Episode Summary
In this episode of The Expat Files, Johnny Mueller provides an in-depth look at the economic challenges and financial risks in Latin America. He discusses the recurring economic crises that have plagued the region, including currency devaluation and financial instability. Johnny highlights how wealthy individuals in Latin America have historically moved their money to offshore banks in places like the Cayman Islands and the Bahamas due to the instability of local banks. He also notes that recent years have seen international banks like Citibank and Barclays expanding in Latin America, leading to increased deposits in local banks, but warns that when the next financial crisis hits, those who have placed their money in these banks will be at risk.
Johnny also critiques the intellectual and financial naivety of educated Latin Americans, suggesting they blindly follow first-world economic policies and institutions like the Federal Reserve, which they view as mystical. He references Brazil's chaotic history of currency devaluation, including the drastic devaluation of the cruziero and the frequent currency reforms, as evidence of the region's instability and poor governance. He explains how the wealthy in Latin America tend to store their money in offshore accounts or foreign currencies, while the middle and lower classes often rely on physical assets like gold or cash.
The episode also covers the history of inflation and currency devaluation in Brazil, particularly focusing on the 1993 devaluation of the Brazilian currency, which led to the introduction of the Brazilian Real. Johnny highlights the massive inflation rates in Brazil over the past 30 years, comparing them to the relatively stable inflation rates in the United States. He explains how Brazilians adapted to hyperinflation by using barter systems and informal economies, and notes that younger generations in Brazil and Argentina have no memory of these difficult times. Johnny also critiques the U.S. government's manipulation of inflation statistics and warns that the current economic paradigm has shifted, making it harder for individuals to protect their savings from inflation.
Johnny further discusses the severe and recurring hyperinflation in Brazil, highlighting historical data and the impact on everyday life. He notes that Brazil's average inflation rate over the last 30 years was 446% annually, with a peak of 6,800% in 1990. He contrasts this with the perception of Brazil as a rising first-world country in the 1970s and 1980s, which is now repeating. Johnny attributes the economic instability to systemic issues like nepotism, graft, and incompetence, and explains that the government fills high-paying positions with the president's friends and relatives, perpetuating a cycle of crisis and recovery. He concludes that the real cause of hyperinflation is not just monetary policy but the desire for government jobs due to higher pay compared to the private sector.
The episode also covers the economic challenges faced by Brazil, particularly the issues with government spending, hyperinflation, and the informal economy. Johnny explains how the government's attempts to raise taxes lead to a vicious cycle, as the burden falls on the formal sector workers who are resentful and often move into the informal economy. He highlights the lack of tax compliance from both individuals and corporations, which results in the informal economy growing and the formal sector shrinking. Johnny then shifts focus to the risks of investing in Brazil, warning expats about the potential for currency exchange controls and the difficulty of withdrawing money from Brazilian banks, even if the funds are held in foreign branches. He concludes by questioning whether it's worth moving to Brazil or any other Latin American country due to the recurring banking crises and instability.
In another segment, Johnny discusses the state of the banking system in Latin America, noting that while most countries have deposit insurance, it's often insufficient, and many people have not recovered their money after bank failures. Despite this, expats prefer to be in Latin America during international banking crises because the population is accustomed to economic chaos and has developed resilient coping mechanisms. He also touches on the Chinese buying land in Brazil using U.S. tea bills, suggesting this could lead to economic instability. Additionally, he highlights the impact of Chinese imports on Brazil's small businesses and the government's ineffective response to this issue.
Finally, Johnny explores the informal economy in Latin America, particularly focusing on the flow of untaxed Chinese products. He explains how these goods bypass official channels through small bribes to customs officials and end up in chaotic street markets. While acknowledging the existence of tax evasion, Johnny expresses a personal fondness for the informal economy, describing it as a wild and appealing experience for expats. He also references expat Eddie's sentiment about the thrill of evading taxes, highlighting a shared cultural attitude among expats toward the informal economy.
Topics
Economic instability in Latin America, Currency and financial crises, Wealthy individuals moving money offshore, International banks expanding in Latin America, Financial risks during economic crises, Short-term memory of common people vs. long-term memory of the wealthy, Criticism of Latin American intellectual and financial naivety, Blind following of first-world economic policies, Chaotic history of Brazil's currency, Wealth storage practices in Latin America, Inflation in Brazil, Currency devaluation and hyperinflation in Brazil
Chapters
00:00:00 Opening 00:01:01 Economic Crises in Latin America 00:01:40 Wealthy Individuals and Offshore Banking 00:02:55 International Banks in Latin America 00:05:32 The Myth of the Federal Reserve as a Magical Institution 00:06:00 The Lack of Vision Among Educated Latin Americans 00:08:13 The Chaotic History of Brazil's Currency 00:09:39 The Devaluation of the Brazilian Currency in 1993 00:10:03 The Introduction of the Brazilian Real 00:12:00 Comparing Inflation Rates in Brazil and the United States 00:14:10 Brazil's Hyperinflation History and Impact on Daily Life 00:15:34 Brazil's Rise as a First-World Country in the 1970s and 1980s 00:17:28 Systemic Corruption and the Cycle of Crisis in Brazil 00:18:43 The Problem with Government Spending in Brazil 00:19:06 The Informal Economy and Its Impact 00:19:48 The Vicious Cycle of Taxation and Informal Economy 00:20:28 Corporate Tax Evasion and the Burden on the Common Man 00:21:14 Financial Risks for Expats in Brazil 00:22:34 Banking System in Latin America 00:23:06 Why Expats Prefer Latin America 00:24:31 Chinese Buying Land in Brazil 00:26:53 The Flow of Untaxed Goods 00:27:11 A Personal Affection for the Informal Economy
Transcript
Automatically transcribed from the original recording; names and wording may contain errors.
[00:03] Hi everybody, I'm Johnny Mueller and you're listening to the expat files living in Latin America. The show that tells you what it's really like to live, work, play and or retire in Latin America. I tell it just like it is, not the version they give you in those glossy travel magazines or the picture they paint for you in those international traveler websites where they're only trying to sell you something. What's it really like for expats living in Latin America? Well, if you stick around a while, you'll find out. So let's get started. Now here's a question I get asked in a lot of different ways. And this comes from an email from Don. It says, Dear Johnny, my question to you is, do you see any Latin American country or countries that are showing the same economic signs of decline as in the United States?
[00:50] I mean signs that there's blood in the streets, signs such as currency decline, strict currency exchange controls, wealthy folks trying to move their money out, et cetera, et cetera. Well, you see, Don, it's like this. Every single country in Latin America has currency and economic crises like clockwork every five, 10 or 15 years. And in cases like Brazil and Argentina, they have their version of a great depression and a panic with such regularity that wealthy people have been burned so often that they don't keep much of their money or their assets in local or national banks anymore. And that's why when international banks like Citibank and Barclays Bank and Lloyds Bank and Scotiabank, Deutsche Bank and Lloyds Bank expanded internationally and came down to Latin America and set up shop, they became instant overnight darlings of the wealthy
[01:36] folks because now they had some place to put their money that at least they thought was safe, sound and secure and they could put it in US dollars or euros too. Because you see down here in Latin America, the wealthy folks, I mean the mega wealthy folks never kept their money in the local banks, never. That's why those huge banking centers grew up close by in the Cayman Islands, Panama and the Bahamas. That's where the big Latin American money went. But you see, most of those banks were private non-commercial banks that didn't do business internationally. They just held money and had investment services. They weren't banks to operate your day to day business with. A Cayman Island bank doesn't have checking accounts or night deposits or drive up windows. So if you did have a business in Latin America, you had to use a local bank for your day to day transactions, for check writing and payroll and stuff like that.
[02:24] But those banks aren't where the wealthy business owners keep their mother load. So anyway, in the last few years, the big international banks have come down. All those too big to fails like Citibank and Bank of America, they're here now. What do you think they did with that bailout money besides hand out million dollar bonuses to each other? They shipped billions of it down here, bought up hundreds of weak little Latin banks and opened thousands and thousands of branches in all big and medium sized Latin American cities. So now for once in Latin American history, huge deposits are once again going into local banks. Local banks meaning those international banks that came down and opened branches. So you could say they're local because they're in every neighborhood. And that means when the international banking system needs its next big bailout, QE3 or QE4,
[03:09] whatever the FED decides to call it. I bet you thought I was going to say something rude there, didn't you? Just hang on. Maybe I will. Anyway, when the next shoe drops and the financial system finally collapses under the strain, everyone who's got money in one of those banks down here who thinks he's so safe right now is going to get crushed too. Because here's the mindset of Latin people rich and poor. If every 5 or 10 years there's a bank crisis in your country and the government slams down currency controls like they've done so many times in the past repeatedly, just look at Argentina and Brazil. I remember in the 90s when in Argentina you could only take $100 a month out of your bank account and in that period real estate crashed by 60% and in some places even more. And then a year or two later when confidence slowly comes back, the system builds itself
[03:57] up again, real estate prices go up, everyone forgets about the bad old days of a few years back when grandpa lost his life savings or got it cut down to a quarter of what it was. Well it all boils down to the fact that people have very short memories. That is, the common man has a short memory. The people with the real big money, they have a lot more to lose so they have memories like elephants. But they're also very provincial in their attitudes and have tunnel vision when it comes to economics. They actually believe what first world voodoo economists say because Latin economists know even less. Much less. Even the wealthy down here have inferiority complexes about their knowledge of economics. And they should because practically no economist predicted the dot-com bubble, the real estate crisis or the banking blowout.
[04:43] Economics is not a science, it might as well be astrology, for all the good it does. But down here all the Latin American movers and shakers should talk to, even so-called Latin American economists who went to universities and got trained in it. They don't know their own a-hole from a manhole and like most so-called educated latins that I've met, don't have an original thought in their heads. They think that anything and everything that comes out of the first world is solid gold. So they parent what comes out of the mouth of the flavor of the month first world government economist. Because after all, all those famous economists came from the first world, didn't they? The ones that wrote all the books like John Maynard Keynes. Yeah, run huge deficits, print money, and span your way out of a depression. Yeah, the brilliance of John Maynard Keynes. He's the hero of every pinhead in government. I mean, why not?
[05:30] The guy invented deficit spending, right? John Maynard Keynes. And here's one for you. Did you know that educated Latin Americans actually think that the Federal Reserve is some kind of magical mystical institution? They think the chairman of the Fed is some kind of deity. I'm not kidding you. That he's the right hand of God or something. Man, I'm telling you, these Latin intellectuals are way out of their depth. These guys would be better off tacking their diplomas onto the back of their toilet seats. Actually, that's where most economists should have their degrees, really. So what I'm saying is that Latin people, educated Latin people, have no vision at all. They still think the US dollar has Fort Knox gold back in it. I'm not kidding. Even the wealthiest of guys down here are truly lost. And everybody, and I mean everybody, wants to be in the US dollar.
[06:16] And actually, they have a point because they always measure their own currency against the dollar. And in the end, their currency always gets the hell beaten out of it in terms of the dollar. Though there are short-term exceptions like what's happening in Brazil right now. For once, the Brazilian Real is quite strong against the dollar. But that's only been in the last two or three years. And if you think Brazil is a good stable country to invest in, because of all the propaganda you've been seeing in the newspapers and on the internet about how strong and powerful it is. You know, the motor of Latin America and all that. I just want to lay this out on you. Did you know that in 1994, they changed to the Brazilian Real? It didn't exist before. They had such tremendous inflation. The old currency called the cruziero was about as worthless as a piece of used toilet paper.
[07:02] And there was zero confidence in it. Nobody wanted it. In fact, inflation was so high that in 1986, the government passed a law that cut three zeros off the cruziero. Now imagine that. Imagine if you had $100 and an edict came down from the government and said, oh, by the way, we're cutting three zeros off of all your money. As of today, that means a $100 bill would be worth 0.1. Not one or 10, but 0.1. And if you don't believe me, just pull out a C note and start subtracting zeros. And by the way, when they cut those three zeros off the cruziero, they changed the name of the currency again to the cruzado, which doesn't make much sense because it sounds like cruziero, doesn't it? And they changed that name because nobody had any faith in the cruziero either. It was like a piece of toilet paper too.
[07:49] Then now get this, in 1989, inflation still raged. And I mean the kind of inflation you've never seen up in the first world. Then another government edict, they cut three zeros off the cruziero. So in three short years in Brazil, from 1986 to 1989, they cut six zeros off of their currency. You know what that means, don't you? They divided the face value of their currency by one million. And that's how massively corrupt and chaotic Latin American countries are, the governments that is, when they can let something like that happen with regularity. It's as if when a president gets in office down here, and when he's picking his cabinet members, he selects the stupidest morons he knows, that of course are related to him, and gives him the job. Because I ask you, who could screw up a financial system that much,
[08:37] and in that short a period of time? And you gotta wonder how the common man survived, or how anyone survived. Well that's why people don't put money in banks in those countries, not much anyway. Smart people don't put their nest eggs in banks in Latin America. Anyway, down here, the poor and middle classes don't have money to put away, and if they do, they stick it in the mattress or buy a few gold coins. Or they wear some gold jewelry, like most of the middle and lower middle classes do in places like India and Pakistan. And the upper middle and wealthy classes, they put their money, guess where? In dollars, in the Cayman Islands, Panama, or other offshore accounts, and in the dollar or the euro, in American or European banks. And like I said, those American and European banks have landed down here. So the upper class and wealthy people are pretty smug,
[09:23] thinking that their money is protected by FDIC insurance and all that, and the full faith and credit of the dollar and the euro, of course. But that next sucker punch is coming, I guarantee it. Oh, and by the way, I said back in the 1980s, Brazil cut six zeros off their currency, right? Well, guess what? They did it again, in 1993 they cut another three zeros off. That's only 20 years ago now. So in 25 years, the numbers on that currency got so big, they had to divide it by one billion to get the face value of their notes down to a reasonable number that people could handle and understand on the street. And of course, they changed the name of the currency to the Brazilian money we know so well today as the Brazilian Real. Or real. But I'll tell you something.
[10:09] Based on the way Brazilians handle their own internal economy, there's nothing real about the real. But you still gotta wonder, what happened to the people back then? How did they survive? Now, remember, 20 years ago, your money was worth virtually nothing. Inflation is so massive that they're dropping three zeros off your money every couple of years. How does a business or a person survive under those conditions? Well, I'll tell you how they did it. They do like every Latin American country does in times of economic crisis, which I'm trying to point out happens quite regularly down here. Well, the fact is, in many of these countries, more than 50% of the economy is off the books called the gray market, where no one pays taxes. And when the currency is falling apart, they slip easily back and forth between currency and the barter system. You know, a sack of rice and 23 million cruzeros for three chickens.
[10:57] I mean, you could always use that 23 million cruzeros to buy a pack of smokes. And you might even get some change back. But here's the thing. If you go to Brazil today, none of the younger people, the people under 40, which down there is more than 50% of the population, they don't remember the bad old days. The last time people were swapping rice for chickens, that is. They only remember when the real was solid and strong. And the same with Argentina. They had the very same problem in the 80s and 90s too. And these days, the people getting into high-level government offices are younger bureaucrats. Younger people that don't remember those bad old days either. Right now, down in Argentina and Brazil, it was just like the US was back in the 60s and 70s. Back then, in the states, no one under 50 remembered the great US economic depression at all.
[11:44] Only grandma and grandpa knew about that stuff. And that's why even in the 70s and 80s, grandma still darned her socks with a needle, and grandpa rolled his own cigarettes and saved string in tin cans. Because they remembered the great depression. Now, I want you to hear this, so listen good. What do you think the average inflation rate in Brazil was between the years 1980 and 2010, which is 30 years? Well, let me give you a little baseline. The average inflation in the United States during that 30-year period was about 3.5% a year. And over the last 100 years in the United States since 1913, US inflation has been about 3.25% a year. And of course, we know in the last 10 or 20 years, the US government has screwed around a lot with those numbers to make them seem small. But for this discussion, let's not consider that.
[12:30] Because once you hear this whole Brazilian inflation story, it won't make much difference to you in the end, really. Okay, so the average inflation in the US is like 3.5% a year. And North Americans have been living with that rate for like 100 years now without much problem. They adjust to it, right? Even though in the end it's like a cancer and like compound interest, it eats a huge hole in your savings and your pocketbook. But we tolerate it as long as the banks pay a little bit more than the inflation rate when you park your money there. Then you're not actually losing the race against inflation. And that's the way it's been in the United States for the last 100 years or so. If you saved money, you could keep a little bit ahead of the inflation rate. Now until those too big to fail bailouts in 2007, 8 and 9 and QE1 and QE2 and all that, you could stay a little bit ahead of inflation.
[13:16] But that's not the case any longer. It's a new ballgame now and we're all screwed. You put your money in the bank now and you lose to inflation. Automatically, you lose. But that scenario is a totally new paradigm and we're gonna have to suffer through that until the next calamity. But let's talk about Brazil. What do you think their average inflation was for the last 30 years? As compared to that 3.5% inflation rate per year for the US, what would you guess? 50? 100%? Now remember, at 100% inflation, that means every year, prices double on everything. And any country with 100% inflation is automatically a basket case. No one saves, no one puts money away for anything, and when they get their paycheck, they spend their money as fast as they can. Because next paycheck, even if it's the exact same amount, is gonna be worth substantially less than the one you got this week.
[14:03] All right, so 100% inflation will destroy any healthy economy. Well, let me tell you, as unbelievable as this sounds, Brazil's average inflation rate for the last 30 years was 446% a year. That means for the last 30 years, for every 90-day period, the prices on everything more than doubled. That is, of course, if you bought things with the Brazilian currency, whatever fancy name they wanted to call it. And here's the statistic that I like. In 1990, the Brazilian Crusado hit an all-time maximum inflation rate of 6,800%. Which means that if you lived in Brazil at the beginning of 1990, every five days, everything you bought would double in price all throughout that year. So you, as an American or first world person listening to this,
[14:51] who've never lived through an economic crisis, won one hundredth as bad as the Brazilians have had it. Or for that matter, the Argentinos who went through the same thing. Well, the fact is, we just don't have an appreciation of what that does to a person's life. Or for that matter, what it does to a businessman, who's gotta buy raw materials and keep an inventory, and pay salaries and utilities, and still have a little reserve on hand for an emergency. So Brazil, in the last 30 years, has been in nothing but a state of emergency. And some of those years, it was an extreme emergency. For them, back in the 90s, it was like living in Zimbabwe. And you know, back in the 1970s and in the early 80s, Brazil was even on the cover of Time magazine, as being on the fast track to becoming a first world country.
[15:37] It was considered back then, in that 15 year period, as one of the only Latin American countries that was stable and worth investing in. In fact, all the first world financial papers and magazines said that Brazil had performed an economic miracle, like none of the 20 Latin American countries ever had, and was definitely worth investing in, in a big way because it was on a fast track to becoming first world. Sound familiar? Sounds like history repeating itself, doesn't it? Well, that's exactly what the business newspapers are saying about Brazil today. These days, it's the golden child of Latin America now, isn't it? Oh man, does anybody out there read the history books? All you have to do is look back about 15 or 20 years, and for those of you who say, well, that could never happen again, Brazil learned its lesson. Well, it's happened five or six times in the last 50 years,
[16:23] so who says that they're learning their lesson? It's just a normal cycle of things in countries like Brazil and Argentina. It's all about nepotism, graft and theft and incompetence. The party in power, the president, picks his cabinet, not based on merit. Not at all, that doesn't exist in Latin America. Well, I take that back. You do get merit promotions in Latin America, and they do hire very intelligent, bright people only in a severe crisis, like hyperinflation. Then after they turn the corner on that crisis, the old nepotism system kicks in again. And by the way, down here, they call that quayo. And here's how it works. You know, you put your lazy ass, good for nothing, obese brother-in-law as head of the national health system. You put your other drunken brother as head of parks and national force,
[17:09] the one that fell out of a car and landed on his head when he was two years old, and who's never been the same since. Then you give your wealthy cousin the job of economic commissioner in your cabinet, the cousin that made all his money off of a string of strip clubs. Now I'm not lying, those are actual cases. That's the kind of people presidents stuff their new cabinets with and appoint to high paying government jobs when things are going along as usual. All the high paying positions are just stacked with the president's friends, family and relatives, which is of course why these countries remain perpetually third world. And why every five or 10 years is a huge crisis and they end up falling off a financial cliff. And the only time they call in the qualified specialists is when they do fall off a cliff and they have to get the train back on the tracks. And if you talk to any old timer in Brazil and ask him,
[17:57] what happened? What was the cause of that hyperinflation? Which always seemed to come directly after a time when there was very low inflation and great stability. What causes those hyperinflation swings? Why can't they keep that train on the tracks? Well, old timers who've lived through three or four hyperinflations themselves, they know why it happened. They lived through it. And despite what official Brazilian government analysts say about the causes of hyperinflation in Brazil, it wasn't about too much or too little money supply and all that. It was the fact that everyone wanted to get a government job because they paid three and four times what a similar job paid in the private sector. And because Brazil is such a big country with so many hundreds, even thousands of departments and cities and towns, there were so many redundant government jobs and service departments
[18:43] that right before those periods of hyperinflation, government spending was running twice or more of what they were getting back in tax revenues. And to cover that shortfall, they'd print money or borrow from the IMF. So why didn't they just raise taxes to cover the shortfall and feed the monster? Well, they always try that. But here's the thing. Brazil, like the other 19 Latin American countries, has a huge informal economy. Some say it's 50% of the workforce. That means that 50% does not pay taxes, do not pay fees, do not buy licenses or permits for their businesses because they're working completely off the books. On the street, it's a straight cash economy with no receipts. And here's what happens when you try to raise taxes in a country with a huge informal economy. The 50% of the people who are on the books
[19:28] have to shoulder the burden. And they're always quite resentful of that because they know that every other person working out there isn't paying any taxes at all. So they feel like they're carrying double the load, and they are. Not to mention, they know that in their government, the vast majority of people who work there don't do anything. They're just sitting on their dead asses pushing paper. At three times the wage, the common man's getting in the private sector too. So as soon as a government like Brazil raises taxes, a fairly high percentage of people who are on the books throw in the towel and jump into the informal economy themselves. Which in turn shrinks the tax base and causes a vicious cycle. And the government always pushes to the point of no return and the tax revenues actually decrease. And what happens to the bigger companies, the big businesses
[20:14] that also have to pay more taxes? Well, they do what private wealthy people do. They find ways to shift their money and their income through corporations and tax loopholes. And a lot of their profits end up disappearing into Cayman Island and Panamanian banks. Big corporations can always find loopholes to taxes. And it's the little guy who ends up paying. The little guy working on the books that is because he's got no power and no advocates. Sound familiar? So if history is any measure, and it surely is, Brazil is having one of its multiple year periods of stability. And that's always a time when people forget completely about what it was like just a few years back. So all you guys who believe the hype about Brazil is that big powerhouse. And you think you might want to go down to live, work, play, and or retire? Well, in that case, I suggest you do what a lot of expat friends
[21:01] I know do. They retire down there, but they get their income, at least most of it, from a foreign country. Whether that money comes in the form of a social security check, a first world trust, a pension, or individual retirement accounts. I don't recommend that you put any substantial amounts of money in a Brazilian bank. And even if you put your money into a first world bank that's got a branch down there, like Citibank for example, the problem with that is you might think you're secure because it's a first world bank and all. And you think you could transfer your money out of the country lickety split because of that? Well, you might be surprised. If and when, and I mean when. Brazil puts currency exchange controls on the banks once again, like it's done so many times in the past. In order to stem the massive capital flight, that always happens when big time inflation rears its ugly head again.
[21:49] Anyway, even though you think you're safe because your money's in a US branch bank, and even if you got it in a US dollar account, well, if the country clamps down with currency exchange limits, like for example 100 bucks a month like they did in Argentina in the late 90s, well your bank, even if it's a first world bank, will have to abide by the rules of that country's banking authorities. And though you might not lose your money, you'll have a hell of a time getting it out. And if you can get it, it'll come out one dribble at a time. And then you might ask the question, is it worth moving to a country like that at all? Or in fact any of the 20 Latin American countries, who are forever having banking crises, and banks that are open one day and the next day they just fold up and go under? Well it's really not that bad, but every single Latin American country I've been in, and I've been in almost all of them, well everyone has its routine bank failures.
[22:37] But that sounds familiar too, huh? And though nowadays, all the countries in Latin America have bank deposit insurance, like the FDIC, and some of them only up to $5,000, not much. And I know of people personally who haven't got a single dime back two or three years after their bank failed. So that's the state of the banking system down here. But even with all that bad news about Latin banks and Latin governments and the way they handle their economies, every single expat I know would rather be here in Latin America when the next big international banking crisis comes. And the way it looks, that's going to happen real soon. That's when things are really going to crumble. And this time it's going to be like trying to bail out the Titanic with a shoe horn. So why would expats rather be down here, including me? Well that's easy.
[23:23] Every Latin American is used to a certain amount of economic crisis and bureaucratic chaos. These people don't fall apart when the payroll check bounces. And when the public transportation system breaks down, they walk or ride a bike. And when the lights go out, they haul out the candles. And everyone with the tiniest garden is growing some kind of food or other, so they're not going to starve. And if it rains, they just stick a 55 gallon drum under the nearest downspout and they got water for a month. Not to mention that a quarter of the population still cooks with firewood and almost no one has central heating or air conditioning. By the time a Latin guy turns 30 or 35, he's been through three or four major national crises already. When a guy's at work and the lights go out, well, they go out. He keeps on working. Nobody complains. Nobody says, oh my god, the lights went out.
[24:08] Somebody called a super. Because you see, Latin people have been through so many crises in their lives that they just keep on plugging away. And I ask you, what's going to happen to you up in Cleveland when they cut your water or your power off for a couple of days at a stretch and you pick up the phone and there's no dial tone? That's when I'd rather be in Latin America, believe me. And speaking about the Brazilian economy again, you might remember on a past show, I mentioned that the Chinese were coming down in droves and buying up land. Farmland, wooded land, mining land, mountain ranges, you name it, they buy it. And guess what they're buying it with? United States tea bills. And you know, tea bills have to be rolled over in the future at a certain date. And the Chinese are smart enough to know that the dollar is going to take a tumble in the future. And since they're the largest holder of tea bills,
[24:54] they don't want to get caught holding the bag. So they're going around and buying things, not with dollars or euros, but with tea bills. Because for now, they're just like cash and they have a future return. But it's like musical chairs and the Chinese don't want to take a chance that when the music stops, they're holding the tea bills. Which is another reason why I think that even the smartest of Latin Americans have a very incomplete education. About money, about the economy, about the world, about trends and forecasts. It seems like they're not much on investigation and have no historical perspective. Because you know, they're willingly accepting these tea bills for excellent farm and mining land. Aren't any one of those big landowners looking at the Chinese in the face and saying, Hey, why are you giving me these tea bills instead of cash or something else in trade? Why isn't that raising any red flags with anybody?
[25:42] Oh well. And regarding the Brazilians and the Chinese governments, there seems to be a trade war brewing. Because in the last two years, the Brazilian growth rate has taken a dive. Now it's not in negative territory, not yet, but it's headed in reverse. And why is that? It's because the Chinese have flooded the country with their cheap products, just like they've done with the United States, Europe, Australia, and all the first world countries. And because Brazil has so many thousands and thousands of small businesses and mom and pop operations making all kinds of consumer items, now that the Chinese have invaded, those little mom and pop operations are being forced out of business in record numbers. It's the same thing that happens in the States when a Walmart moves into town. All those little mom and pop operations in the vicinity dry up and die.
[26:30] Now Brazil is doing the only thing it really can't. It's slapping tariffs on thousands of products, hoping to protect Brazilian businesses so people buy local. But the problem is, like I said before, half of the country is off the books. And since everybody in government's on the take, container after container of Chinese goods come into the country's ports without paying any of those new tariffs. All it takes is a small bribe to a willing customs official. And they're all willing. And where do those untaxed Chinese products end up? Not in Home Depot or Walmart, where government tax inspectors can keep tabs on that stuff. But no, they end up in those huge chaotic street markets in the informal economy. And you know, even though that stuff goes on, I love the informal economy. And I buy stuff there whenever I can.
[27:17] And actually, it's quite a wild experience to go to those big markets, believe me. And every expat I know feels the same way. And you know, like expat Eddie says, there's nothing like that warm cozy feeling you get in your heart when you're certain you've stiffed a tax man for his piece. South of the border down Mexico way. You've been listening to The Expat Files, living in Latin America, coming to you each week from somewhere south of the border. And don't forget, you can email me on anything at all about Latin America. The Expat Files at gmail.com. Once again, The Expat Files at gmail.com. See you next time. Los bemos.