Goodbye, Brazil

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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 United States recorded a Government Debt to GDP of 104.17 percent of the country’s Gross Domestic Product in 2015.

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.

Yet:

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:

  1. Create hardship
  2. 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.
  3. Repeat.

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.

Goodbye, Brazil

Rodger Malcolm Mitchell
Monetary Sovereignty

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THE LAWS

•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.

•Everything in economics devolves to motive, and the motive is the Gap between the rich and the rest..

MONETARY SOVEREIGNTY

12 thoughts on “Goodbye, Brazil

  1. We have written in the past about Christine Lagarde’s incompetence:

    The single, most astounding quote you ever may read. It explains some of why the world’s economies are in trouble. Wednesday, Apr 18 2012

    “When the world around the IMF goes downhill, we thrive. We become extremely active because we lend money, we earn interest and charges and all the rest of it, and the institution does well.

    When the world goes well and we’ve had years of growth, as was the case back in 2006 and 2007, the IMF doesn’t do so well both financially, and otherwise.” Christine Lagarde

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    Christine Lagarde is the world’s best choice for managing director of the International Monetary Fund. Oh, really? Saturday, Jul 2 2011

    A group of editors, who continually demonstrates a lack of economics knowledge, agrees with the IMF that a corporate lawyer has “ample qualifications” to run an economics-centered organization.

    Surely the IMF, by repeatedly lending money to monetarily non-sovereign, overextended nations(!), then telling these nations to cut spending and increase taxes (the most direct route to recession), has demonstrated that knowledge of economics is not a qualification for managing director. So for these astute fellows (all men), Ms. Lagarde may be the most logical choice.
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    Very revealing interview with Christine Lagarde, managing director of the IMF Tuesday, Apr 17 2012

    She sees “no alternative to strict austerity” and is not surprised by the double dip recession in nations adopting strict austerity. It doesn’t even enter her mind that strict austerity is what causes recessions.

    And now there’s this:

    IMF’s Lagarde Guilty, but Not Punished, in French Negligence Trial By REUTERS DEC. 19, 2016, 11:24 A.M. E.S.T.

    French judges convicted IMF chief Christine Lagarde on Monday of negligence for a state payout made while France’s finance minister in 2008, but imposed no punishment, citing her preoccupation at the time with the global financial crisis.

    In Monday’s ruling, the judges did not find negligence in Lagarde’s decision to seek an out-of-court settlement with tycoon Bernard Tapie, but they said her failure to contest the award to him of about 400 million euros ($417 million) was negligent, and led to a misuse of public funds.

    “The context of the global financial crisis in which Madame Lagarde found herself in should be taken into account,” Martine Ract Madoux, the main judge on the case, said in explaining the absence of any sentence.

    She also cited Lagarde’s good reputation and international standing as reasons why the court did not hand down a punishment. The charge against Lagarde could have carried a sentence of up to a year in prison.

    Lagarde, whom IMF members reappointed in February, has won respect from global finance leaders for pushing governments to do more to boost economic growth.

    In 1994, Tapie was put under criminal investigation for complicity of corruption and subornation of witnesses. After a high-profile case against public prosecutor Éric de Montgolfier, he was sentenced in 1995 by the Court of Appeals of Douai to 2 years in prison, including 8 months non-suspended and 3 years of deprivation of his civic rights.

    From 1993 to 2008 there was a long legal battle between Tapie and the Crédit Lyonnais bank (partly state-owned bank). Crédit Lyonnais had allegedly defrauded Tapie in 1993 and 1994 when it sold Adidas on his behalf to Robert Louis-Dreyfus, apparently by arranging a larger sale with Dreyfus without Tapie’s knowledge.

    In 2008 a special judicial panel ruled that Tapie should receive compensation of €404 million from the French Ministry of Finance, headed by Christine Lagarde. She decided not to challenge the ruling.

    On December 3, 2015 court ruled that Tapie should return this compensation with interest, following investigation into alleged abuse of power by Ms. Lagarde.

    It’s like this:
    1. She was too “preoccupied” to do her job honestly.
    2. She was complicit in giving €404 million to a convicted criminal
    3. She “won respect” from rich financiers for forcing nations into austerity.
    4. She tried to defraud France of “only” €404 million, so no jail time is necessary.

    And there, dear readers, is how the rich will pay underlings to impose austerity and to widen the Gap between the rich and the rest.

    Like

  2. “The rapid deterioration of (Brazil’s) finances has significantly raised Brazil’s debt burden leading to a gross debt of 66.2 percent of GDP, sharply higher than 57.2 percent in 2014.”
    ~ Trading Economics

    Once again I note how economists deliberately maintain the Big Lie by refusing to distinguish between (a) foreign debts in foreign currencies, and (b) domestic “debts” in domestic currencies.

    If we speak of foreign currencies, then Brazil has debts, since the fall in commodity prices means that Brazil must borrow in foreign currencies in order for Brazil to buy imports. In this sense, Brazil’s debt-to-GDP ratio is important.

    But if we speak of Brazil’s sovereign currency (the Real), then the Brazilian government has no debt burden at all, since the government can create infinite Reals out of thin air. In this sense, Brazil’s debt-to-GDP ratio is meaningless.

    Economists refuse to clarify this difference, in order to protect their jobs by protecting the Big Lie. They justify gratuitous austerity by falsely conflating public debts in foreign currency with pubic debts in domestic currency. And by conflating pubic debt with private debt.

    Incidentally, when the Chinese demand for commodities was booming, Brazil’s economy became so strong that Brazil actually started lending to foreign nations in Brazilian reals. (!!) When commodity prices collapsed, Brazil fell into a severe recession, because so much of Brazil’s economy had become dependent on exporting. Brazilian politicians falsely claimed that the recession is caused by excessive spending of Brazilian Reals on social programs that helped average people. And the masses believe this lie.

    Despite the fall in commodity prices, Brazil’s recession could be cured with massive deficit spending. However the rich and their puppet politicians will not allow this, since it would slow the ever-widening gap between the rich and the rest. And the masses will not allow this, since they voluntarily choose to remain ignorant and therefore impoverished.

    “Misery is the penalty for ignorance.” ~ RMM

    Amen.

    And ignorance is always a choice.

    Like

    1. Hillary Clinton had a private security team too. But they didn’t wear brown. Nor does Trump’s. Nor did Adolf Hitler’s security staff after Hitler became Chancellor. The SA (Sturmabteilung) wore brown shirts, but Hitler had their leadership imprisoned or eliminated (June 30 to July 2, 1934) when their leader, Ernst Rohm, tried to take supreme power. After that, Hitler outlawed the brown-shirts except for parade duty during the yearly rallies at Nuremberg.

      I apologize for being a “lazy thinker,” but use of private security staff is routine for many politicians and candidates worldwide. Bush had his infamous “Blackwater” company. “G4S” is the world’s third-largest private employer, with 618,000 employees in 125 different countries. Indeed, private armies are everywhere. Andrews International, Engility Corp., Cubic Corp., DynCorp., GardaWorld, L-3, Triple Canopy, Vinnell Arabia — the list is long.

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        1. Except he is not anti-Semitic and all his children married Jews, even his daughter Ivanka became Jewish after marrying a Jew; that might make him almost the anti-Hitler.

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          1. Right. Also, Trump doesn’t have a funny little mustache. Instead, he has funny hair on his head.

            Like Hitler, he is anti-gay, anti-black, and anti-brown. But, instead of being anti-Jew, he’s anti-Muslim.

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      1. Oh there’s a concern all right. A grave concern. Consider the Office of Management and Budget (OMB) which is the largest office within the Executive Branch. Among other things, the OMB produces the President’s Budget.

        Trump’s nominee for OMB Director is Rep. Mick Mulvaney, a South Carolina Republican who is notorious for continually demanding cuts to Medicare and Social Security to “save them from bankruptcy.”

        Mulvaney wants a constitutional amendment requiring a balanced budget, meaning he wants to cut social programs that help average people.

        Let me repeat that.

        When right-wingers demand a “balanced federal budget,” they mean they want to “broaden the tax base” while cutting social programs. They do NOT mean cutting federal dollars for war, weapons makers, Wall Street bailouts, subsidies for Big Ag, and so on.

        The more the gap widens between the rich and the rest, the more the federal budget is said to be “balanced.”

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  3. Thanks for injecting some sanity into this whole debate. I saw some YouTube guy try to rationalize this austerity measure on the part of Brazil as a good thing and there should go even further with it. Unreal. This is a libertarian who predicted that Donald Trump would win the election, but his understanding of economics is way off base. He somehow gets that the EU is a bad thing and how the countries in it face problems because they have lost the ability to print their own currency, but still holds onto the same old tired ideas about government debt and deficits it seems and thinks we’re out of money.

    I have been lurking your blog for a while along with other Monetary Sovereignty, Post-Keynesian and MMT related websites and find yours to be one of the best out there and one of the clearest when it comes to explaining these concepts.

    Like

    1. Thanks. Some people think that writing in difficult-to-comprehend complexity makes them sound erudite.

      I’ve spent the past 20 years helping people understand, what actually is a very simple, straightforward concept: The federal government never can run short of its own sovereign currency.

      Once one understands that simple truth, most confusion diffuses.

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    2. @ Penguin: You say that this blog is “one of the best out there and one of the clearest when it comes to explaining these concepts.”

      If you know of any blogs that are equally clear, I would be grateful for any links.

      Like

  4. OFF TOPIC

    A Reuters investigation has uncovered nearly 3,000 different communities across the USA with lead levels more than twice as high as those found in Flint Michigan. The communities are in 21 states with 61 percent of the U.S. population.

    If we had the money, we could fix this problem in a month. Unfortunately the U.S. government is “bankrupt.” (Besides, according to establishment Democrats, “the Russians did it.”)

    Meanwhile there are infinite dollars for weapons makers that no longer produce useable weapons. Each new ship or aircraft is designed to incur endless cost overruns while never becoming operational. The purpose of this scam is to sustain an endless influx of federal dollars. The F-35 is still not operational (and perhaps never will be) while the new Zumwalt-class “stealth destroyers” don’t work, despite being in development for 22 years. Each Zumwalt-class destroyer brings $7 billion (and rising) to Raytheon, Northrop Grumman, and General Dynamics. The last Nimitz-class aircraft carrier cost only $6.2 billion. That $7 billion per ship is created out of thin air, and it creates jobs, but half of the money goes to lobbyists, top executives, and politicians (in the form of bribes and kickbacks).

    As always, I blame average Americans, most of which love war as much as they love the Big Lie. That’s why they become poorer (and more lead-poisoned) each day.

    Here is the Reuters investigation…

    http://www.reuters.com/investigates/special-report/usa-lead-testing/

    Like

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