Living Through Inflation

Thanks to reader Roger for providing his experiences living through inflation in a comment on Government Is Dead Man Walking.  His experience was in Brazil. The chart to the right shows a graphical representation of what happened. The chart can be viewed and changed dynamically at this website.

I can’t comment on the future, for no one knows for sure what’s to come. However, I can comment on the past in which I was part of, in which I experienced a somewhat similar situation of the possible outcome of the article above.

I lived in Brazil during the 80′s. Back then inflation was 3%. A day. Yes, a day. What does this have to do with the US? It all depends on how you see it: either everything or nothing.

I vividly remember going to a super-market. Prices were adjusted a few times a day, 7 days a week. At one point supermarkets were displaying electronic prices: there was a digital display tag by each item. Talk about sophistication for the late 80′s! This allowed prices to be easily adjusted several times a day without having someone stick countless price tags on top of each other.

My salary back then was adjusted every month. If you deposited your money in a checking account, the bank would pay you nearly 3% a day in “interest”, just to keep up with inflation. Caveat: the minimum deposit was around US $1,000, a fortune those days for most Brazilians. Back then my salary was around US $500 a month. So, I wouldn’t quality, and I’d literally lost all my salary in days. It was as if I was getting paid in ice cubicles in a hot climate. You could see the value of your money melt away. The bank was your freezer.

So, I got clever. I joined my salaries with 2 other friends and we opened a common checking account. So, we qualified for the minimum $1,000 bucks or so. Then I had to create a Lotus 1-2-3 (electronic spreadsheet of the day) to convert all our money to “shares”. Talk about fun stuff.

I did alright. But, what about the poorer population? They are the ones who got totally robbed.

How do you think accounting works in this scenario? How do you manage your cashflow? Companies were clever. They had about 4 versions of their balance sheets: the official (nominal values for the goverment), the adjusted one (all values in “shares” based on inflation), a managerial one (same as adjusted but several accounts had to be reclassified to make accounting sense) and the last one…. you’ll get a kick out of this one: the dollar based one. Back then the dollar was the back-bone, the absolute reference for value. How times have changed.

Why do I mention this? We humans do survive hyper-inflation. We work hard, we’re creative, but we’re also incredibly dumb. Brazil got rid of these problems; they’re a different country now. The US can do the same, but it will be hard. In the end, I see all of this as a good thing: sometimes fires are necessary to clear the dead wood in the forest and so new vegetation can start afresh.

It’s unfortunate that in this process many will suffer. So, be prepared the best you can. Just learn one think: the government is never there to protect the people, but its own interests.

Share/Save