphetamine of inflation. By nationalizing several industries, the new state companies had direct access to the money printing presses through state banks and state agencies, all guaranteed by the treasury itself.
As it usually happens, the sudden onslaught of money in the economy led to an artificial economic growth as the new wealth originated from thin air was consumed. Such years are known as the “Brazilian Miracle”. But it all came to a screeching halt when the Oil Crisis of 1973 caught the world by surprise by quadrupling the price of energy.
Firstly, a brief history of the slow motion train wreck that was the Brazilian economy between 1970 and 1995, a whole generation of one economic disaster after another. Starting in the late 1960s through the early 1970s, Brazil experienced a double digit GDP growth for a few years similar to what China sustained at its peak. The fuel for this growth was neither capital accumulation, surge in productivity or production, but rather cheap credit. As the military autocratic regime, that began in 1964, wanted to assuage the people’s unease with it, as popular demonstrations were popping up all over the world in 1968, it resorted to the economic methamphetamine of inflation. By nationalizing several industries, the new state companies had direct access to the money printing presses through state banks and state agencies, all guaranteed by the treasury itself.
As it usually happens, the sudden onslaught of money in the economy led to an artificial economic growth as the new wealth originated from thin air was consumed. Such years are known as the “Brazilian Miracle”. But it all came to a screeching halt when the Oil Crisis of 1973 caught the world by surprise by quadrupling the price of energy.
Such a sudden change in the cost of an item in the bill of materials of virtually everything in a modern economy derailed the investment plans of the military junta. Actually, malinvestments, made possible only by easy access to capital created from thin air, fiat money. Unable to liquidate the debt, state companies and its suppliers were bailed out by outright monetization of state debt. This actually came to compound the long inflationary period of a couple of decades because, instead of allowing the deflationary bankruptcy of propped up enterprises to return the excess capital from where it had come from, thin air, the junta decided to double down on monetary inflation.
At first, low double digit price inflation was recorded. Then, the junta began what would become the norm for several years, concocting tortuous economic measures to avoid the inevitable. Some of such measures would tame price inflation a bit, even back to single digit, but, as it goes with some reward for no effort, something for nothing, they would add economic distortions of their own without fixing any previous ones, eventually leading to higher price inflation over and over again. So, a perennial zigzag of ever higher price inflation became, in the 1980s, hyperinflation, or the total loss of confidence in the currency as a store of value even in the short term.
At this stage, economic measures mostly in the “wholesale” sectors of the economy were not enough, or so one PhD in economics by the major universities in the world after another thought. For people passing bills as if they were hot potatoes are much harder to persuade than state or state sponsored or state parasite corporations. It was time to try so called heterodox economic measures to compel the populace to conform to their ivory tower plans, which took oppressive forms, like price controls, and terroristic forms, like capital controls.
Evidently, nothing worked. In the end, by successive devaluations the state had zeroed its debts, but the military lost the political control, the economy had to be rebuilt and the culture, an important aspect of life often ignored by such commentaries, was wounded beyond recognition.
On the political aspect, it was more the case of the military cutting their total loss of favor with the people and passing the bucket on to civilian rent seekers who learned to take advantage of a relationship with the junta. Of course, they were unable and unwilling to solve anything, repeating the same approach as the booted junta and continuing the economic terrorism.
On the economic aspect, with a currency devoid of value and the drastic changes in the financial regulatory regime, it was outright impossible to perform any economic calculation. Consequently, economic decisions, whether by the parasitical state corporations or by private ones, were often not sustainable or not sustained, when the next change to the regulatory regime came about. That there was any economy and a mostly normal supply of services and goods during those years is the only Brazilian miracle worthy of the term.
On the cultural aspect, or the general frame of mind and worldview held by Brazilians who experienced this turmoil, what once worked ceased to work. The former way of life, however it’s understood, from the paradigms of how society was structured, social and economically, to the several levels of human relationships, like family, friends, contracts, politics, etc, were shattered by the loss of being able to tell whether something would improve or decimate one’s livelihood. For, in a world of scarcity, man acts economically, seeking the greater return for his efforts to remain himself and his loved ones fed and sheltered; alive. When the only thing constant in the economy are changes, eventually not only institutions and laws cannot be trusted to be recognizable in the near future, but neither can the intentions of fellow economic actors: the fellowmen. When trust collapsed in Brazilian society, it became impossible to recognize someone else’s intentions, since attitudes did not change uniformly throughout a country of continental size like Brazil after yet another change of rules in the game of life.
The loss of the Brazilian culture was arguably the worst casualty of it all. For though politics and economics have improved for the better, even if in hiccups, the culture has not recovered fully and perhaps never will. In all likelihood it’ll forever bear the scars of the wounds inflicted on it by the hyperinflationary years.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ End of Pt 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
There are some major take always in there IMO. One thing that resonated with me were that when things got bad it became hard to tell friend from foe. Another is that culture was a victim of the fake money regime. We are seeing this happen in extreme ways in Japan where the highly inward facing culture that was in place is crumbling based on crumbling demographics and poor economic prospects for the individuals. Liberal might think this is a good thing but if it happens too quickly it can generate a culture shock leading to a frightened herd electing warmonger leaders to reverse the decline at any cost, even world war if necessary.
Stay tuned for Pt 2.
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