Last month, I told you about the rampant inflation, corruption and turmoil I experienced growing up in Brazil and how our leaders, President Trump included, need to learn those lessons of history. (Part 1 of this series.)
Then, I showed you how, after returning to the United States, my family helped President Eisenhower win a major battle against inflation (Part 2), another important lesson.
Today, I pick up the story in Piracicaba, Brazil, August 1969. That’s where Elisabeth and I got married and when I took her back to the States with me to enroll as a freshman at New York University. I was also going to NYU, wrapping up my senior year.
The one course we took together, Latin American Politics, was taught by Kalman H. Silvert, a leading proponent of democracy in the Americas. In early May 1970, however, the semester was abruptly canceled in a wave of student protests that followed the Kent State tragedy, where four students were killed. So, Silvert invited the class for an informal discussion at his apartment overlooking Washington Square.
As he closed his windows to muffle the din of protestors, he introduced the topic — The Latin Americanization of U.S. Politics. In other words, the question of the day was, “Could the same social and political ills that afflict countries in Central and South America someday spread to the United States?”
Some students argued it was already happening, that democracy in America was already collapsing. I argued that it was not. “What you’re seeing in the U.S. now,” I said, “is mostly a reaction to the Vietnam war. Despite the temporary turmoil, our democracy is still alive and well.”
Our classmates rolled their eyes and pushed back. I escalated. “Most people in this room,” I declared, “have never lived in Latin America. You have no clue about the painful civil strife or about life under the brutal fist of military dictators. None of that is likely to happen in the United States, certainly not in this century,” I concluded. They shrugged and shook their heads.
After class, though, a senior by the name of David pulled me aside. He was planning to hitchhike down the Pan-American Highway through Mexico and Central America and eventually to the Brazilian Amazon. He wanted some quiet time with me to get my advice. So Elisabeth and I invited him for dinner, and I gave him tips on how to travel safely — “always ask for rides in rest areas where you can first meet the people” … “never travel by night” … “beware of guerrillas” … and more. I then helped him map out an itinerary, including the addresses of some of our friends and family he could stay with along the way.
Throughout dinner, Elisabeth said little but listened intently. Then, as soon as David was out the door, she surprised me with an unexpected outburst of homesickness. “That’s not fair!” she exclaimed. “How come he can go to Brazil, but I can’t?”
I recited my usual reasons — “Pan Am’s roundtrip tickets that cost at least $1,000 per person (over $6,000 in 2017 dollars), big tuition bills on the way to pay for grad school, plus …”
“The heck with that,” she interrupted. “I’m talking about doing what he’s going to do. We don’t fly — we walk! I want to go home to see my family. If you’re too chicken, I’ll go by myself!”
Despite the obvious risks, I obviously had no choice. I won’t dwell on all the details contained in my trip diary, but I will share some highlights that can provide valuable lessons for investors and for world leaders, including President Trump.
Corruption in Mexico
|Elisabeth with Gilberto’s family in Mexico City, July 7, 1970|
Our first long stop-over was in Mexico City, where we were promptly “adopted” by our friend, Gilberto, his parents, sisters, and aunts. They lived in an old but large villa on Calzada de Guadalupe, not far from the heart of the city. What’s most relevant to our story now, though, is the corrosive corruption that permeated Mexican society even back then. Gilberto told me all about it, and his single best example was none other than himself.
“My father got me a cushy office job at the government-owned electric utility. But what’s so difficult for most people to understand,” he added with a wry smile of sarcasm, “is how truly difficult my job is. Each and every day, I must forever strive to find exactly the right way to do nothing.”
What followed was a narrated pantomime that would have made Mexican comedy star Cantinflas green with envy. Gilberto hobbled along like Charlie Chaplin and clocked in like a robot. His eyes darted from left to right as he read the daily newspaper from front to back, in a routine that invoked Jerry Lewis’ typewriter skit. Then his head shifted from right to left as he read the paper all over again from back to front. When done, he spouted weird words of wisdom learned from the gossip page, soccer scores, and obituaries. He strolled, jumped and crawled back and forth from an imaginary water cooler. Finally, he closed by clocking out with great bravado and fanfare.
“This is my life,” he concluded in a rare moment devoid of comedy. He hastened to add, however, that it was the same for a vast army of government bureaucrats and political appointees. “While the government pays us well to do absolutely nothing, it absolutely can’t afford to repair roads. It can’t protect highways from thousands of robberies every week. It can’t provide basic services like water and sewage in the countryside. There’s just one wonderful thing about this which you must never forget,” he said as the smile returned.
“What’s that?” I queried.
“Things are so bad now, they couldn’t possibly get any worse.”
A few days later, those were also his parting words, and for the rest of our voyage, they rang in my ears like a bad echo from Voltaire’s Candide.
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Back in 1710, German philosopher Gottfried Leibniz coined the phrase “Die beste aller möglichen Welten,” the best of all possible worlds, establishing himself as the paramount optimist of his time. Then, a half-century later, Voltaire countered with witty satire, narrating the travels and adventures of the fictional character, Candide, who stumbled through the horrors of 18th century Europe. After each encounter with the victims of disasters, Candide’s faithful companion, Dr. Pangloss, tirelessly quoted Leibniz by providing the parting words: Despite all the horrors, it was still, indeed, “the best of all possible worlds.”
Now, Gilberto had given us the Cantinflas version of Pangloss, a parody of a parody. However, we soon encountered real-life examples during our own Candide-like escapade down the Pan-American highway.
Guerrillas and Contra-Guerrillas
|Ralph Nodarse, driving us from Oaxaca to Tapachula, Mexico, July 19, 1970.|
We got a ride in a Plymouth Barracuda with a youngish man by the name of Ralph Nodarse, on his way to San Pedro Sula, Honduras. “Don’t be afraid of our friend, Black,” he said, gesturing to a giant German Shepherd in the back seat, as we squeezed into the passenger seat.
“What’s with the big hole?” I asked, pointing to a huge dangling tear in the lining of the car’s ceiling.
“Oh. That’s a long story,” he replied. “I’ll tell you more about it once we’re on the road.”
As we soon learned, Black had the equivalent of a Ph.D. from many weeks in an advanced canine-training program. “Whenever I stop somewhere, Black stays in the car,” Ralph explained. “Even if a stranger approaches, he never barks; he’s trained to crouch in silence. As the intruder opens the car door and begins to search for something of value, he knows to wait in the darkness until the head is within inches of his jaws. The ceiling is just collateral damage. The trails of blood leading away from the car — that’s the evidence, right Blackie?”
When I first asked Ralph his profession, he simply said he was a Miami U. grad in education. But about an hour later, as Elisabeth and I cuddled more closely in the tight passenger seat and began to doze off, the car suddenly swerved out of control. Some strange combination of unrepaired potholes and water had suddenly taken over. Thanks to Ralph’s quick reaction, we didn’t all die that night; and having survived that moment together, the trust factor between us grew.
Ralph added key details to his life story, again starting with Black. The training he had talked about earlier was under a CIA K-9 program. Ralph’s profession was indeed education, but not in an ordinary school. His courses were for anti-guerrilla special forces in the Honduran army. “There’s a war going on here,” he said. “And most people in the States don’t have a clue what it’s all about.”
I tested out Gilberto’s Panglossian comment: “So bad it couldn’t possibly get any worse, eh?” Ralph shook his head in vehement disagreement. Then, after a long moment of silence, he invited us to help keep him awake as he drove through the night, sustained only by a six-pack of Coca-Cola. But it was way past my bedtime. So Elisabeth and I decided to quit for the night. We got off at a service station just outside of Tapachula, in Mexico’s southernmost state of Chiapas.
At the time, Chiapas was the victim of mass migration into the area, food shortages and poverty, but no one expected any big troubles. What they didn’t know about was the infectious social diseases that would show their first symptoms after a 20-year incubation period. That’s when a Chiapas man calling himself “Subcomandante Marcos” organized a leftist guerrilla gang in the nearby town of San Cristóbal and the surrounding jungle areas: the Zapatista Army of National Liberation. And on January 1, 1994, coincidentally the same day that the infamous NAFTA treaty went into effect, they occupied seven towns in the state. It was just the first salvo of a long, bloody civil war that forever changed Mexican history.
On July 19, 1970, though, all Elisabeth and I knew was that Tapachula, Chiapas, was the last large city before the border with Guatemala and a good place to get some Zs. So while Ralph was filling his tank, we met Nonbert de Montety and Dominique de Cornulien, two French college students on their way to scenic Lake Atitlán in Guatemala. They told us their ride, with an older couple in a VW bug, was headed into town, which is where we wanted to go. We told them our guy was driving through to Guatemala, which is where they wanted to go. So, we arranged to switch rides and were soon off in different directions.
A few days later, we ran into Nonbert and Dominique again in Panajachel, on the shores of Lake Atitlán. “You’re damn lucky we switched rides back in Mexico,” said Nonbert, “because just past the border, we had to undergo a very unexpected and scary inspection.”
“You mean the Guatemalan border authorities?” I asked.
“Heck no! What scared us to death was the inspection by the guerrillas. They had set up a roadblock right in the middle of the highway. They were stopping everyone, acting like they were the only true authorities. Our driver, the one you got us the ride with — well, we thought he was American. And we knew the guerrillas hate Americans. That’s why we were so scared. To our surprise, instead of freaking out, the man just played it cool, chatting with the guerrillas in Spanish like they were old buddies. When they asked for his passport, we practically pissed in our pants, but nothing happened. He whipped out a Honduran passport. Later, he told us we were lucky we had French passports because one of their tactics was to take Americans hostage.”
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Nonbert paused and looked me over again. “You speak French, but you’re American, right? So if you hadn’t gotten off in Tapachula, right about now, you’d probably be praying your folks can afford the ransom. Or you’d be dead meat.”
We talked about how, in many ways, these convulsions were fueled by the same economic and social forces I told you about recently regarding Brazil: Excess government debt, inflation, widening rich-poor disparities, extreme political polarization between right and left, radicalization of protest groups, and ultimately, armed guerrilla movements.
“But at least we can be thankful for one thing, right?” I said. “Things are so bad now, it couldn’t possibly get any worse.” Everyone nodded in tentative agreement. As I crawled into my sleeping bag, I felt maybe the concept might finally be getting some traction.
However, a few months later, in November of that same year, Guatemala’s military dictator, Carlos Arana, imposed a state of siege on the entire country, followed by heightened counterinsurgency measures. And from that point forward, the war escalated by leaps and bounds for another 26 years.
In fact, it was the government of Guatemala which became the first in Latin America to engage in widespread use of forced “disappearances” and mass extrajudicial killings. Then, just as some of the government’s opponents thought that was “so bad it couldn’t possibly get any worse,” the government then embarked on wholesale slaughter of all the “opposition,” which, in practice, included entire native and peasant villages. An estimated 45,000 died.
A couple hundred miles later, halfway over the Peace River bridge, as Elisabeth and I crossed the border into El Salvador, I figured maybe I should try a different mantra: “The situation in this country is so bad, no other country could possibly be worse.”
As soon as we arrived at the capital, San Salvador, I figured now, maybe, I had a workable hypothesis. The city was the jewel of Central America, oozing with signs of prosperity and wealth. Modern skyscrapers soared over high-speed avenues. Metrocentro, soon to become the largest commercial complex in Central America, was just established.
We stayed at a frat house, where the students said they were starting a movement, which, they guaranteed would be purely nonviolent. Unfortunately, though, after their peaceful protests were rebuffed violently, they joined the Farabundo Marti National Liberation Front (FMLN), an umbrella group uniting five separate left-wing guerrilla organizations in El Salvador. The tipping point came on October 15, 1979 — a military coup d’état, followed by the killing of anti-coup street protesters, and a gruesome civil war bigger and bloodier than Guatemala’s.
As I said, in Guatemala, the estimated death toll was about 45,000 spread out over 39 years. In El Salvador, a country one-fifth the size, it was about 70,000 in 12 years. Hence, in each year of the civil war and in each square mile of the country, the chances of getting killed in the violence was 26-times greater in El Salvador than in Guatemala.
Elections and Revolutions
|Martin with pilots on Chilean Air Force flight to Santiago, August 7, 1970.|
All these events were still on their way; and so were we, as our travels progressed smoothly through Honduras, Nicaragua, Costa Rica and finally Kobe Air Force Base in Panama City.
There, we got a ride with the Chilean Air Force, transporting the family of the minister of defense. The cargo hold was packed with camping and hiking gear — tents, sleeping bags, knapsacks, air mattresses, cast-iron cookware, Coleman grills, coolers and more. And when they couldn’t cram everything into the hold, they had ripped out half the seats in the passenger cabin to make room for more. All thanks to the taxpayers of the Republic of Chile! Certainly, we thought, this kind of government corruption with impunity was so bad, things in Chile couldn’t possibly get any worse. But they did.
We arrived in Santiago during an intense, infectious, euphoric election campaign for president, with most of the fervor for socialist candidate Salvador Allende. Less than one month later, on September 4, Allende won, and the country literally exploded with radical reform. The economy grew by 12%. And Allende’s supporters declared Chile “a socialist miracle.”
Trouble is, it didn’t last very long. Allende was blamed for inflation exceeding 800% per year, and soon found himself in the crosshairs of a violent military coup, held hostage in the Presidential Palace, surrounded by the army, bombed by the same Air Force that had given us the ride. To avoid capture, Allende pulled out an AK-47 assault rifle and shot himself in the head. And for the next 17 years, a military junta under General Augusto Pinochet ruled Chile with an iron fist, jailing, torturing and executing Chilean citizens by the thousands.
Fortunately for us, long before these crises, we had left Chile far behind. We had crossed the Andes in the caboose of a cargo train, zoomed through the Argentinian pampas with a race-car driver, and crossed the Rio de La Plata on a hydrofoil. Now, finally, I thought, we’ll have some quiet time in one small republic, known as the “Switzerland of the Southern Hemisphere” — Uruguay.
It was said that Uruguay had a large middle class, a stable government, and a long history of peace. True? Yes. But not when we arrived on August 16, 1970! Just 17 days earlier, on July 31, urban guerrillas had kidnapped an American citizen. The guerrillas were the increasingly active Tupamaros, and the kidnapping victim was Daniel Mitrione, an Italian-born American CIA agent. To enable the police to conduct a nationwide, door-to-door search for Mitrione’s captors, the government had declared a state of siege, virtually shutting down the entire country — offices and schools, closed; highways, barricaded; checkpoints everywhere. Later, it was discovered that Mitrione had already been killed by the guerrillas six days before we arrived. But at the time, the authorities thought he was still being held hostage, pending messy negotiations for his ransom and release.
“Not exactly the best of all countries,” I whispered in Elisabeth’s ear. “Maybe not even qualified for the so-bad-it-couldn’t-get-any-worse category!”
Old Lessons to Be Learned Anew
In the late 20th century, Third World governments routinely overspent and overborrowed, accumulating massive, unpayable debts. To help finance the deficits and maintain unsustainable growth rates, their central banks printed equally massive amounts of paper money, injecting one part of it into the bloodstream of the economy, stuffing the other part into their own pockets.
Soon it became clear that a disproportionate share of the benefits flowed into the hands of those who were already disproportionately wealthy: Propertied elites, big landowners and corrupt government officials. Average citizens, meanwhile, confronted a Faustian choice — either the relatively safe life of permanent poverty or the high-risk life of crime, revolution, guerrilla warfare and worse. Result: Most either earned very little or risked losing almost everything.
For these and other fiscal/monetary sins, Latin America’s policymakers were privately scolded by the world’s leading finance ministers and central bankers. They were publicly humiliated at International Monetary Fund conferences. And they were routinely ridiculed in official white papers. It’s “a wild debauchery of monetary and fiscal policy,” declared some of the most respected academic voices.
Ironically, however, in the early 21st century, this wild party scene moved North. Now it was First World governments that routinely overspent and overborrowed, accumulating massive, unpayable debts. And, even more ironically, it was the two largest economies on Earth, the United States of America and Japan, that led the way; that had the largest federal deficits, the biggest public debt and financed them with the most massive amounts of paper money.
Again, a disproportionate share of the benefits flowed into the hands of those who were already disproportionately wealthy: Big banks, hedge fund managers, and wealthy speculators. Again, the average citizen, investor or saver was stuck with a Faustian choice — either near-zero yield or near-fatal investment risk. And as before, most earned very little or risked losing almost everything.
In Latin America of the late 20th century, the consequence was income inequality, political polarization, revolutionary movements, and ultimately, civil wars. In the world of the 21st century, the consequence is income inequality, political polarization, terrorist movements and possibly worse.
The differences are also clear: In the 21st century, government overspending and overborrowing wasn’t just the staple diet of wayward Third World countries. It was the meat and potatoes of the world’s most advanced industrial countries as well.
In the 21st century, the money printing madness is not limited to a few hundred billion in cruzeiros or pesos. It is over $8 trillion in U.S. dollars, euros and yen. (See The Eight-Trillion-Dollar Trap.”)
And in the 21st century, the ideology of revolution isn’t Marxism or Leninism. It is Jihad, bloodier, more desperate and potentially more devastating.
As it turned out, even the most extreme and violent conflicts Latin America ever experienced during the late 20th century could not qualify for Gilberto’s “so-bad-it-can’t-get-worse” mantra. Sure, the authorities in Brazil, Chile, Argentina and other countries ran giant budget deficits and financed them with paper money. But today, the world’s dominant economic powers make those fiscal sinners look like fiscal saints by comparison.
More adventures to come.
Good luck and God bless!
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