CREDIT CRAZY——The current upswing in consumer debt despondency has much to do with government policy.
First, a buoyant economy has permitted the Brazilian Central Bank to lavish favorable terms for commercial lenders, who issue credit with some of the highest interest rates in the world. Because profits and legislation permit greater risk, Brazilian banks have been putting credit cards and loans in the hands of the emerging lower-middle class. Unexperienced with credit, many are clueless about how to manage their affairs.
What makes the situation even trickier is the way Brazilians pay for things. One can buy clothing, gifts, even prescriptions, and pay in parcels over several months by credit card or check (e.g. 12 X $47R). Similar to financing, this method ensures that consumers account balances don’t suffer big one-time dents, but at the same time it creates the illusion that more money is available for purchases, which generate greater obligations and greater potential for despondency.
MUITO CARO—-The second issue is the cost of living. Last entry I spoke about the cost of consumer durables. But as any tourist will agree, virtually everything is expensive. How do we explain all-round expensiveness? Perhaps it’s the explanation I provided about copy-cat pricing: imports are expensive so domestic producers follow suit. Perhaps it’s just a collective greed that has set in during high economic times; the economy is doing well and everyone is demanding more money for everything… I am not exactly sure how to explain the disordinate cost of living here in Brazil. The latter is my “collusion” explanation. As we will see in future entries, Brazil has a long and inglorious tradition of collusive politics. But that story is for another time.