I write to you this Monday morning from Campos de Jordao, the highest city in Brazil and a popular resort among Brazilians because of its spring, summer, fall, and winter – distinct seasons that generally do not exist in the rest of the country.
It is the only city within thousands of miles where leaves turn color, evergreens replace tropical vegetation, and pear trees replace mangos.
After two hurricanes and one reckless roofing company, it’s also the first place Elisabeth and I have found some peace and stability in many months.
Fortunately, most of Brazil is very calm and stable nowadays, including its currency. In fact, while the dollar has weakened, the real has actually strengthened.
The country has a hefty trade surplus. Foreign investment is pouring in, and natural resources are pouring out of the port of Santos to the likes of Shanghai or Beijing.
Just a few kilometers from here, in Sao José dos Campos, Embraer, one of the world’s leading aircraft manufacturers, is building a factory in China.
Lula, the president, who recently returned from China with a delegation of some 500 Brazilian businessmen and entrepreneurs, just announced on Friday that Brazil is now ready to “reap its harvest from the seeds of fiscal and monetary stability it has planted in the past two years” – thanks in large part to a more stable currency.
What a contrast to the way things were years ago … when the country’s foreign trade and monetary policy – even the currency itself – seemed to be changing almost as often as the seasons of Campos de Jordao!
I remember it well because I went to high school here and saw it happen with my own eyes. The entire society was built on the slippery slope of a sliding currency which gutted the middle class and corrupted the political leadership.
One day, you could be an urban, middle-class professional making a very respectable salary. Then, you could wake up to discover that the falling purchasing power of your monthly paycheck had just sunk below the poverty line.
If you owned the right kind of property, however, it was a different story. Due to inflation, the appreciation was so rapid, it could yank you out of the middle class and boost you up into the nouveau riche virtually overnight.
Meanwhile, state and federal legislators, city councilmen, mayors, governors and even presidents, also living on fixed monthly salaries with falling purchasing power, felt driven to find other sources of income – moonlighting, side businesses, and … kickbacks.
One infamous finance minister earned the nickname of “Mr. Ten Percent” – his fixed share of nearly every major government contract he touched. A former president even went so far as to build a nationwide influence-peddling network, probably the largest ever in any country on the planet.
Corruption virtually seized control of Brazil.
And while politicians lined their pockets, bad things happened: Roads decayed … schools fell into disrepair … and hunger spread like a great plague.
Even back in the 1960s, before more recent waves of inflation and middle-class destruction, I saw this type of thing happening everywhere. I was going to school in Piracicaba, one of the most prosperous industrial towns in the most prosperous state of the country. But largely because of inflation and corruption, more terrible things were happening …
A friend of mine had to drop out of school to become a city street sweeper to support his family. But between rising costs and leaking coffers, the city was so low on cash, so they decided not to pay him for months.
Our government-run high school, one of the best in the state, was also unable to make ends meet. We had no science lab and no gym. A section of the school’s north wing was shut down due to termites that festered because of unpaid bills for termite inspections. Ants and bees periodically invaded our classroom. There were no textbooks.
One cloudless, sunny day we heard a deafening thunder and rushed to the window. The Comurba, the pride-and-joy high-rise construction project on the northwest corner of central cathedral square, had collapsed in a cloud of ash and debris, much like the World Trade Center would collapse nearly four decades later.
Our Portuguese teacher rushed down the school’s main entrance steps in a panic. His wife and family lived in the shadow of the great Comurba. Despite massive injuries, thank God they survived! Other families were not so lucky.
In this case, the falling tower was not the work of terrorists. It was caused by a force that is both more pervasive and ultimately more powerful: Inflation and a sinking currency.
Because of the surging cost of materials, the contractor felt he had no choice but to cut corners on the cement mix. And because of the sinking value of fixed salaries, the city’s building inspectors felt they had no choice but to accept his bribes and look the other way.
Beware: These kinds of things are happening in America, too, and if we do nothing about it, they could be happening a lot more often in the years ahead.
The Catastrophic Consequences of Complacency
The social and economic decay that comes with inflation and a weak currency is not new news. It has taken place all over the world. It is thoroughly documented in thousands of history books and in countless economic treatises. It is so well known, I sometimes wonder why authors like me still have to write about it.
But the reason is obvious: Our leaders in Washington still don’t get it. Maybe they think it could not happen in twenty-first century America. Or perhaps they figure they’ll be out of office before it does.
If I were them, I wouldn’t be so sure.
Brazil and the United States are, of course, very different in many ways. But we are repeating some of the same mistakes that once drove Brazil’s currency into a tailspin: The same kind of out-of-control federal budget, the same kind of trade deficit, and the same complacency about both.
Ultimately, our entire way of life is in danger.
Plus, there was one other catastrophic change that transformed Brazil. I didn’t tell you about it a moment ago because I do NOT think it will ever happen in the United States. But I would be remiss if I did not mention it now.
In 1964, a triple-digit inflation hurricane swooped down on Brazil, effectively blowing away the government itself. In its wake, a powerful military dictatorship rose to power in BrasÃlia. Democracy was not restored for many years.
This is not going to happen in North America for the simple reason that you and I will not let it go that far. But never underestimate the tenacity of inflation and the power of a sinking currency. Instead, join me in fighting for an honest budget and a strong dollar.
You can do that in two ways.
First, by protecting your own dollars, you help create a reservoir of wealth that can later help bolster our economy as a whole. Specifically, while still keeping a substantial portion of your nest-egg in safe and liquid cash, you should be holding a series of investments that are likely to rise when the dollar falls.
Examples: Foreign currency CDs (available at Everbank), our favorite gold mining shares, and the best natural resource mutual funds. I call these “contra-dollar investments.”
This past week, the dollar rallied a bit and many contra-dollar investments suffered a correction. But I believe it’s merely the temporary hiccup I warned my Safe Money subscribers about two weeks ago. So if you don’t own them already, it may be a good chance to buy some contra-dollar investments – before the primary trend resumes. Needless to say, with all investments, there is a real risk of loss. So invest only the funds you won’t lose sleep over.
Second, by joining me in our not-for-profit, non-partisan Sound Dollar Committee, you can help me fight for a stronger currency.
In recent months, I’ve told you about its long tradition – since the day Dad founded it in 1959 to support President Eisenhower’s balanced budget.
Now, to get a good sense of what we are doing today, I suggest you take a look at my op-ed piece that appeared last week in the Washington Times. Better yet, please go to www.SoundDollarCommittee.org, select “Newsroom” and watch the streaming video of my “re-launch” speech.
As you know, the fight for an honest budget is a very personal one for me. I just cannot stand by and watch while our nation’s financial future is gambled away by irresponsible, and frankly, dishonest federal budgets. That’s why I am making a personal investment to stop this kind of monkey business in Washington.
Click on this headline to give a secure online donation and have your gift DOUBLED.
If you make a contribution to support the Investors’ Campaign for an Honest Budget before December 31, I will personally match your contribution, dollar-for-dollar, up to a total of $50,000, to help restore honesty to our economy. Plus, if you make it before year-end, it will also qualify as a tax-free deduction to a charitable 501(c)3 organization on your 2004 tax return.
Please join me by contributing $100 or more to help get the campaign off the ground!
Irresponsible monetary and fiscal policy is threatening to destroy our dollar. To turn this situation around, Congress has to account for both additional spending AND tax cuts otherwise the numbers just do not add up.
The time to restore fiscal integrity in America is not next month or next year. It’s now. It simply cannot wait any longer.
Good luck and God bless!
Martin
Martin D. Weiss, Ph.D.
Editor, Safe Money Report
Chairman, Weiss Ratings, Inc.
martinonmonday@weissinc.com
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