Monday, September 14, 2015
Zero Hedge — A Panicked Brazil Promises Billions In Austerity, Does 180 On Budget After Downgrade
Brazil throws in the towel, caves to US rating agencies fronting for the neoliberal powers that be.
Nutty.
Zero Hedge
A Panicked Brazil Promises Billions In Austerity, Does 180 On Budget After Downgrade
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5 comments:
Weapons-grade ignorance, Roger. And guess who the business-end is pointed at.
Ok, which radical political party is going to get a boost first, courtesy of the fiscal girly-manz?
2nd rate nation.
It would be easier to blame US hegemony, deep state actions, the Koch bros, right wing elements and corruption rather than fiscal policy.
Very sad indeed. But what do you think of it from an investment perspective?
Think of going long on Brazil's 10 year bond (denominated in real). Its yield is about 15% as of today.
So I guess one should think about 3 risks in particular re. this trade -
1. Exchange rate risk.
2. Interest rate risk.
3. Inflation risk.
Today's inflation stands at a pick of about 9% annually. Which is a bit more than the average 5-6% inflation of the last decade. As Brazil is suffering from a serious lack of effective demand in its private sector as it is, and as its government is about to unleash additional measures of fiscal contractions, I think excess-deficit-spending kind of inflation is out of the question.
So, this understanding makes me wonder what's the reason for Brazil current 9% inflation. I think it could be due to deteriorating terms of trade as demand for Brazil's main exports - commodities - have decreased worldwide. You can also witness this at the 'current account to gdp' figures - it stands at a 30 years' low, at a bit more than a 4% deficit. Thus, demand for the Real decreased markedly while demand for the USD stayed in its place. Therefore, weakening the Real in relation to the USD. Maybe there were other factors at play - economic agents foreseeing that process and selling Real IOUs, buying other currencies IOUs.
In any way, the Real is weakened against the USD, it makes all imports and thus goods sold in Brazil that much more expensive, thus creating the observed inflation.
So, I think that if this rational is correct, than the alleged 'inflation' of 9% is not 'real' inflation but kind of a one-time correction to the deteriorating terms of trade as these derive from lower prices of commodities. Some kind of a supply-push-side inflation.
Of course, if demand for commodities keeps decreasing from here onward then additional corrections to the Real exchange rate and hence to Brazil's inflation are warranted. But it's not like we should expect real running inflation or something like that.
So if that's correct and the 9% inflation observed is a one-time thing, then we should see inflation decreasing as time goes by, leading to Brazil central bank to lower its interest rate (as the only reason for the interest to be so high is the mythical notion that that would taper inflation).
Lowering the interest rate will immediately result in very big gains for Brazil 10 year bond holders.
What do you think?
Re: 2nd rate nation.
This reads like an "Ugly American" comment. Ignorant and intellectually and morally second rate in its turn.
What exactly is a 1st rate nation? One that has the highest per capita rate of incarceration in the world? One that has killed millions of civilian by bombing, and in the process also destroyed their countries? One that supports Israeli criminality towards Palestinians? One that has some thousand military bases and spends more on the military and warfare than almost all nation on the entire globe combined? One that has ditched its Bill of Rights, and boasts an entirely corrupt Supreme Court, Executive branch and Congress? One that "tortures some folks"? One whose education system is a dismal failure? One in which almost a third of the country (est. 110 million) has a STD? One in which a significant number is addicted to pornography? One that has the highest divorce rate in the world? One that has the highest abortion rate in the world? One that reports some 3 million cases of child abuse per year? One that spends over 200 billion dollars a year on drugs? One could just go on and on.
But of course, our technology is wonderful. The "American way of life" is a human summit. This excuses everything.
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