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Reader “Elizabeth” called our attention to the tragedy in Brazil.
Background: June of the year 2005, was the first time I spoke of the euro. I said:
Because of the Euro, no euro nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the euro.
The euro nations voluntarily surrendered the single, most valuable asset any nation can have: Their Monetary Sovereignty. Having surrendered the ability to create and control their own sovereign currencies, the euro nations were reduced to using an “alien” currency, a currency over which they have no control: The euro.
The euro is a product of the European Union (EU), an Oligarchy, “a government in which all power is vested in a few persons or in a dominant class or clique; government by the few.”
The euro nations, now having chosen monetary non-sovereignty, are forced by the few unelected officials of the EU to adopt austerity, as the EU itself drains away the member nation’s resources.
All monetarily non-sovereign entities must adopt some form of austerity unless they have significant income coming from outside their borders. This is true of cities, counties, states, businesses, you and me, as all are monetarily non-sovereign.
When a nation adopts monetary non-sovereignty, the rich prosper, while the populace is punished. Unless exports exceed imports by a significant amount (to bring money into the economy), wages decline, living standards decline, savings decline; the prosperity and grandeur, even of formerly great nations like Germany, Greece, Italy, France et al, becomes a distant memory.
As the Gap between the rich and the rest widens, the rich gain greater and greater power, which of course, is the whole idea.
All of the above brings us to the Brazilian tragedy, for the Brazilian government, which is Monetarily Sovereign, has chosen monetary non-sovereignty. It blithely has surrendered its single greatest asset:
Trading Economics: The rapid deterioration of (Brazil’s) finances has significantly raised the country’s debt burden leading to a gross debt of 66.2 percent of GDP, sharply higher than 57.2 percent in 2014.
The Gross Domestic Product (GDP) in Brazil was worth 1774.72 billion US dollars in 2015. GDP in Brazil reached an all time high of 2614.57 USD Billion in 2011.
Brazil Summary: Debt/GDP = 66.2%. GDP has been going down since 2011.
By comparison with the U.S.:
The Gross Domestic Product (GDP) in the United States was worth 17947 billion US dollars in 2015 reaching an all time high in 2015.
U.S. Summary: Debt/GDP=104%. GDP has been going up.
What are we to make of the Debt/GDP comparison between Brazil and the U.S.? Brazil=66%; U.S.=104%
The U.S. economy being healthier and growing, while Brazil’s is shrinking, shall we conclude that contrary to the opinions of the pundits, higher Debt/GDP is better?
In fact, the Debt/GDP is a meaningless measure for a Monetarily Sovereign government. As its sovereign currency, Brazil uses the “Real,” a widely accepted money, which Brazil can create endlessly.
So long as the Real is accepted for payment of Brazil’s financial obligations, and/or in exchange for the U.S. dollar and other major world currencies, Monetarily Sovereign Brazil does not need to borrow, does not need to tax, and does not need to cut spending.
The so-called “Debt” is the misleading name for the total of investments in Brazilian government securities — securities the Brazilian government has the unlimited ability to create and service.
Thus, the Debt/GDP ratio measures the ratio of all outstanding investments in Brazilian government securities vs. this year’s Gross Domestic Product — a measure that indicates absolutely nothing about the Brazilian economy.
What is worrisome is Brazil’s decline in GDP. Since money is the lifeblood of any economy, and GDP itself is a money measure, one might think Brazil would want to increase dramatically its money supply — specifically its deficit spending — to help stimulate GDP growth.
After all, if you put more Reals into the hands of the people, and the people spend those reals, that is a major part of GDP growth. This is exactly what the U.S. did to recover from the Great Depression of 2008.
And if, as is the case with Brazil, inflation is too high, the solution is not to reduce the Supply of Reals, but rather to increase the Demand for Reals.
Demand = Reward/Risk, and a large part of the “Reward” for owning money is interest.
Raising interest rates to increase the Demand for money is the program the U.S. Fed successfully has used over the years, and is using right now, as even the slightest whiff of inflation has led to a small rate increase.
The Central Bank of Brazil lowered its benchmark Selic rate to 13.75 percent on November 30th, its lowest in over a year. Policymakers aim to bring inflation back to target amid a deep economic recession.
“Bring inflation back to target” by lowering interest rates?? The U.S. Fed raises rates to control inflation. Why the difference?
Protests erupt in Brazil over controversial 20-year austerity plan
By Emiko Jozuka, Shasta Darlington, and Deborah Bloom, CNN, Updated 6:50 AM ET, Wed December 14, 2016
Brazil is Latin America’s largest economy and has a well-developed agricultural, manufacturing, and service sector. But the country has suffered its deepest recession in decades.
Since the beginning of 2015, the unemployment rate has doubled to more than 11% and as many as 12 million Brazilians are currently unemployed.
Known as PEC 55, the constitutional amendment imposes a cap on public spending that will limit federal investment in social programs for the next 20 years.
Plans to slash public spending are incompatible with Brazil’s human rights obligations and place the country in a “socially retrogressive category of its own,” according to Philip Alston, the United Nations Special Rapporteur on extreme poverty and human rights.
“It is completely inappropriate to freeze only social expenditure and to tie the hands of all future governments for another two decades,” said Alston, in a statement.
“It will hit the poorest and most vulnerable Brazilians the hardest, will increase inequality levels in an already very unequal society, and definitively signals that social rights are a very low priority for Brazil for the next 20 years,” Alston added.
Alston positions the government’s actions as a moral problem, which it is. But more than that, it is an economics problem.
Brazil cuts interest rates to “Bring inflation back to target” and freezes public spending on social programs to fight recession?? These are the exact opposite of the steps that should be taken. So what is going on, here?
Clearly, GDP growth and the welfare of the populace are not the goals of the rich who lead Brazil. Their true plan: To solidify a permanent underclass of desperate Brazilians willing to work in poor conditions for a pittance — the perfect slave labor force for the rich industrialists.
Widening the distance — the Gap — between the rich and the rest always has been a primary goal of the rich in all countries, not just in Brazil.
The ridiculous emphasis on sovereign “debt” in Monetarily Sovereign nations that never can run short of their own sovereign currencies demonstrates the goals of the rich. Even naming these investments “debt,” rather than the more correct “deposits,” is indicative.
It’s an ancient scheme:
- Create hardship
- Convince the populace to accept a counter-productive “cure” for the hardship, that worsens the situation. and widens the Gap between the rich and the rest.
Brazil now has voted for 20 years of abject misery — except for the rich, who will prosper on the sweat of the people. Misery is the penalty for ignorance.
Rodger Malcolm Mitchell
•Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
•Any monetarily NON-sovereign government — be it city, county, state or nation — that runs an ongoing trade deficit, eventually will run out of money.
•The more federal budgets are cut and taxes increased, the weaker an economy becomes..
•No nation can tax itself into prosperity, nor grow without money growth.
•Cutting federal deficits to grow the economy is like applying leeches to cure anemia.
•A growing economy requires a growing supply of money (GDP = Federal Spending + Non-federal Spending + Net Exports)
•Deficit spending grows the supply of money
•The limit to federal deficit spending is an inflation that cannot be cured with interest rate control. The limit to non-federal deficit spending is the ability to borrow.
•Until the 99% understand the need for federal deficits, the upper 1% will rule.
•Progressives think the purpose of government is to protect the poor and powerless from the rich and powerful. Conservatives think the purpose of government is to protect the rich and powerful from the poor and powerless.
•The single most important problem in economics is the Gap between the rich and the rest.
•Austerity is the government’s method for widening the Gap between the rich and the rest.
•Until the 99% understand the need for federal deficits, the upper 1% will rule.