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Brazil’s Economic Tumble

2017 March 8
by Ian Welsh

No surprise, but…

Brazil’s economy has fallen further into its worst ever recession, contracting by 3.6 percent in 2016…

…Brazil’s economy is now eight percent smaller than it was in December 2014.

Recently, there was a legislative coup in Brazil, but that was a symptom, not a cause, as are Venezuela’s problems, the electoral reversal in Argentina, and so on.

All that is required to understand what is happening is this chart of commodity prices.

 Bloomberg 5 years commodity index March 8 2017


Bloomberg 5 years commodity index March 8 2017

We have a very foolish economy. The developed world has been in austerity since 2008, China does not have a rich enough middle class to take up demand. Without demand for goods and services in the developed world, commodity prices have crashed.

Our lords and masters don’t want growth they can’t capture, and they value low wages and debt-slavery more than they do a thriving economy. As a result, the economies which prospered by supplying commodities to China and other manufacturers have stumbled and crashed out. This simple fact is behind many headlines which seem unrelated to it, including virtually every change of government in South America.

A globalized economy is moronic. It makes countries dependent on policies over which they have no control. There is virtually nothing that Brazil’s government can do about this (though engaging in austerity of their own is stupid); nor was there a damn thing Venezuela could do about it (though, yes, the Bolivarian economy was mismanaged, something I said as far back as 2004).

This is by design. Our elites don’t want national elites to be able to make policy. As a result, there are only two nations which approach full sovereignty in the world: the United States and China. Only they are powerful enough and rich enough to make unilateral moves without suffering vast consequences (and maybe not even them). The EU could almost be sovereign, if it wasn’t run by ideological morons, but it isn’t, and Russia has enough resources and military power to have some sovereignty, and that’s basically it.

And so, the Brazilians will suffer what they must, because however large and rich they think they are, they are still a non-sovereign state in the ways that matter in our world.


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14 Responses
  1. Tom permalink
    March 8, 2017

    First step to having a sovereign nation:

    Develop industry and protect it and never take a loan from any nation.

  2. Ian Welsh permalink*
    March 8, 2017

    No loans denominated in foreign currency.

  3. bruce wilder permalink
    March 8, 2017

    Yes, no loans denominated in foreign currency, nor any governed by foreign law and subject to foreign jurisdiction. If Greece issues bonds in Euros, governed by English law and subject to the jurisdiction of UK courts, there is scarcely a wisp of sovereignty left. If the President of Argentina has to worry about some weasel on Wall Street using a New York court to seize her official plane off a runway in France, something has gone terribly wrong.

  4. bruce wilder permalink
    March 8, 2017

    I think our lords and masters among the global elite are not simply trading social integrity and the economic security and political power of the masses against their own profit and comfort — though they are doing that — they are also managing, after a fashion, the ceiling on global capacity.

    The capital fact of the 21st century is the global ceiling(s) on resources for basic commodity production. The world economy first hit its collective head on that ceiling in 1973-4 and have bumped against it several times since. It doesn’t seem to be part of our collective memory of the GFC of 2008, but we hit the ceiling again in 2007-8 in ways that severely constrained the actions of the Federal Reserve.

    On the most basic level of extracting surplus, the financial mechanism separates the producers of basic and essential commodities from their power to withhold those commodities in bargaining over their share of industrial and informational output. The shadow of hard limits just over the horizon from our current rates of circulating trade is a strategic factor worth paying attention to.

    Ultimately, the most important commodity limit is the assimilative capacity of the natural environment, which may be entering a period of decline and/or staggering volatility, driven by runaway global warming and runaway technological change.

  5. Duder permalink
    March 8, 2017

    It is amazing to me how few on the Left understand or comment on this elephant in the room when discussing the reversal of progressive governments in Latin America. They either ignore the role of commodity prices entirely and attribute everything to the evil conspiracies of the rightwing, or they treat Latin America’s dependency on the rise and fall of commodity exports as an act of God. As if these progressive governments who were in power for over a decade could have done nothing to alter their fates or at least prepare for the inevitable. But that might require some introspection, so no, blame others. I won’t cry for you, Argentina.

  6. March 8, 2017

    Great explanation, Ian.

  7. Willy permalink
    March 8, 2017

    It seems almost everything has its moderate sweet spot (though with ever increasing population and technology the economic-environmental-political sweet spot keeps moving leftward). I don’t have against groups pushing for more freedoms, until they become willfully oblivious to the limitations and negative consequences of freedom, especially involving any person or entity mindlessly driven to power and control.

  8. Willy permalink
    March 8, 2017

    TK421 – agree, and it’s an easy step from here to at least try to explain this in colloquial English to the malinformed. Maybe that’s a fruitless endeavor with most hard core wingnuts and neoliberals, but at least one can learn more about how people they have to deal with everyday, think and feel.

  9. different clue permalink
    March 8, 2017

    Correctly understanding the situation is the first step towards correctly stating the problem or problems and trying to re-arrange the situation so as to re-engineer the problems into a solvable form.

    The OverClasses are happy to lose half of what they have in order to destroy both halves of what we have. Our mission, should we choose to accept it, will be to reach up and out and destroy both halves of what the OverClasses have. This is one Plantation which can’t be runaway from. It will either have to be submitted to in place, or burned all the way down in place.

  10. Hugh permalink
    March 8, 2017

    You cannot have a globalized economy, which works for everyone, without a globalized government to set economic policy and distribute and re-distribute money and resources as needed in order to create and maintain what would be a globalized society. This is impossible currently because our world is deeply fractured culturally, politically, and religiously, its economy is a kleptocracy run by and for the very rich and powerful, and there are simply too many of us. The sustainable human carrying capacity of our planet is between two and three billion. We are currently at 7.5 billion and headed toward 9.7 billion by 2050, or 33 years from now. What can not be sustained won’t be, and our population will collapse massively.

    We are already seeing the first signs of this in the proliferation of failed and failing states; increased zones of instability; growth in terrorism; global warming; increased climatic volatility and more frequent severe climate events: droughts, floods, hurricanes, etc.; environmental destruction: desertification, melting glaciers and polar icecaps, diminishing water resources generally, whitening of coral reefs, and depleted fisheries; increased species extinctions; and increased societal strains: not just Brazil but the EU and the US, notably. It is important to understand that the US, EU, much of East Asia, and South America minus Brazil are relatively well positioned to weather what’s coming but there is virtually no public awareness or policy debate on it. This along with their social strains decreases the likelihood that those who live in these countries, and the countries themselves, will survive.

    This does not detract from the fact that, as Ian notes, that commodity producing countries and those not sovereign in their own currency are at the mercy of others. These countries also tend to be in the developing category with fairly weak social and government institutions, very rapacious ruling classes, and exploding populations. Most of these as well as the people in them are not going to survive.

  11. Hugh permalink
    March 8, 2017

    You cannot have a globalized economy, which works for everyone, without a globalized government to set economic policy and distribute and re-distribute money and resources as needed in order to create and maintain what would be a globalized society. This is impossible currently because our world is deeply fractured culturally, politically, and religiously, its economy is a kleptocracy run by and for the very rich and powerful, and there are simply too many of us. The sustainable human carrying capacity of our planet is between two and three billion. We are currently at 7.5 billion and headed toward 9.7 billion by 2050, or 33 years from now. What can not be sustained won\’t be, and our population will collapse massively.

    We are already seeing the first signs of this in the proliferation of failed and failing states; increased zones of instability; growth in terrorism; global warming; increased climatic volatility and more frequent severe climate events: droughts, floods, hurricanes, etc.; environmental destruction: desertification, melting glaciers and polar icecaps, diminishing water resources generally, whitening of coral reefs, and depleted fisheries; increased species extinctions; and increased societal strains: not just Brazil but the EU and the US, notably. It is important to understand that the US, EU, much of East Asia, and South America minus Brazil are relatively well positioned to weather what\’s coming but there is virtually no public awareness or policy debate on it. This along with their social strains decreases the likelihood that those who live in these countries, and the countries themselves, will survive.

    This does not detract from the fact that, as Ian notes, that commodity producing countries and those not sovereign in their own currency are at the mercy of others. These countries also tend to be in the developing category with fairly weak social and government institutions, very rapacious ruling classes, and exploding populations. Most of these as well as the people in them are not going to survive.

  12. Dan permalink
    March 8, 2017

    There are lots of reasons other than government imposed austerity that could cause other countries to stop buying what you have to sell. The only maximally secure strategy would be a low/no growth national economy produces and sells most of what it needs to get by within its own borders.

  13. March 8, 2017

    Not completely correct, you can add India to list. After all, when you can have 350 million people who can be counted to just starve – it opens up a world of possibilities. China is slightly more delicate about having people starve – though not by a lot.

    The big problem is we need to create a secondary legitimate sense of government, because communism does not work anymore. It keeps the Lords and Masters honest. Various forms of kleptocracy do not work – the only form a government even have is one that has by your vote.

  14. Synoia permalink
    March 9, 2017

    Question: How to contain China?

    Answer: Crush Demand.

    Does this explain the apparently inexplicable:

    “Our lords and masters don’t want growth they can’t capture, and they value low wages and debt-slavery more than they do a thriving economy. ”

    Any increase in demand strengthens China, at the expense of the United States.

    Just as any shred of Arab unity threatens the United States – which does much to explain Middle East Policy.

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