Twenty years ago, while Germany was just starting to undertake its massive pay-off of debt interest from the First World War, Brazil also faced an overwhelming problem: 80% inflation. Chana Joffe-Walt of NPR’s Planet Money team wrote a story about how the Brazilians used a creative system of making fake money real to stabilize their currency and reduce inflation. She contextualizes the problem with a carton of eggs: if you buy them at $1 to bake your birthday cake, they’ll cost $1000 by the time your next one rolls around.
Joffe-Walt continues, “The problem went back to the 1950s, when the government printed money to build a new capital in Brasilia.”
STOP.
Did you read that? The problem occurred when the government just printed money. The money was not the result of a robust economy. It was just made to build a new capital.
Have you ever taken out a loan because you wanted to build a pool in your backyard to beat the summer heat? Taken out a home equity loan because you wanted a faster car in your garage?
Brazil did it, too. They wanted a new capital and used money that wasn’t theirs to get it. Brazil printed their money out of thin air while your loan actually comes from a creditor, but look at it from its most abstract angle: in both cases, we are using money that isn’t ours to get what we want before we can really afford it.
Your fake money comes with interest. Brazil’s fake money came with inflation. Brazil didn’t pay much attention to what they were doing and it lead to 80% inflation, which we can all agree is uncontrollable. Don’t do like Brazil did. Pay attention to what you’re doing and be very careful when taking out loans. Why are you doing it? Is it for a profitable investment like your child’s education? Or are you simply trying to replace your unattractive but functioning car with one that makes you feel special?
When choosing to go into debt, be sure to ask yourself: am I building the capital of Brazil?
On a side note, let’s take a moment to connect the dots. Some of you may also have read my articles on Germany’s repayment of its war debt. If you have, there is a relevant connection to make between these two nations and your own wallet.
Let me start off by saying that Brazil isn’t the bad guy here. Yes, they made some mistakes in their past, but if you read Joffe-Walt’s article, you’ll see that four brilliant economists were able to employ a subtle plan that has led to a Brazil ascendant. They have a booming economy, a rich cultural heritage, and a growing presence in international politics.
In fact, they have much in common with Germany’s recent repayment of its World War One debt. Why? They both got their financial house in order. Each country had its problems, but they sat down and solved them no matter how epic or unbeatable they seemed. You can solve your problems, too. We can help. In addition to our articles on relevant financial topics, we have a team of debt experts that can help you build a good budget (German, Brazilian, or otherwise).
Live well, live well within your means, and remember – that’s how the Solvency Shark seas it!
He served as a Senator for the Graduate and Professional Student Federation, fighting to keep tuition costs down for graduate students struggling with their finances and student loans. He also developed his budgeting skills during his time as a Treasurer for the Graduate Romance Association. He enjoyed becoming more active in his local community and working to make a positive effect on his surroundings.
While an undergraduate himself, he spent a year abroad in Europe earning his degree in Spanish and French. While studying in both Sevilla, Spain, and Montpellier, France, he was exposed to the everyday reality of living under different economic and financial systems. Among other interesting travels he has made is a financial pilgrimage to the Spanish stock market in Madrid.
Stewart Pelto brings his rigorous academic education and his international experience to the problem of raising credit awareness and promoting financial responsibility. He hopes that his articles will teach his readers about debt and credit in an easily accessible and readily understandable way.
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