A friend of mine recently made a trip to Brazil. As we discussed her trip, it reminded me of the port call I made in Rio de Janeiro in February of 1990. This was one of my favorite port calls, but the story Betsy reminded me of was the currency.
We were on a world cruise, and like all Navy ships in the 1980s and 90s, we spent a lot of time in the northern Indian Ocean. While we were patrolling our box of water, we were given a port brief for Rio. A description of the local currency is always a part of the port brief, and this was no exception. But there was a very unusual situation in Brazil at the time.
It seems that Brazil was experiencing a very high inflation rate. I don't recall the exact rate, but it was in double digits per month. The Brazillian government's response to the inflation was to issue a new type of currency, the Cruzado, to replace the existing currency, the Cruzero. One Cruzado was worth 1000 Cruzeros. We were warned to pay attention to any change we received when making purchases.
By the time we had traveled around the Cape of Good Hope and crossed the Atlantic, the inflation situation had continued, and the Brazillian government introduced yet another currency, the Novos Cruzado, to replace the Cruzado. Again the replacement rate was 1000 to one.
My friend George and I were walking along the street that fronts Copacabana beach. George found a coin on the ground near a palm tree. It was a .05 Cruzero coin. George was ecstatic, until we did some simple math, and realized that, at the $1/50 Novos Cruzado rate, it would have taken 1,000,000 of these coins to equal one US Penny!
George kept it anyway, for luck.
What caused this incredible inflation? The introduction of the new currencies themselves probably had something to do with it. As most economists know, general inflation doesn't happen just because supply or demand changes in one market sector, but is caused by increases in the money supply. For an interesting read on other historical periods of inflation and their connection with the money supply, check out Milton Friedman's Money Mischief: Episodes in Monitary History, 1994.
So what is causing our current inflation? Is it oil at $146/barrel (The record price hit yesterday) or is that a symptom of something else. My personal view, based on Friedman's theories, is that our current $4/gas is due to the increases in the money supply that are part of the "bail-out" of the sub-prime mortgage market, and the "economic stimulus" package.
The good news is that this inflation will make it easier to pay off the debt we're racking up for the wars in Iraq and Afganistan...
We were on a world cruise, and like all Navy ships in the 1980s and 90s, we spent a lot of time in the northern Indian Ocean. While we were patrolling our box of water, we were given a port brief for Rio. A description of the local currency is always a part of the port brief, and this was no exception. But there was a very unusual situation in Brazil at the time.
It seems that Brazil was experiencing a very high inflation rate. I don't recall the exact rate, but it was in double digits per month. The Brazillian government's response to the inflation was to issue a new type of currency, the Cruzado, to replace the existing currency, the Cruzero. One Cruzado was worth 1000 Cruzeros. We were warned to pay attention to any change we received when making purchases.
By the time we had traveled around the Cape of Good Hope and crossed the Atlantic, the inflation situation had continued, and the Brazillian government introduced yet another currency, the Novos Cruzado, to replace the Cruzado. Again the replacement rate was 1000 to one.
My friend George and I were walking along the street that fronts Copacabana beach. George found a coin on the ground near a palm tree. It was a .05 Cruzero coin. George was ecstatic, until we did some simple math, and realized that, at the $1/50 Novos Cruzado rate, it would have taken 1,000,000 of these coins to equal one US Penny!
George kept it anyway, for luck.
What caused this incredible inflation? The introduction of the new currencies themselves probably had something to do with it. As most economists know, general inflation doesn't happen just because supply or demand changes in one market sector, but is caused by increases in the money supply. For an interesting read on other historical periods of inflation and their connection with the money supply, check out Milton Friedman's Money Mischief: Episodes in Monitary History, 1994.
So what is causing our current inflation? Is it oil at $146/barrel (The record price hit yesterday) or is that a symptom of something else. My personal view, based on Friedman's theories, is that our current $4/gas is due to the increases in the money supply that are part of the "bail-out" of the sub-prime mortgage market, and the "economic stimulus" package.
The good news is that this inflation will make it easier to pay off the debt we're racking up for the wars in Iraq and Afganistan...
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