Friday, March 27, 2009

I ask silly stuff.

Today, Mr S. read the following headline from The Financial Times:

"Brazil’s President Luiz Inácio Lula da Silva on Thursday blamed the global economic crisis on “white people with blue eyes” and said it was wrong that black and indigenous people should pay for white people’s mistakes."

Which I have to admit, made me want to punch this guy in the neck so completely hard. My immediate thought was "didn't we bail out Brazil a few years back?" I have to admit, the only reason why I remembered it, because everyone on Wall Street was loving Brazil the last few years. Yet, I never felt confident in their country. Growing up I always remembered Brazil as defaulting on debt.

The whole thing actually got me annoyed enough to Google what happened in Brazil.

I didn't have any money in 1998, so I wasn't really paying attention to any of this stuff. Yet, it is eerily similar to what is happening now. Unbelievably so.

Take this quote from The Center for Economic and Policy Research: This was published in 1998 BTW.

"After racking up disasters in Asia and then Russia, the Fund and its allies in the Clinton Administration have concluded that their only mistake was that they did not intervene early enough. So they have put together a 42 billion "rescue" package for Brazil."

Or this quote:

"That advice mandates big cutbacks in government spending, tax increases, and enormously high interest rates-- a deadly mix practically guaranteed to send any economy into a tailspin. It is difficult to see how the prospect of recession-- not to mention the potentially explosive political conflict that such policies will provoke-- will accomplish the stated goal of calming nervous financial markets.

Brazil has the most unequal distribution of income in the world, with the upper 10% taking about half the nation’s income, while 43% of the people survive on less than two dollars a day. The IMF-engineered economic contraction will therefore have terrible consequences even if it "succeeds" on its own terms: people who are already malnourished will get less food, and some will die. Spending on health care and education will also be cut, and millions of people will lose their jobs, homes, and livelihoods.

Are these drastic measures necessary? Let’s start with the federal budget deficit. It is currently running at 7% of the economy (or GDP). To put this in perspective, the United States government ran a budget deficit of 6.1% of GDP in 1983, with no harm done. One might argue that either of these deficits is too high over the long run, but there is no urgency about cutting them.

It is sometimes feared that budget deficits in this range will cause accelerating inflation, but this is clearly not the case in Brazil, where inflation is currently at 3%.

What about the exorbitant interest rates, now running at 42%, which cripple economic activity even more than the budget cuts? The Fund argues that these are necessary to prevent the Brazilian currency from collapsing. This is because lenders, due to the risk of currency devaluation, are unwilling to keep their money in the country at lower rates. "

Weird right?

So - this is the thing that annoys me. All these people taking our taxpaying dollars say they will pay us back. Maybe they do - maybe they don't. I'm not sure if Brazil did or not. For arguments sake, lets say they did. Shouldn't taxpayers have gotten a check labeled "Paid in full from Brazil"? The government takes our money to help all these people, but usually when they pay the money back, the government just expands and taxpayers don't see a dime of that money. And, shouldn't these countries shut the eff up sometimes?

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