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Old 03-17-2010, 11:50 AM   #9
Steve_A
Project Avalon Moderator
 
Join Date: Sep 2008
Location: Northeastern Brazil
Posts: 1,259
Default Re: Predictions for 2010 by Economic Prophets

Hi gibonos,

I think your idea of hyperinflation is not very 'hyper'. I can understand that someone who has a steady economy, like in the UK a few years ago will have a certain difficulty in understanding about hyperinflation. The UK is already worried because inflation is around 7%! Per year!

Here in Brazil, when I arrived, in 1991, inflation was 50% per month. Although it never got to the stage of Zimbabwe where prices were being raised two or three times a day, to see a supermarket employee with a label maker repricing products was commonplace. All you could hear in the supermarkets were the click clickety click of the label guns.

Prices back then were raised on average every two weeks depending on the products and those who had the ability to combat the value of their cash and bought their purchases on the very last day before the price rise were king.

The lower paid workers had to buy their months food all in one day so as to combat price rises.

I used to be a consultant for a British food company who wished to import shrimps from Brazil. One of the directors of that company couldn't get her head around the fact that not only price fluctuations down here are more extreme than in the UK but the currency exchange rate is far more volatile rising or lowering sometimes more than 1% in a day! Just to give youan idea, three years ago it was BR$ 2,80 for US$1,00. Today it is BR$1,78 for U$1,00. That's a difference of over 30% in three years. It used to be 1,00 for BR$4,60 three years ago and now it's only BR$2,60 or so!

One fine day I got a quote for packaging for the products and the company in the UK dragged its' feet in closing the deal. Eventually when they decided to go for it, the price was 5% more and the rate agianst Sterling was in favour of the Brazilian Real. They thought I was trying to do something underhand, as in the UK if you drag your feet a little, usually the price remains stable from one month to the next. Of course I seperated with the company as I would not allow them to call me a thief. However, I can understand ther way of thinking,if they hadn't experienced high inflation before.

Back to the plot!

Loans are always charged at rates well above inflation. The higher the risk, the higher the difference between base rates and loan rates, as the banks knew they were in a high risk econmy and had to protect their bottom line against defaulting.

Even today with inflation at around 4,5% per year, my credit card has a 15% interest rate - per month. Why so big a difference? Because Brazil is still a high risk country.

Have you heard that Moodys were announcing that the US and UK could lose their AAA rating? That means that their risk factor goes up and the banks and credit card administrators have to act accordingly, once again, to protect their bottom line.

So as you can see, even though it seems like a paradox, that people who don't really need credit can get it cheap (or could) and perhaps those who needed it more could only get it at a more expensive rate.

I know people over here who fell into the credit hole and were spending more than half of their salary just to 'service' the debt, in other words, just pay the interest on them and it's not a very nice position to be in.

If you have large quantities of gold or strong (read stable) currencies, of course you would get by better as these items are not ied in to the internal inflation rate of your country. They will be tied in with the global rate which is another story.

Best regards,

Steve



Quote:
Originally Posted by gibonos View Post
I see it differently. The whole hyperinflation favour those who are in debt.
When inflation hits big time, most of mortgages are reset every 3 months,
you have an opportunity to do a lot with it, unless government gets envolved.
It's like you mentioned with your car. I know it was fixed, but 3 months is a lot of time and those who have the hedge will find themselfs paying of $100 000 with 1kg of silver
Same thing happend in Poland back in the 90s, when intrest rates where around 50% one year, in spite of this people where paying of mortgages with like 2/3 months pay,
if you had strong currencies you were a big time winner.
One has to be mentaly strong to see light in dark times, but when they come it will be satisfying.

My friend from Florida told me yesterday that his bank approached him and said that government is requiring all non performing loans be called in and he has to make a difficult decision wheather to walk away or pay overvalued mortgage.
I wonder why such a directive in those time? I guess only to cover bankers a$$es!
Here is an interesting article peaceandlove posted form zerohedge.

gibonos
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