Sunday, September 18, 2016

Vitor Mello — The Brazilian Burden

Two questions remain open: what are the real roots of the economic crisis and will the new administration be able to tackle it? To understand the roots of the bust, it might be easier to refer to the very causes of the boom that preceded it.
The Minskys
The Brazilian Burden
Vitor Mello

6 comments:

Matthew Franko said...

"The inflationary pressure comes mainly as an effect of the rapid exchange rate nominal devaluation of almost 54% within the years of 2015 and 2016, reaching now R$ 3.29 per dollar. "

Still twice as high as it was... it used to be at 1.50....

Jose Guilherme said...

1.5325 BRL to the dollar was the lowest mark (since 2009), reached on 26 Jul 2011.

Since inflation in Brazil is much higher than in the US some depreciation of the Real is simply desirable, but there likely was a lot of overshooting in 2015 due to market panics subsequent to the downgrade of Brazilian debt both in dollars and in Reais (though the country can never voluntarily go broke on debts issued in its own currency and it is presently a net creditor in dollar terms since the amount of dollars held by the central bank vastly exceed the sum of the government's and the state-owned companies debt that was issued in dollars).

Matt Franko said...

"Since inflation in Brazil is much higher than in the US some depreciation of the Real is simply desirable,"

But doesn't the article imply causation from the "depreciation" to "inflation!" ?

So it wouldn't be desired it would be caused by...

Matt Franko said...

Here again:

"The inflationary pressure comes mainly as an effect of the rapid exchange rate nominal devaluation of almost 54% within the years of 2015 and 2016, reaching now R$ 3.29 per dollar. "

These Minsky stochastic people assert the devaluation "just happens" based on random chance a la Darwin and then "inflation!" is the result ....

Jose Guilherme said...

But inflation was high even during the period when the Real was overvalued - so the recent nominal devaluation can't be the main cause of high inflation in the country (it's more likely the indexation mechanisms inherited from the hyperinflation era).

Also, the article doesn't mention the economic effects of the Car Wash investigation. According to many economic analysts and consultancies, by targeting the largest investors in the economy (such as the state-owned Petrobrás and many of its corporate suppliers) the investigation produced as collateral effect an investment crunch that - when associated with austerity "running out of money" policies first introduced by Dilma Roussef in late 2014/early 2015 - sent the economy into a nosedive deeper than the 1930s depression.

Matthew Franko said...

I was buying some Brazil sourced product in probably 2000 era for I think the low was $3.65 now it is like $6.00 or so.... oil was under $30 back then too now it is mid $40s here...

I dont see how all of these economist people can go all around saying "deflation!" when the prices are HIGHER than they once were in USD terms...