#78 – The Expat Files: Understanding Poverty, Inflation, and Economic Realities

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, it's time to take off those rose colored glasses and find out. So let's get started. Don't you think it's about time that someone comes up with a definition of what being poor really is, and what really is middle class? Because if you have a discussion with anyone in the third world about the poor people in the United States, or the poor people in Europe, the third world person will always eventually

[00:51] come around and ask you, how could there be so many millions of poor people in such rich countries? Because they read the papers too, though they might be in Spanish or Portuguese, and they're always reading that in the United States, 20 to 25% of the people are at or below the poverty line. And for a country of 300 some million people, that means over 60 million people in the United States are living poor, or so the papers say. And third world people always think it's such a shame that the richest country in the world could have 60 million or so people stuck in the poverty cycle. Because what's conveniently left out in the articles down here is that the poverty level up there in the first world for a family of four is about $25,000 a year, which works out to be about $2,000 a month.

[01:36] Now I wish journalists would wise up and report that figure of $25,000 a year for a family of four every time they write an article about the poor people in the first world, because otherwise it's totally misleading to anyone who reads those articles down here in the third world. It's just too bad that there are so many definitions of poor depending on where you live in the world. Because if it were a level playing field, so-called first world poor people would be solidly middle class or even upper middle class, anywhere in the third world that is. In fact, up in the United States or in Europe, if you're considered poor, you'd be the richest poor people in the world. Because at $24,000 a year for a family of four, if you live for example in Brazil, you'd be upper middle class. Because middle class in Brazil starts at $500 a month, which is only $11,000 a year.

[02:25] Anyway, journalists have really dropped the ball because they don't report the real numbers. And it happens even when you're reading a paper up in the first world. For example, just this week there was an Associated Press syndicated article about Brazil that I happened to catch. It said that in the last 10 years, 30 million Brazilian people have risen from being poor or poverty-stricken to being solidly middle class, which sounds like great news for the people of Brazil, and gives outsiders like us the impression that Brazil's government is really on the right track. And speaking of Brazil, a lot of journalists seem to be hinting that those first world countries up north, deep in recession, even depression, and poised to crash even further, could learn a lot about economics, government, and growth from their neighbor down south. And because of that, there seems to be an idea among expats and expat wannabes that

[03:12] Brazil is just a place to move to and get in on some of that action. That's what it seems like anyway, based on all that positive publicity. But what they don't tell you, of course, in the news, is that that 30 million people that have gone from poverty to middle class only make between $300 and $500 a month, which by Brazil's definition is middle class. And now new Brazilian statistics are saying that more than half of the population, about 105 million, are the new middle class. And that means, by the way, Brazilians measure things like poverty and middle class, that 105 million people make between $300 and about $1,000 a month, which is not even near the middle class ballpark when it comes to the United States and Europe. Anyway, I'm sure you'd agree, if you made that kind of money up in the first world, you'd have a pretty pathetic life.

[03:58] Now here's another confusing statistic, and that same article has said that in the last 10 years in Brazil, there have been great advances, economically, in the poorest sector of the economy, which is that 40% of the Brazilian economy making under $300 a month. About 70 million people, that is. Anyway, they say that section of the economy, the poorest section, has in the last 10 years achieved a 10% increase in their level of income. In other words, if 10 years ago a poor family was making $200 a month, now in 2011, they're making $220 a month, a 10% increase from 10 years ago. Now is that anything to brag about? Well the Brazilian government is bragging about it, and I have the article right in front of me. But what makes this even more confusing is that they don't tell you if those numbers

[04:43] are adjusted for inflation or not, because if they are, then a 10% increase in wages is more than pathetic, because over 10 years that only means 1% a year. If I was the government, I'd be embarrassed to release statistics like that, but actually I have to suspect that those statistics are not adjusted for inflation, because the numbers always look better if you don't adjust for inflation. And governments are notorious for pumping up their numbers any way they can. Anyway Brazil in the last 10 years has had about 50% inflation, and if that sounds like a terrible record, just remember that the United States has had at least 50% monetary inflation itself in the last 10 years. In other words, your dollar today buys a little less than half of what it did back in 2001, and that's the hard truth whether you like to believe it or not.

[05:30] So back to Brazil, if they're bragging that the poorest 40% of their population has had a 10% increase in wages over the past 10 years, and they're not adjusting that figure for inflation, that means that 10% increase is absolutely insignificant, and not even worth mentioning. And that $200 a month that they earn now is only equal to about $100, which actually means that they've lost half of their purchasing power in the last 10 years instead of gaining a measly 10% like they claim. Which is all quite confusing because they don't like to tell you whether it's inflation adjusted or not, and they don't like to give you their monetary definition of what they call poor, middle, and upper classes in those countries either. And if it's left to the mind of the person who's reading the article, and that person's

[06:17] from a first world country, he's automatically going to assign his tainted definition of what he considers poor, middle, and upper class according to what his country's government defines those numbers to be. So in most cases, talking in general terms like that is pretty much useless, and that's the journalist's fault for being so uneducated in economics and not knowing the significance themselves of the actual numbers that they put in their articles. I think most reporters are mathematically illiterate, really. Because imagine if you saw an article, let's say, about Argentina, and it said 80% of middle class Argentinos own a car, and I've actually read articles that have said that. Now if you hear it that way, it sounds great, sounds like you're doing fine, because in Europe and the United States, it's pretty much the same. 80% of the population own their own cars.

[07:05] And hearing that, you're going to think middle class Argentina is on par with the middle classes in the first world. But what if you heard it like this, the way you really should hear it? 80% of middle class Argentinos own a car, and the average middle class Argentine family of four makes $11,500 a year. And the average age of a car owned by a middle class Argentino is 11 years old, and it has a value of $3,800. Okay, so if you had it put that way, it would change your idea completely about the Argentine middle class car ownership statistic now, wouldn't it? And your opinion about just how wealthy middle class Argentinos are too. Do you see what I mean? Because up in the first world, the average guy makes $33,000 a year, not $11,500, and

[07:50] the average car has a value of about $8,000, not less than half of that, like in Argentina. And what's worse, journalists throw around government, economic, and financial statistics the same way. They almost never give you a convenient base point for comparison. And when they do give you a statistic that's adjusted for inflation, which is rare, they pick an arbitrary point, which is pretty much meaningless. They'll say for example, movie ticket prices have gone up 800% since 1960. But they don't tell you that in 1960, the average man only made $6,000 a year, which is about $113 a week. And by that reckoning, adjusted for inflation back to 1960, movie ticket prices have remained exactly the same. They cost about $7 or $8 now, and they cost about a buck back in 1960.

[08:40] The very same percentage of a working man's income. And here's another example. In the New York Times lately I read, the average cost for a Hollywood blockbuster movie these days is about $100 million. And the average cost for a Hollywood blockbuster movie back in 1960 was about $10 million. And the average cost for a Hollywood blockbuster movie back in 1940 was about $1 million. And if you just read those numbers straight, you'd think God, Hollywood's gone nuts and is completely out of control. But you'd be wrong because adjusted for inflation back to 1940, where the average blockbuster cost a million bucks, a movie like Citizen Kane for example, and ticket prices were only 25 cents, well the average man back then only made $1,300 a year, or about 25 bucks

[09:25] a week. So in 1940, if a guy paid 25 cents for a movie ticket and he made 25 bucks a week, that was about 1% of his pay. And now that we're in 2011, and the average American makes $33,000 a year, which is $635 a week, and the average ticket price these days is about 7 bucks or more, a guy still pays only 1% of his weekly pay for a movie ticket. Just like a person did in 1940, about 1% of his weekly pay. But if you ask around, only about 1 out of 25 people on the street in the first world understand that concept at all, because journalists rarely give you a good monetary baseline in which to make a good decent comparison. So I'm going to try to help you out here, so bear with me. Now the trick is, every time you ever read or hear about a price that refers to a monetary

[10:14] figure or a dollar value in the recent past somewhere, you want to be able to relate it to today's dollars, so you can get a good feel for what they're talking about. So if you read somewhere that a US congressman made $5,000 a year back in the year 1900, and now in 2011, a congressman makes $174,000 a year, based on that, you're instantly going to think either they were vastly underpaid then in 1900, or they're vastly overpaid now in 2011. You really don't have any idea whether or not that was a good or bad salary back in 1900. So I'm going to give you a little trick to roughly figure out whenever you hear a dollar amount from the recent past, like in that example. I'm going to show you how you can easily and simply relate it to today's dollars, so you

[11:04] can make better sense out of it. Okay, first off, what you probably don't know is that inflation didn't take off in the United States in a big way until Roosevelt confiscated private gold back in the 1930s, along with the fact that World War II started. Before that, from about 1800 to 1940, inflation was so low it was almost insignificant. So you can figure if you're given a dollar amount before 1940, and you want to figure out really fast what it means in today's dollars. You just multiply it by 10, and then double that figure, and you'll have a rough idea what that amount meant back then in today's dollars. For example, let's take that senator's salary of $5,000 back in 1900, and try to find out what that means in today's dollars. Okay first, you multiply that $5,000 figure by 10, which gives you 50,000, and then you

[11:54] double it again, which makes 100,000. And now you have a rough idea of what $5,000 in 1900 means in today's dollars, about $100,000. And since senators these days make $174,000 a year, their salaries have not only kept up with inflation, but are almost double the average rate of inflation. And if you ask me, they're all corrupt bums anyway, and every single one of them should be voted out of office. And just as an aside here, I was at another one of those notorious embassy parties. You know, where I meet all those unsavory government characters. Those parties are always fun for me, because I get to see all the brown-nousers and boot lickers that are jockeying for position, contracts, and favors in my favorite banana republics.

[12:40] At those embassy parties, which by the way don't usually take place at the embassy, but at some embassy official, bureaucrat, or government worker's house. Anyway, what you have on display, besides locals trying to suck up for favors, are the usual suspects, embassy types, military guys, and diplomatic and bureaucratic blowhards. Anyway, at this most recent party, the topic of conversation came around to voting. And I was asked of course, who I was going to vote for in the next presidential and congressional race. And I just knew I was going to stir up the pot when I mentioned the unmentionable, especially when around all those government types, that I don't vote at all. I just don't, because if I did, I'd be condoning a system that's rigged. One that only gives me two choices that I don't even like. A corrupt guy with no backbone, put up by lobbyists in special interest groups with

[13:30] a lot of money, over another corrupt guy with no backbone, put up by his special interests with all their money. And when you say something like that at an embassy party, you get a lot of dirty looks real fast, believe me. Because a lot of those guys owe their jobs to people they supported politically. But I'm not there to make friends with these guys, and I'm not going to make the rounds kissing asses like all of them are doing. Anyway, when I said that, another young expat stood up and spoke his mind. And he said, look, I still vote, but I have my own system, called VOTI, V-O-T-I. And you want to know what it stands for? Vote out the incumbent. And he said, whenever he goes to the voting booth, and he scans the names on the ballot, if he recognizes any name whatsoever, that person does not get his vote. He votes for the names that are most unrecognizable to him.

[14:16] And then he said, if enough people voted that way, we'd eventually get all fresh brand new blood in there, which is exactly what we need. And who am I to argue with that? VOTI, vote out the incumbent. That is a great slogan. I got to make up a t-shirt like that. I bet I could sell a million of them. Anyway, back to figuring out past dollar amounts in today's dollars. Now, after World War II began, about 1940, between then and 1960, that 20-year period there, if you were given a dollar figure and you wanted to relate it to today's dollars, all you have to do is multiply it by 10. It's that easy. For example, if you were watching a 1952 movie, and Robert Mitchum said that he bought a brand new 1952 DeSoto convertible for 2,000 bucks, if you multiply that dollar figure by 10,

[15:05] which gives you 20,000 bucks, that's about what that car would cost in today's dollars, roughly. Now, in the next 20-year period, from about 1960 to about 1980, if you hear a dollar figure, you could get a pretty good guesstimate of what it's worth in today's dollars if you just multiply it by 5. For example, if a comic book or a Coca-Cola cost 20 cents back in 1970, in today's inflated money that would be about a dollar, or 5 times 20 cents. Now, I hope that helps you out, because one of the most confusing things about reading how much things used to cost, in the not so distant past, was always how to get a handle on it in today's dollars. Because the more you understand about this, the more disillusioned and angry you should get when you realize that since 1913, when the U.S. instituted the Federal Reserve System,

[15:53] the U.S. dollar has turned into virtual toilet paper, and it still doesn't sink into the general public just how much they've been screwed by their own legislators. I mean, how many people realize that a dollar today will only buy what 5 cents would buy back in 1913? And though our currency has been dying a slow death, the patient is now in a coma. And even if 1 out of 20 people has a good handle on this up in the first world, down here in Latin America, even the so-called intellectual class is 100 times more oblivious. There isn't one person in a thousand that understands what's really happening in this financial crisis, and that it's a worldwide event and it's going to take everybody and their fiat currencies down. Because you see, down here, the people are actually numb to financial crisis.

[16:40] It's certainly nothing new to them. Every single Latin country has been through so many of its own financial crises, meltdowns, and devaluations that they just think, like before, the government will close a few banks, issue new currency, or devalue the old stuff, and in a few years, they'll climb out of their hole and the economy will wind up again. But you see, what they don't realize is that this is not a regional thing. It's not about one or two countries. It's not about the World Bank, the IMF, or BID coming in and canceling some old debts and issuing some new loans. That's like giving a new shovel to a guy who's already dug his hole too deep. Because you see, the people down here always look at their own currency as compared to the US dollar. That's the gauge they use to measure whether their economy is doing good or not.

[17:30] Down here, when the average guy or businessman sees his own currency fall against the dollar, to him, that's inflation, and when he sees his own Latin country currency strengthen against the dollar, only the Latin businessman who imports foreign goods down here sees his purchasing power go up. And because of that, he thinks the people in charge of his government's economic policy are somehow doing something right. He never stops to think that it might be the United States dollar itself that is crashing in the world markets. He only thinks that it's his country's currency that's somehow getting stronger, or getting clobbered, whatever the case may be, as if somehow the United States dollar was as good as gold. But one thing Latin's themselves, the common men and businessmen never look at, is the way the dollar itself is being eroded down to nothing.

[18:18] All they care about is how their own currency relates to the dollar. Not how the dollar itself is in fact a worthless piece of toilet paper, and how the United States government has been getting away with creating oceans full of it with no backing whatsoever. And yet these Latin governments can't do that with their own currency, or they would have hyperinflation. And the real kicker is they have huge hordes of US dollars in their central banks down here, and they use that as a reserve requirement to back their own currency. In other words, American fiat toilet paper currency backing Latin fiat toilet paper currency. And that's how the system works, and that's why in a short time it's going to fall. But even when I talk with some of the smartest Latin people down here, they don't seem to be worried a bit about it. And I can't tell you how many times I've heard Spanish intellectuals and economists

[19:07] even say, look, everything's cyclic, and there's booms and busts. It happened to Argentina, they defaulted, they closed their banks, they went bankrupt, they revalued their currency, and in a few years they bounced back, and now they're a super powerhouse. And they say, the same thing happened to Brazil. Just a few years ago, it had a thousand, even five thousand percent inflation a year. And look at it now, it's a powerhouse. And these Latin economists and intellectuals always say that Argentina was a worst case condition and the United States could never get an affix like that. They make the rules, they have the smartest people, and they have the world's reserve currency. They would never default, or devalue their currency, or heaven forbid issue a new currency.

[19:52] It's the United States for God's sakes. The richest economy in the world, in fact the richest country there ever was, and in fact the country that every Latin American country and government wants to emulate. They all want to be just like the US. And they all figure that the United States has had its recessions, even a great depression, and it's had plenty of ups and downs before, and it always bounces back stronger than ever. And they will this time, in fact the United States itself is too big to fail. That's the kind of logic they gave me. Hey folks, I'm not making this up, I hear it all the time, and these are the Latin movers and shakers that are supposed to be in the know down here, and not one of them has an ounce of gold or silver in its portfolio. That is, if they even have portfolios, which I doubt, because most of these guys are all

[20:39] hat and no horse, and what they do have as investments are their own properties, which are mortgaged, and dollar denominated money market and stock positions. In fact, my own lawyer told me once, that the smart Latins that he knows, including himself, don't have any of their money in the Latin stock markets, because they don't really trust their own analysts, and there are just too many boom and bust cycles in Latin America. Instead, that small percentage of Latins that do have money to invest, have it in the US stock market, because that's where the big boys play, and it all goes back to that first world wannabe thing again. They want to be so much like first worlders, that they're willing to go down with the first world ship, namely the first world stock and money markets. But you know, I can't even talk my own lawyer out of it.

[21:25] He won't even listen to reason, even though he and his friends have taken a huge beating in the last few years. And last week, during that big market hit, he got slapped around again. So I can only sit here and advise you expats and expat wannabes, and tell you that when the crash finally does come, you'll be much better off down here in the third world, where food and land and property are plentiful and cheap, and even though maybe 50% of the people down here are extremely poor, they're not likely to riot, or turn on people like expats and businessmen who have a lot more resources, because the poor classes are very well established down here. They're used to it, they're survivors, and if there's a huge stock market collapse, and the dollar crashes, and the infrastructure goes down, these guys just go into their backyard

[22:11] gardens and cut some corn and tomatoes, then they collect some firewood out in the woods, and go fishing, and they have their own chickens and a cow or two, and none of them have any idea what the stock or bond market really is. And in fact, most of them have never even held a US dollar in their hands, and these guys live really close to the earth. They've survived hurricanes and floods and earthquakes, and they still do everything with their hands and haul things on their donkeys and their backs. When the crash comes for these guys, they probably won't even notice it. But when the crash comes up in the United States, when middle America can't buy food, and they can't pay the electric, and they don't have the money for gas to run their cars, now that's a crisis. And guess what? I don't want to be there. I want to be down here in Latin America. And I'm not the guy who cried wolf either. Anybody who's got their eyes open can see the signs.

[22:59] And now to change the theme a little bit, I want to talk about how expats can make some money down here. Anyway, like I touched upon in my last show, I mentioned that a lot of first world people, mostly business professionals, come down here for a weekend or even longer, and give seminars at big hotels. And they advertise those weekend seminars in the big city newspapers down here. And I said some are totally bogus and some are not. But it doesn't matter. Any first world are coming down here with a good idea for a seminar, as long as it's somewhat topical, usually packs them in. And there's a lot of money to be made doing just that. I'm talking about first world style big money in a small amount of time, and with very minimum effort. And it's all due to the fact that Latins love everything and anything first world.

[23:45] And if you bring some of those first world ideas down here with you, and present them in a seminar, you can clean up. Now that opens up a lot of possibilities for expats and expat wannabes who have any kind of skill at all that's transferable into a seminar. Because a latin person giving that very same seminar will not have nearly the cache that a first world so-called expert has, who comes down here and gives a first world style power point presentation, along with a lot of nice handouts and a nice diploma for them to put on their wall. As long as it's in a nice high end hotel and you advertise it right. And you could be a big hit, even if your Spanish sucks. And even though these first world business guys know just enough Spanish to pull it off, a lot of them don't and they use a translator.

[24:33] And like I said in one of my earlier shows, excellent bilingual translators are dirt cheap down here. You could easily hire one for a hundred bucks a week. The fact is, you and a bilingual secretary could probably sit down and translate your whole English seminar into Spanish in three working days, including all the handouts. And the reason why I mention this particular path to easy money is because I get so many emails from people asking me how expats can get good paying jobs down here. Jobs that'll make them some decent money, not your typical $300 a month Latin American salary. Well like I said, the only way you're going to do that is to own and operate your own business. And that includes going the seminar route, which could really bring in a lot of money fast. For example, an expat woman I know, who's kind of an extrovert, she gave a standing

[25:19] room only seminar at a Marriott down here after advertising it only twice a few weeks before in the local paper, which set her back less than 50 bucks in advertising costs. And what was her seminar about? Well she gave a one day pole dancing course. You heard me pole dancing, you know, like the strippers do. She had 30 people show up at 50 bucks a head and in one day pulled in $1,500, which is five times the monthly salary of your average worker down here. And she made that kind of dough in just one day. And now because it was so successful, she wants to take her seminar to all big cities in Latin America. Why not? God, I wish I would have thought of that. And her only expenses besides 50 bucks for the advertising in the paper was $75 for a small conference room at the Marriott.

[26:06] Now another great idea would be to give a self defense seminar to women only. Now I don't mean teaching them a crash course in karate or anything, but just a basic course for women on how to avoid being a victim, how to avoid assault and kidnapping. There are so many easy steps to take. Now any gringo that looks halfway fit could probably give a course like that. Even if he or she doesn't know much about self defense, they could study up on it. Because as long as you're a first-worlder and you know what you're talking about, you'll pack them in. But if a Latin person were to try to give that very same seminar, people would just not be interested. It's all about bringing a bit of the first world down here, teaching them a little something they never knew before, and handing out a fancy diploma. Really, I'm not kidding you. And I guarantee you, any seminar with a little first world polish in it is bound to be a

[26:55] hit. And if you've done a few courses like that and you've honed it and polished it, there are a hundred other Latin American big cities that are just ripe for that kind of thing. And you can go on tour. So expats and expat wannabes out there, just get a piece of paper and write down 10 things you know a lot about. It could be anything from stained glass making to beekeeping first world style. It doesn't matter. Or just Google popular seminars that are going on in the first world right now to find out what's hot and just copy one of them. And if you have a really good idea for a seminar that you think might fly down here, but you don't speak much Spanish, just email me and I might go partners with you. You've been listening to The Expat Files, living in Latin America.

[27:42] And don't forget you can email me on anything at all about Latin America. The Expat Files at gmail.com. That's theexpatfiles at gmail.com. See you next time. Nos vemos. Nos vemos.