Yes they are. Brazil's growing at only about one third of its potential - much less than other "emergent countries" - less than almost all countries in South America - I.e. at the same low rate as the US. Interest rates are coming down rapidly now. The currency, the Real, is excessively strong because of the flood of dollars coming here to take advantage of the high rates far exceeded the need of them. (Like everything else, over supply of dollars lowers the price or value of a dollar in Brazil.) Brazil had such a bad history of high inflation, high interest rates may have been necessary for a few years to break the "psychology of inflation." - To get people to save instead of immediately spend. (Less than a decade ago, people were given their pay in the AM and some were given a few hours off to go and spend it because prices went up a few percent every day!)
But the problem is that people in Brazil barely have anything to save! We spend all our disposable income on necessaries! Besides, isn't consumption good for the economy anyways?
Some Brazilians have a lot to spend, ship money out of the country as there is a limit to personal consumption. Yes consumption can be good for economic growth, but not if it is preventing funding of productive investment. - Then it is sort of like "eating your seed corn." Brazil badly needs more domestic saving so it can afford more domestic investment in things like education, sewer systems, etc. Years ago, my Brazilian wife went to good public schools, all the way thru the Ph.D. (She is gorgeous also.) Now her grand children all go to privates schools as the public one are just “baby sitting centers” to keep kids off the streets, (and they do not even do that well. - Check with your family still in Brazil!)
In the “How to be a good Republican” thread I made a very bold and easily falsified* prediction. I asked if anyone would like to publicly state I am wrong. As it is more appropriate here, I repeat it and part of the reason why I believe it true. Reasoning: As central banks and big buyers of bonds shed their dollar holdings, the US will be forced to increase interest rates to attract the influx of credit (loans) it need to continue operations. For example, despite the latest numbers on "core inflation" - a negative 0.5%, the FED did not dare to cut interest rates. (FED must compensate lenders for the ever increasing risk of dollar collapse.) Prediction: I will go out on a long limb and predict that the dollar will collapse and the world enter into a terrible depression before the FED's interest rate drops below 5%. Who will publicly predict that is wrong? ------------------------------------------- *"Easily falsified" as the current rate is only 5.25%
Well, but the reason why we couldn't invest in education is not a lack of savings from the population, but a lack of funds available from the govenment due to an agressive policy of debt reduction. For a matter of fact, consumption in Brazil has increased steadly since the end of the beginning of the Real plan. Every year there seems to be a new record, even though people have very little money to spend due to high taxation. Now that most of the debt is paid, I suppose the government could either reduce taxes, allowing the population to save and spend more, or invest the money in health and education. Besides, how risky Brazil really is for foreign investors? We export way more then we import, to start with. Of course, most of our exports are raw materials, and that is one thing we could improve. Still, we have lots of cars. I remember hearing on TV that there are so many cars in Brazil that some automotive companies had to lay off employees. Don't lay off employees! Just export the freakin' cars!! Please Register or Log in to view the hidden image! Anyways... that's my two cents...
Car exports are falling because the Real is so strong. The lack of funds available is more do to the excess of government and unrealistic promises made to the workers about retirement. The main front page headline in today's Folha de S. Paulo is: "INSS e gasto com pessoal dificultam investimento" In the details it states that retirement expense 13.1% of GDP in 2006 will increase to 13.4% in 2007 and together with the government payroles these two items alone are 70% of the expenditures of the government. It does not give the interest on the debt, but as I recall that is about 15% of GDP. Therefore, the remaining 15% must cover health care, education, maintence of roads etc. - all of which is poorly done, as that 15% is not adequate to the needs. ----------------------------------------- Most can guess at the meaning of the Portuguese headline I quoted, but I must note that "INSS" is the Brazilian Social Security system. - It already a terrible burden on the workers, and only slight improved. Many retired ON FULL FINAL SALARY at age 55, and that salary was corrected for inflation annually - a totally unrealistic system, Rural workers did not ever even contribute into the system! ---------------------------- If it were politically possible to fire at least half of the government "workers" Brazil would be in much better shape. It would be in better shape if they never came to work* as they are worst than useless. For few examples of just the latest stupidity of their central direction of the economy, which they are always changing consider: (1) a year ago one could buy liquid alcohol product for cleaning. That was made illegal (fire hazard) only a gelled version could be sold,. well the law has changed back again to selling the liquid formula. (2) about two years ago law introduced that every car had to have a medical aid kit (no doubt a politically well connected maker of them paid some "public servants" to write that law.) After all cars had bought them and many doctors wrote letters to the editors etc about how damaging to health it was for the public to try to practice medicine at accident scenes than laws was cancelled. Still required that all cars have a fire extinguisher and even if the pressure gauge is in the green, you still are require to trade it in for an new one annually but few do.(mine is a bout 10 years old and even if I am stopped as they do to check it, the fine is only about 10times the trade in cost. - It is a great business someone make deal with the "public servants" to create. Brazilians think all the world mandates annual recharging of your car's fire extinguisher - do not know that they are not even required in US! (Damn if I would stand next to burning car with one.) - So few cars burn that it would be more reasonable to let them burn and be covered by slight extra insurance cost - but that does not put money in some "public servants" pockets. (3) All elevators now, by law, bear a sign on each door telling you not to step into the shaft if the elevator is not there! (4) Small individual breads were by law required to weight at least 50grams. Now the new law requires that they be sold by weight. the result has been lines at the station to weigh the bread, more expense to shop to hire someone to weigh them (and an extra scale just for this) and smaller breads that cost more. (Under old law the typical bread weight about 55 grams to be sure to be legal. - Now they can be 30 grams etc. _- I was eating two for breakfast, but now eat three) (5) list is end less, but I will stop. Brazil has not yet recovered for the era of full government planning and the use of political patronages jobs is unbelievably excessive. - All politicians quickly get rich as they get kick backs from the people they give jobs to etc as well as bribes from anyone wanting anything. ---------------------------------------- *Fortunately, many who are relatives of the elected politician do not bother to come to work, except on pay days to collect their check.
I thought you might. If discount rate hits 4.75% before dollar drops greatly (say gold more than $500/ oz) you get "bragging rights" - I.e. to remind me each time we contest our views how wrong I was with by "black cloud" view. (My prize is same about your "blue sky" views.) However, there is one additional condition to make this a fair bet. As it is now, I can loss every time the Fed meets and you can never clearly lose without some time limit for the return to 4.75%. Thus, to open the posibility that you can also be shown to be wrong, (thus keeping reasonable this contest) will you predict when (on or before) Fed rate hits 4.75%? I will accept a one year window or by end of 2007 to be specific. I expect we will both be active here thru 2007 so winner can utilize the bragging rights. I might note that I think there is more chance that the run on dollar will not start before 2008 and my phrase "enter into global depression" does not mean the global economy has hit bottom - only that total global GDP has started downward on an accelerating curve. Given fact that my prediction is way out of line with "common wisdom" I think you can go along with these clarifiactions or revisions if you like. Specifically: I bet dollar drops so that gold > $500/oz before end of 2007 and you bet FED's discount rate has been 4.75% before end of 2007. I.e. I bet gold almost doubles and you bet Fed's rate falls by less than 10% at least once prior to end of 2007. - Deal?
No, I don't expect interest rates to come down any time soon. Also, gold at $500 is a lot less severe than the "terrible worldwide depression" you were offering up a couple of posts back.
I am trying to make a bet where BOTH can lose, not just me, and one with definite winner in near future (by end of 2007). I only said I expect world to enter into terrible depression with dollar run as trigger, not that it will be in terrible depression soon (before end of 2007) as that "limb" is too unlikely (weak) even for me to climb out on. I think my offer that price of gold will increased 100% before FED's interest rate drops less than 10% (to 4.75%) is very generously weighted for your POV by all conventional wisdom, but I am open to your alternative suggestion for the bet. People argue for long time just trying to decide if a ressesion has started, do not agree what is a "depression" etc until years later - That is why I tied my side of bet to gold - Feel free to suggest some other equally good indicator of the dollar starting to collapse before end of 2007.
Well, for reasons I've mentioned in the past, I don't think that the price of gold is a very good indicator of the value of the dollar. It would be more straightforward to just bet on what interest rates will do: in the case where the dollar is collapsing, we'd expect interest rates to go up sharply in order to fight inflation. On the other hand, if the dollar is not collapsing, we'd expect interest rates to slowly vary in the range 3-6%, depending on the business cycle. An inflationary crisis in the dollar would correspond to rates in the range of at least 8%, if not double digits.
So... Billy T, what do you think about Brazil now. Do you think things are improving or are they getting worse? And how's the economy doing...? Please Register or Log in to view the hidden image!
Hey man, look at this guy... http://jg.globo.com/JGlobo/0,19125,VBC0-2754-251507,00.html I love the stuff he says... just brilliant... Please Register or Log in to view the hidden image!
That data must be updated, especially since Canada's dropped substantially. Canada's debt to GDP ratio is now at 30-something %, and 25% is being targetted by 2010. I think USA's debt-GDP ratio, although historically low, has been increasing. It is projected to being 70-something % by 2010/11. Budget of the United States Government: Historical Tables Fiscal Year 2006 Look at table 7.1. There is a column that shows Debt to GDP ratio and it doesn't look pretty, since it's been increasing for a while. It was going down in the Clinton years.
TS, Brazil is a special case. You need to consider more than economics to gauge Brazilian wealth. You guys have soooo much cultural capital and such abundant natural resources. The fifth largest country in the world with a climate of Hawaii at its highest latitudes. And a cool language. As a Canadian, I am jealous. Brazil can only improve.
I like his article too as I fully agree. - I have often here stated GWB is US's worst president and also think he was selected (supported) for his low intelligence and ease with which neo-conservatives could manipulate him. I think he is sincere but others may disagree. Low intelligence, for example, made it possible for him yesterday in Hanaoi to call for “free trade” while working behind the scenes to increase the subsides to alcohol above the current $0.54 per gallon. Perhaps I am wrong. - I.e. instead of “low intelligence & sincere”, perhaps he is a “intelligent & a hypocrite.” (Hard to tell one combo from the other, but the second requires that he also be a good actor to give his speaches with a straight face and be quite a cynic . Thus, Occam's razor makes me chose to make two instead of four assumptions about his character and conclude he is just “dumb and sincere.” Fact he was very poor student also supports this choice.) PS too all: Even though you may not be able to read TruthSeeker's link to the Rio newspaper article, down load it anyway and leave it open for at least a couple of minutes. - I will not say why just now, but my computer did something because that link was open that gave me a great laugh. (I hope that is all it did.)
OK - So we can have a bet, I drop gold and accept your ideas. Specifically I propose the bet be: If on 30June 2007, the Fed's interest rate is 4.75% or lower, you win; but if it 6.25% or higher, I win. Note I am still letting you win with only a 0.5% drop but requiring a 1.0% rise for me to win. I think this very generous considering that inflation is low and showing signs of slowing. I do this because I think the FED is losing control of interest rates. I.e. Can no longer use them to curb inflation or stimulate the economy, but must increase them to still attract the loans US needs because confidence in the dollar is starting to collapse. (That is my near term view and that at some point a run on dollar will start leading to world’s worst depression ever.) I shorted the duration of the bet to make it more interesting, but still place twice rate change burden on me as on you for me to win. If in next 9 months, rate neither hits 6.25% nor 4.75% then we can call it a drawl or extend the period to end of 2007 by mutual agreement. Is this a deal?
My computer began to loudly sneeze about every 30 seconds and since I closed her link it has not done so again. Make sure you audio volume is up and try again.
No, I've never predicted that the interest rates will drop in the short term. I thought the bet was about whether there would be an inflationary crisis in the dollar or not. If it is, then I'd be willing to bet on over/under 6.25% (which, although still short of full-blown crisis levels, would indicate a rapid rise in rates). But in the case where there isn't a crisis in the dollar's value, I still wouldn't expect rates to go under 5% in the next 8 months, so that part of it's a red herring.
