Brazil is a Good Place to Become Rich
If you haven't followed developments in Brazil's economy over the past decade, you've missed one of the great success stories of our time.
Brazil is one of the so-called BRIC economies (Brazil, Russia, India and China), which are now developing to the point of actually having achieved something.
Brazil is my favorite among these top developing economies for a number of reasons. But before I go further, I should reveal a prejudice.
A few years ago, I remarried to a stunning young woman who was a recent Miss Brazil. Through her good graces, I have come to know Brazil better than an outsider typically would after visiting sporadically. Luckily, my wife is not only beautiful but also her family is well connected at the highest levels of Brazilian commerce and politics.
My wife tweaked an interest in Brazil.
I can report from first-hand experience that Brazil is a country where you can live exceedingly well.
Not only is it a great country in which to be rich, it has also become a great country in which to become rich. Brazil has more millionaires than India or Russia. In 2007, a new millionaire was minted in Brazil on average every five minutes of every business day.
Brazil and the U.S. Trade Places?
Ironically, while most Americans were looking the other way, Brazil flourished with the sort of sound fiscal and monetary policies that helped the U.S. attain prosperity.
For example, Brazil ran a comfortable budget surplus of 4% to 5% of GDP for the past four years. Brazilian inflation is under control. The country also runs annual trade surpluses.
And as the world's leading producer of biofuels, Brazil is energy independent.
Meanwhile, the U.S. has run staggering trade and budget deficits of the kind that led to hyperinflation in Brazil in the last century.
As we enter 2009, the U.S. budget deficit has swollen to a multi-trillion-dollar improvisation of bailouts and rescues sure to debase the dollar and downgrade the living standards of those solely dependent on dollar income.
Just as it once would have been folly to trust your savings to the Brazilian government, I believe it is now folly to trust your savings to the U.S. government.
In fact, I would not be surprised if the U.S. dollar as we know it ceases to exist in the next five years.
That's because the pattern in every country that fouls its currency through hyperinflation is to scrap the tarnished brand and issue a new currency after hyperinflation has made the old one repugnant to the people it betrayed.
Germany had six currencies in the twentieth century. It scrapped all but the euro in the wake of runaway inflation or collapse.
In fact, I would not be surprised if the U.S. dollar as we know it ceases to exist in the next five years.
To say the dollar is heading for oblivion may seem exaggerated or unpatriotic. But it would be rather thick of us to miss the point when the leading U.S. monetary authorities have been at pains to explain that it's their conscious policy to devalue the dollar.
I am sure that the great damage the concerted policy of inflation by the U.S. government would cause is an argument for diversifying cash reserves and currencies outside the U.S. Hence the attractiveness of Brazilian government bonds, which you can buy for the time being at a discount courtesy of hedge funds that have dumped Brazilian assets in a scramble to raise cash.
Hyperinflation once plagued Brazil. The source of this was a relentless expansion of the money supply. The Brazilian government used to finance its operations and development projects not out of taxes or by borrowing funds but simply by creating money.
In other words, the cause of Brazil's hyperinflation is the very policy Washington is now adopting.
As a result, from 1980 through 1997 the price level in Brazil increased by a factor of one trillion. Per capita real income growth ceased during this period.
Almost every Brazilian adult - even my wife, who was born in 1980 - has unhappy memories of this period. And Brazilians have no wish to return to policies that destroyed their economy.
Remember, the Germans became the foremost foes of inflation in Europe in the twentieth century after suffering grievously with hyperinflation.
This is one reason why the Brazilian real is a better bet going forward than the dollar. No people who have been through hyperinflation want to repeat the experience.
Given these prospects, the crisis has handed us an opportunity. Buy Brazil... Sell the dollar.
Happy Investing,
James Dale Davidson
for The Daily Reckoning Australia
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Comment by Ross on 29 April 2009:
I have a Brazilian girlfriend but she was born in 1969 James Dale Davidson and so it seems that would give you some sort of bragging right.
But you obviously don't know your way around the Brazilian elite because the word you will find being used continuously there is caution. Try asking those in Brazilian agriculture what the crop financing situation is and you will hear of impending disaster. Then think of the 200m mouths to feed and the no. of those living at subsistence levels. As for those you hang out with ... we can only guess.
And the currency that was the rock from which the Euro was built was the DM. Hardly a failure.
Comment by Pete on 29 April 2009:
Touche' Ross! Good calls there
Comment by Greg Atkinson on 29 April 2009:
"No people who have been through hyperinflation want to repeat the experience."...and you reckon people who haven't want to give it a try? Do you think people gather around the campfire at night and say.."hey, we haven't tried hyperinflation, so let's give it a whirl!"
Thanks for bragging about your wife...that was so interesting...not.
Comment by B.Money on 30 April 2009:
I can't speak on hyperinflation and we may not want to get involved with that (god, I hope not!) but as a collective culture, nothing stopped us from racking up massive debts of all kinds on all levels. As it was said once, "People get what they deserve." I hope hyperinflation is NOT one of those things.
Comment by Hoss on 30 April 2009:
This article reminds me of that joke where a guy goes to his doctor and tells him how he slept with blonde twins the night before. When the doctors asks "why are you telling me this?" the reply is "are you kidding!!? I'm telling everyone!!"
Comment by Tony Hansen on 30 April 2009:
B.Money,
If people do get what they want... then what will the over-extended consumers be getting?( and the over-extended governments)
Comment by Alex on 1 May 2009:
You have no idea, your opening paragraphs summarise exactly what is wrong with Brazil.
Sure, there are plenty of opportunities if you know the right people or are familiar with the use of Jeitinho. But there is a bigger picture to consider:
A small coterie of mates weilding an unfair influence over decision makers in a society where the poor are kept distracted by soapies, booze and beauty; i.e. the superficial.
Did you think to consider the real reasons why there are so many millionaires?
Because there are a lot of very poor people.
I guess you didn't walk around Alemão or Rocha,assuming you visited Rio.
FYI: ( From http://expatbrazil.wordpress.com/2008/05/15/weath-distribution-in-brazil/ )
"The Instituto de Pesquisa Econômica Aplicada (IPEA) of the Brazilian Government in a recent study stated that in São Paulo the wealthiest 10% had 73.4% of while in Rio they retained 62.9% and Salvador 67%.
Near the end of the 1800s, the richest 10% in Rio had 68% of the wealth. Not much progress"
Comment by Hasan Soyer on 1 May 2009:
I live in a country (Turkey) which had 200% inflation 10-12 years ago. Believe me, you can make a lot of money in a hyper inflation. Also you can make more more after this inflation. So no worry about inflation. More important is the political stability. In Turkey we have political stability now for 6-7 years. And this stability helps more people to get richer. I would say invest in Turkey, not in Brazil.
Pingback by Como ficar rico no Brasil « Talking Point on 1 May 2009:
[...] Vou traduzir a maioria do artigo (em azul) e para voce que prefere no original aqui vai o link. [...]
Comment by Reny on 3 May 2009:
I am Brazilian and I agree with Alex.
First, the booze and the obsession with beauty takes the attention off what what it is important: education and a more just social distribution.
Second: what is the point of telling you married the miss Brazil? Really it just points out the lack of depth of your article...
I dream of the day Brazilians have a better income distribution, focus on better education TO ALL and pay less attention to the external beauty, cause that goes with the time too... the wisdom stays...
Comment by Marcus on 4 May 2009:
So you have a hot wife but can you deliver in bed? How long before she strays? Surely the daily reckoning can do better than this sort of rubbish.
Comment by rodrigo on 13 November 2009:
Are you out of your mind? I am so sorry I just read it now, bc otherwise I could be laughing since april.
Braziliam taxes give 720 bilions of the local currency for the government. The health budget is 50 bilions. Every year 260 bilions just vanish from the government reserves, and nobody knows to where... should I continue?