Tonight at a lovely Seder in Higienopolis I heard a remarkable comment from the interesting chap opposite me. He is a legal executive at a major media company in Brazil and earns a commensurate salary. When I discussed my doubts about Brazil's economy with him, he replied that the high prices were going to get even higher because this country has so many new gas, oil and other projects coming on stream and there are just so many foreigners who want a piece of the action.
But when I pushed him on the absurdity of the prices relative to average salaries, he suddenly admitted: "Even with my salary I can't afford to buy many items here, such as clothes or electronics. This shirt I'm wearing is Marks & Spencer - I either buy this stuff when I am abroad or I am always asking friends and family to buy it for me when they are in the UK or US. It's a crazy situation but it's just not affordable to buy things here. It's the same with the cost of food. There is no middle class in Brazil."
Even more alarmingly, he said that it was also just not affordable to buy things on credit, with the high interest rates charged. So he had to buy with cash and obviously this put a strain on family finances. Amazed, I asked: But what about the great credit boom ? If it is not affordable for you to buy on credit, how is it affordable for the poor of Brazil ?!
To which he responded: "They are starting from a very low level, buying basic items like washing machines and TVs" ... And cars, I said .. "Yes, but the more basic cars, although even they are not cheap."
He seemed to think that this credit bubble would not implode because the newly consuming not-so-poor would always repay their instalments "out of a sense of honour, which is very important to them, and also because they need to keep their credit rating."
Whenever I speculate about the possibility of a dangerous credit bubble in Brazil, I try to discount any moral judgements or emotions, such as whether poorer Brazilians have the "right" to life's little luxuries or modern-day essentials.
All I think about is whether, honour or no honour, right or no right, people will be able to afford repayments on multiple and multiplying high-interest loans. Will it be sustainable or will there be a Brazilian "subprime" tsunami ?
Remember, these loans are "too expensive" for Brazil's wealthy (or wealthier) but apparently perfectly manageable for the poor (or poorer). That strikes me as a very uncomfortable kind of economics.
Deliver us from bondage.
But when I pushed him on the absurdity of the prices relative to average salaries, he suddenly admitted: "Even with my salary I can't afford to buy many items here, such as clothes or electronics. This shirt I'm wearing is Marks & Spencer - I either buy this stuff when I am abroad or I am always asking friends and family to buy it for me when they are in the UK or US. It's a crazy situation but it's just not affordable to buy things here. It's the same with the cost of food. There is no middle class in Brazil."
Even more alarmingly, he said that it was also just not affordable to buy things on credit, with the high interest rates charged. So he had to buy with cash and obviously this put a strain on family finances. Amazed, I asked: But what about the great credit boom ? If it is not affordable for you to buy on credit, how is it affordable for the poor of Brazil ?!
To which he responded: "They are starting from a very low level, buying basic items like washing machines and TVs" ... And cars, I said .. "Yes, but the more basic cars, although even they are not cheap."
He seemed to think that this credit bubble would not implode because the newly consuming not-so-poor would always repay their instalments "out of a sense of honour, which is very important to them, and also because they need to keep their credit rating."
Whenever I speculate about the possibility of a dangerous credit bubble in Brazil, I try to discount any moral judgements or emotions, such as whether poorer Brazilians have the "right" to life's little luxuries or modern-day essentials.
All I think about is whether, honour or no honour, right or no right, people will be able to afford repayments on multiple and multiplying high-interest loans. Will it be sustainable or will there be a Brazilian "subprime" tsunami ?
Remember, these loans are "too expensive" for Brazil's wealthy (or wealthier) but apparently perfectly manageable for the poor (or poorer). That strikes me as a very uncomfortable kind of economics.
Deliver us from bondage.
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