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Part â 7 continuation
Some of the IMF requirements are that the Brazilian Central Bank keep interest rates very highâabove 18 percent. Credit card rates in Brazil for Brazilian customers are calculated based on the unpaid balance of their accounts and the interest rate charged to their accounts varies from 9 percent to 12 percent rate per month. These interest rates levels are ridiculous when we take into consideration that Brazil has been operating under less than a 5 percent annual inflation rate.
The country Brazil and the Brazilian population are getting poorer and poorer by the minute. Since President Fernando Henrique Cardoso took office in 1995 the Brazilian government privatized over US$ 100 billion worth of government assets.
The Brazilian government has been wasting all government reserves, the moneys received from the sale of government assets, and the moneys that they have been borrowing from the IMF in this absurd effort to defend this moribund currencyâ the Real.
The second and final option
It does not matter who becomes the next president of BrazilâLuis Inácio Lula da Silva or Ciro Gomesâthere is only one option left for the Brazilian government to avoid the coming economic meltdown and chaos in Brazil. The new president should have the courage of adopting the Euro immediately as the new Brazilian currency.
The benefits of such a move should be immediate. The one major benefit is currency stability. Brazilians will not be afraid of losing all their savings because of major currency devaluations. Currency stability would give Brazilians confidence to repatriate to Brazil the over US$ 200 billion that they have stashed away in Europe and in the United States to protect these assets from currencies meltdowns.
The other major benefit is that interest rates charged to Brazilian businesses and to the Brazilian population would go very lowâit would get in line with interest rates charged in the Euro countries. Another immediate benefit would go to the companies of the Euro countries that have investments in Brazilâtheir currency risk would be eliminated in Brazil.
Until recently, I used to believe in a completely free market economy. Today I know there is a place for government regulations and government protection of its industrial base against foreign competition. Deregulation has been a disaster in the U.S. to the airline, the energy, and the telecommunications industries. For example; many airlines are on the brink of bankruptcy in the United States.
Business Week magazine of August 5, 2002 reported that since the Telecommunications Act was passed in 1996 to deregulate the telephone industry, investors have lost over US$ 2 trillion as the stock prices tumbled 95 percent or more from their highs. The crisis could relegate the U.S. to second-class status in the communications industry in the future.
I used to think that governments at all levels usually wasted lots of money, and that they were a very poor allocator of resources. I used to think that the free open market system was the best allocator of resources. Today I have my doubts about unregulated and a savage and destructive type of capitalism I have seen in operation since the mid-80's. It started with the savings & loan scandals and debacle of that industry in the 1980's and culminated with the latest string of company scandals on Wall Street. I believe that the government has a role in stabilizing the economy.
For years, an overvalued financial market built on misleading and false information sent highly misleading signals to investors who eventually lost trillions of valuable national savings, which were misallocated to unneeded and wasteful investments. Investors lost over US$ 2 trillion in the telecommunications industry and over US$ 1 trillion in the dot.com fiasco. These investments are gone and will have an impact on many people's retirement plans in the future, since a lot of their pension money was invested in these promising areas.
Is It That Hard to Get?
Many people don't understand the idea that the Brazilian economy will be better off if Brazil adopts the Euro as its new currency, instead of continuing with the Real (which eventually will put Brazil in the poor house) or adopting the new currency the Bankrupt.
I know that they can't grasp the idea but I will try one more time. The fact is that Brazil would benefit and prosper if it adopts the Euro. Let me give an actual example.
In January 1999, the economies of Brazil and of California were very close in size; each economy had a gross national product (GNP) of approximately US$ 1.1 trillion. Today, California still has an economy that exceeds US$ 1.2 trillion, even though energy deregulation went out of control in California and almost bankrupted that state. California faces a budget deficit of US$ 24 billion; a figure that represents almost 30 percent of its total budget. If California were not protected by the value of the U.S. dollar, because the U.S. dollar is the currency of California, then we would have a different story.
California is the largest state economy in the U.S. and the second largest is New York, which is about 70 percent the size of California's. If California were an independent country their economy would rank number six in the world in terms of GNP.
If California had its own currency such as the Real, then their currency would be crashing right now. Their banking system would be in shambles as in Argentina, and Californians would be crawling and begging the International Monetary Fund for a bailout. Interest rates in California would be choking any possibility of future growth, unemployment would be exploding, businesses would be going belly-up left and right and California with all the strings attached from the IMF would be headed to economic meltdown and political chaos.
Since Brazil does not have the same type of protection of its currency, you can see very clearly the result to each economy. In the last 3 and 1/2 years California was able to keep its GNP level even with all the economic adversities they had during that period. In contrast, Brazil lost half of the value of its GNP to about US$ 558 billion and its economy is on a free fall.
I would risk to say that if Brazil had adopted the Euro in January 1999, even the crisis in Argentina may not be happening today. At least not as severe as the current situation. I also believe that the entire region of South America would be in much better shape financially today.
The Iraq nonsense
I wish the Bush administration would stop talking about this nonsense of attacking Iraq. Every South American nation should be against such an attack with the exception of Venezuela for obvious reasons.
Many countries in South America are going through an economic collapse, a financial meltdown not seen since the depression of the 1930's. If the United States attacks Iraq and now there is talk in Washington of the possibility of the U.S. even take over Saudi Arabia's oil fields (according to an article on The New York Times of August 12, 2002), oil prices will skyrocket to between US$ 60 and US$ 80 per barrel. What does the Bush administration think the consequences of that act would be to South America?
We already have a bad economic environment in South America, and that continent will not be able to absorb the economic impact of such an increase in the price of oil. At this point, the skyrocketing price of oil, on top of the current economic depression might trigger a major civil war in the entire South American continentâwith complete political and economic chaos in all the South American countries.
â¦Slaves Financing Master
On the other hand the United States needs to borrow about US$ 1.3 billion per day from foreigners to finance its current account trade deficit. The actual U.S. current account trade deficit for 2001 was over US$ 420 billion. As reported by Mr. Martin Wolf, a respected Financial Times of London journalist, on February 26, 2002, "In his assessment, one of the most likely sources of unrecorded funding for this U.S. deficit is capital flight from poor countries. In other words, precious resources from poor countries are being used to finance the bloated consumerism habits of the world's richest people."
He also mentioned that, "At the end of 2000, the net international investment position of the U.S. was minus US$ 2,187 billion, a little over a fifth of gross domestic product. The estimated net international position was minus US$ 2,600 billion at the end of 2001. ...The IMF says that last year the U.S. current account deficit was financed by a European Union contribution of around US$ 210 and the balance by Japan, Asian developing countries, oil exporters and the capital flight from poor countries."
Since the U.S. military budget of US$ 379 billion for 2003 is so close to the estimated amount of the U.S. current account deficit of over US$ 420 billion, we can make a connection and conclude that the people financing the U.S. current account deficit are the actual people who are financing the U.S. military expending. From another perspective, seems to me that the slaves are the financial backers of their master. They are financing the bombs that might be dropped on their lands if they get out of line in the future.
Copyright © 2002 All rights reserved.
By: Ricardo C. Amaral
Author / Economist
brazilamaral@yahoo.com
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