It’s a story not only of inflation, but also a cautionary tale of…
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.
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