By Adolfo Sachsida.

Global interest rates are at their lowest historic levels. One day, they will rise. The price of commodities is at its highest levels in history. One day, it will fall. To complicate matters, these two phenomena are correlated. That is, an increase in international interest rate has the effect of lowering the price of commodities. One day interest rates will rise and commodity prices will drop, and when it happens, Brazil will be thrown into a recession.

The international scene is excellent for Brazil to make the big macroeconomic reforms, but instead we are enjoying this moment towards increasing consumption. The correct would be to take this time off to make the adjustments that our economy so desperately needs: fiscal adjustment, tax reform, reform of labor laws, welfare reform, economic liberalization, reduction of bureaucratic obstacles, etc..

Internally the government is doing everything possible to complicate its situation, mainly by increasing public spending. Brazil was probably the first country to announce fiscal adjustments by increasing yoy spending rather than reducing it. On the monetary side, it became clear that an inflation rate of 6% does not concern the government.

There is clearly a housing bubble in the making here, thanks again to the expansionary fiscal and monetary policies of our government. And there is a very serious demographic problem that the government insists on ignoring. In 2013, public spending related to the World Cup will further worsen Brazil’s public accounts. In 2014, as always happens in an election year, public spending will spike. To make things worse, include the flood of provisional measures and government interventions in the economy (including BNDES’ activities), which increase public spending and encourage elected government sectors at the expense of the rest of society.

In 2015, the first year of the new elected government, it will be the time to pay the bill for the irresponsible fiscal and monetary policies of the past. Brazilians better save money because when the crisis hit, those who are liquid (cash on hand) will make great investment deals. From 2015 and on, Brazil may experience the same kind of scenario that it has faced in the early 1980s. Unfortunately, it seems that the Brazilian “bureaucrats” learned nothing from the economic lessons of the late 1970s.

Source: Adolfo Sachsida

Tagged with:  
Share →

6 Responses to Brazil to pay the price in 2015

  1. Thomas says:

    The main issue is that politicians won’t care about the Apocalypse, because they will be among the ones who will profit the day after it happens.

  2. HolandesVoador says:

    The Brazilian economy is ripe for a major recession to flush all that mal-investment and mis-allocation of capital built up over the last business cycle. But I don’t think Brazil will enter a depression like the US and Europe that have come to the end of the monetary (long wave) cycle where interest rates are near zero and there is no other way out but debt restructuring. I have no doubt the policy of the Banco Central will be to inflate this country out of its current debt problems with lower interest rates. Temporarily interest rates will probably be raised again along the way when inflation picks up too quickly, causing higher default rates and price corrections (as probably will happen in the real-estate market). Although it also seems that high inflation doesn’t seem to bother the BC. But so eventually the road will be lowering interest rates in order for debt to continue growing and debt to be able to be serviced. The money supply will increase (inflation) again and will eventually have its effect on prices (price inflation). Also in my opinion Brazil has made very little inestments to increase it’s economic efficiency during the boom time. In my opinion this will exacerbate inflation because it will mean monetary inflation with yet again very little productivity to show for it, eventually making goods and services even more expensive due to relative scarcity. We have already seen that in Brazil apart from the monetary inflation, Real Estate prices are also likely higher due to lack of supply (and in my opion even more lack in good quality housing).

  3. Ignace mertens says:

    Why ‘s the brazilian main stream press not publishing this kind of articles?

  4. Indio Tupi says:

    Here, from the High Amazon River, indians say that, this year, GDP growth wil be around 1,5%, a remarkable decrease from 2011, and it is a complete nonsense to adovocate fiscal adjustment (cut spending), tax reform (reducing corporate and increase labor taxes), reform of labor laws (reducing wage levels and increasing unemployment), welfare reform (reducing social, medical and pension bebefits), economic liberalization (transforming the country in a non man land), reduction of bureaucratic obstacles (eliminating government), etc.. Where in the hell there is such a country? The author wants, in reality, a “free lunch” for the corporate, financial, insurance and real state setors. Give us a beak…

  5. Queen says:

    Why do you think toy manufacturers love the idea of all of us believing in Santa Claus? :-)

  6. Patricia says:

    Prices in 2015:

    1 bus ticket in any major brazilain city = 6 reais
    1 kilo of rice = 8 reais
    1 kilo of beans = 10 reais
    1 pair of nike shoes = 800 reais
    … 20 years old piece of junk made in brazil FIAT UNO = 15.000 reais

    Minimum Salary in 2015 = 700 reais

Leave a Reply

Your email address will not be published.

7 + = 14

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>