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The Human Rights Laboratory That Was Chile…How lies came to rule the World — Part 2.
CREDIT BOOM 1978–1981:
However, by 1978, the economy came back, expanding 32% between 1978 and 1981. Though salary levels were 20% lower than a decade previously, per capita income began to climb again. Even the torture and extrajudicial executions reduced — How civilised. However, It was becoming clear that The Chicago Boys, despite the plaudits for 3 years of economic growth, had propelled Chile to the precipice of collapse.
The devil was in the detail for their Economic Miracle. The rebound of the economy turned out to be yet another one of Capitalisms repeat phenomena, the credit boom.
The deregulation of the financial system and large flows of foreign investment, led to a speculative binge, the monopolisation of the banking system and heavy borrowing. The tsunami of foreign capital did allow the fixed exchange rate to be maintained for a short period. But as the credit boom boomed, sharp increases in private debt - rising from $2 billion in 1978 to over $14 billion in 1982 .
The Escudo was pegged to the appreciating US dollar, keeping the value of the Escudo artificially high, leading to a flood of cheap imports. While consumers took advantage of all the cheap credit, their savings shrank, and their debt…
