Elaine Meinel Supkis
Tom, one of our readers, kindly sent us a link that listed equity funds in difficulties raising money this last two weeks. One item in particular caught my attention. The Bank of Brazil cancelled its regular weekly auction of government bonds! This could mean we will see yet another round of currency collapses like in the late 1990's, for example. With everyone wanting to depress their currencies for trade advantage, this can lead to surprizing collapses that can embroil everyone since everything is now relative to everything else.
Brazil's real fell the most since May 2006 as concerns about loan defaults in the U.S. made investors shun riskier emerging market assets.
The real lost 3.35 percent to 1.9285 per dollar at 5:47 p.m. New York time from 1.866 yesterday, the biggest drop since falling 4 percent to 2.2980 on May 22, 2006. The currency has gained 11.6 percent this year, the best performer among the 16 most actively trade currencies.
Brazil canceled a weekly auction of local-currency government bonds because increased investor aversion to riskier assets has pushed yields higher than the government is willing to pay. Stocks in the Brazilian stock exchange slumped, with the Bovespa stock index dropping 3.76 percent at 53,893.155.
The yield on Brazil's benchmark zero-coupon bonds due in January 2008 rose seven basis points, or 0.07 percentage point, to 11.12 percent, according to Banco UBS Pactual SA.
Brazilian central bankers have lowered the benchmark lending rate by 8.25 percentage points over the past two years, most recently trimming the benchmark by a half-percentage point on July 17 to a record low 11.50 percent.
Every time we have a currency collapse coinciding with a failure of trade due to unbalanced trade/currency exchanges suddenly aggravated by huge oil price hikes, there is a chorus of economists standing ready and waiting to yell, 'No one could have foreseen this!' And, 'We don't understand why this happened!' Having the luxury of living through several of these currency collapses and having family members or friends suffer directly from these events, I come to expect them.
During the last currency crisis in Brazil, I was making breakfast when I heard on the BBC that a family member had been arrested there. We got this person out using a mixture of threats and bribes. Once, when the peso of Mexico collapsed, a girlfriend went to the bank in Mexico City and handed over her dollars to exchange for pesos and the clerk ran out the back door with all her money! I had to cable her some funds so she could escape the increasing chaos. Monetary chaos is no fun!
Credit Market Fears Intensifying
2 The 10-year Treasury yield sank 12 basis points to 4.78%, the lowest since May as investors reprice risk worldwide. Brazil pulled a regular debt sale and Tyco Electronics (NYSE:TEL) (NYSE:TYC) a $1.5 high-grade bond sale, both citing market conditions. Bear Stearns (NYSE:BSC) seized assets of 1 near-worthless hedge fund. An Aussie hedge fund halted withdrawals from 2 funds on subprime losses.
Everyone runs to the US bonds for 'safety'. I find this rather sad because this presumes the US is a world economy and not a financial basket case. Day in and day out, the media roars that the US is the world's strongest economy. It is a prime propaganda point. I see commentary about how weak China is. China is so troubled and weak, they are trouncing us in world trade. They are growing bigger and more powerful by the hour. They were #20 globally, just 10 years ago and now are #3 and rapidly catching up with #2, Japan.
The idea we all have is, China is desperate to keep us #1 and would never challenge us. They would keep our deep-in-debt society afloat so they can sell us cheap goods. Well, not so cheap. We want them to strengthen the yuan so we can't buy anything. Hooray for monetarism.
This story, six hours ago, was a bare-bones affair but the news is growing stronger and more information is pouring in. I suspect we may be hearing a lot more about Brazil in the future. For example, one thing I notice in the next story is, the markets and all the banking affairs in Brazil were absolutely booming just last week! Part of the global liquidity drinking binge. And like all such bubbles, it popps suddenly and dramatically. Here is a story from less than half a month ago, trumpetting how Brazil was the place to fly off to for romance and fun with money.
Thu, Jul 12 2007,
Brazil's benchmark Ibovespa stocks index has been setting nearly daily records in recent days. The index broke through the 57,000-point barrier for the first time Thursday, with global funds heavily represented among buyers.
Meanwhile, foreign investors are also pouring money into fixed-income investments because of high interest rates. The Selic base rate is currently 12.0%.
"Such investors are typically drawn to higher interest rates among emerging market countries like Brazil," said a trader. Even persistent intervention by the Brazilian Central Bank has done nothing to stem the rise of the real against the dollar, the trader said.
The central bank buys dollars at nearly daily snap auctions, including a late-session auction Thursday. Traders said the central bank may have purchased as much as $1 billion at Wednesday's auction. They said it was too soon to estimate the volume of purchases at Thursday's auction.
Some analysts said the real could test the psychological barrier of BRL1.80 per dollar later this month.
Back to Brazil: this very large and well-populated country has been triangulating China and the USA. Both have been either courting or, in the case of the USA, attacking and destroying, Brazil. So far, the Chinese secret police haven't assassinated or physically removed the leaders elected in Brazil. For that, they are grateful. Knowing how important Brazil is for both the US and China, I thought it would be a good time to examine Brazil's recent past a little bit more.
Facing increasing investor uncertainty and prolonged capital flight, Brazil devalued its currency (the real) on January 15, 1999, following Mexico, Asia, and Russia as the next casualty of the 1990s global financial turmoil. Although Brazil had ample foreign exchange reserves and International Monetary Fund (IMF) support, nervous investors withdrew a net $40 billion from Brazil over the four months following the August 1998 default in Russia. Yielding to market pressures, Brazil attempted an 8% "controlled" devaluation on January 13, 1999, only to increase investor anxiety and capital outflows. Rather than risk depleting its international reserves in the hope of outlasting the global run on its currency, Brazil chose to float the real, causing a major devaluation that eventually halted capital flight, but left the economy disrupted in other ways.
A combination of policy decisions and political events left Brazil exposed to the vagaries of international capital markets. First, Brazil had an overvalued exchange rate and huge fiscal deficits, which together could not be sustained indefinitely. Second, Brazil became increasingly dependent on the very capital markets that tend to abandon countries when they need them most. Finally, two political events in January triggered the final run on the real'. 1) failure to pass legislation that would have addressed the large budget deficit that epitomized the country's fiscal excess; and 2) announcement of a moratorium on federal debt payments by a large state government. To grasp how these events made Brazil vulnerable to capital flight, however, it is important to understand the role of economic policies implemented earlier in the decade.
'Controlled devaluations' can be very dangerous. Except for the #1 and #2 economies of the world, of course! In their cases, dropping the currency is great! Well, better forJjapan than the US. But both are quite frank, they are devaluing their currencies because this will bring both countries great advantages over all others. The US has dropped the dollar verus the euro from .89 euros to the dollar to 1.40+ euros to the dollar. This is a 50% drop in value for the dollar! Astonishing. And yet the money kept pouring in because the US runs trade deficits with the entire planet. Absolutely no one wants to stop the US from destroying itself with this huge trade deficit. But Brazil has to be super-careful.
Proof of this is with the IMF data. The US has a measly $66 billion in FOREX reserves. In contrast to Japan at nearly a trillion and China well over a trillion. Look at Brazil.... From the IMF:
Their FOREX reserves are twice as big as our own. Both Russia and Brazil went bankrupt during the huge 1997-1999 currency crisis. The excuse used to ravage Brazil's financial position was all about assuming Brazil would default. After all the money was withdrawn, Brazil defaulted! What a wonder.
Copom reduced the Selic interest rate to 11.50 percent p.a.
In light of inflation prospects, the Copom decided to reduce the Selic target by 50 basis points to 11.50 percent p.a., without bias. Four votes were for the Copom monetary policy action, while three votes were in favor of reducing the Selic target by 25 basis points. The Committee will carefully monitor the evolution of the macroeconomic scenario until the next meeting, when it will define the next steps in its monetary policy strategy.
Here is a section from the Bank of Brazil, talking about how their international banking system is set up:
More news is pouring in by the hour. The entire world went bezerk this last winter due to fears Japan would raise interest rates. Since then, the whole world is seeing interest rates shoot up! As I keep saying, this is a very bad sign if instability.
Right on the heels of super-growth, super-good news, just three days later, about a week ago, the Bank of Brazil has to raise interest rates. All nations are doing this. There is some very serious instability going on here. The relentless rise of oil seems very much part of the dynamics here. Oil has been see sawing its way upwards this last four years thanks mostly to the Gulf war launched by the crazed monkey steering this ship of state. The #2 importer of oil, even as it hits $77 a barrel, has zero or negative inflation because of a successful program to destroy workers utterly in the name of preventing inflation. In the case of Brazil, they will end up living without much energy and thus, the global problem caused by China consuming all that oil will be fixed by turning many other nations into non-oil consuming nations. Of course, the US gets off scot-free. The oil will flow! Indeed. We are now importing record amounts of gasoline.
Brazilian stocks fell the most in five months, led by metals companies and banks, after the central bank signaled is may slow the pace of interest rate cuts, curbing economic growth.
The Bovespa Index of the most-traded stocks on the Sao Paulo exchange fell 2,266.78, or 4.1 percent, to 53,874.52 at 12:44 p.m. New York time, the steepest drop since Feb. 27. The slide was part of a global equities rout spurred by credit quality concerns in the U.S. The Morgan Stanley Capital International index of Latin American shares fell 4.5 percent.
In Brazil, the central bank said it will be ``especially vigilant'' for signs of a pick-up in inflation as domestic demand is rising faster and the effects of interest rate cuts have yet to filter into the economy.
All the world stock markets except for China, fell today. This wasn't a tremor of fear, it was a near universal panic. A classic panic. Friday, it will either be resolved via a soupcon of lies and funny number crunching or it will continue. I think the need to pretend nothing is wrong is still very strong. Everyone will clutch at straws so the tiniest good news like the Apple iPhone, will cause hysterical outpouring of joy.
Back to Brazil, we must remember the past in order to understand the future. Let's remember the crimes the US committed in the past against Brazil!
BRAZIL MARKS 40th ANNIVERSARY OF MILITARY COUP
DECLASSIFIED DOCUMENTS SHED LIGHT ON U.S. ROLE
Audio tape: President Johnson urged taking "every step that we can" to support overthrow of Joao Goulart
U.S. Ambassador Requested Pre-positioned Armaments to aid Golpistas; Acknowledged covert operations backing street demonstrations, civic forces and resistance groups
Edited by Peter Kornbluh
firstname.lastname@example.org / 202 994-7116
Washington D.C., 31 March 2004 - "I think we ought to take every step that we can, be prepared to do everything that we need to do," President Johnson instructed his aides regarding preparations for a coup in Brazil on March 31, 1964. On the 40th anniversary of the military putsch, the National Security Archive today posted recently declassified documents on U.S. policy deliberations and operations leading up to the overthrow of the Goulart government on April 1, 1964. The documents reveal new details on U.S. readiness to back the coup forces.
The Archive's posting includes a declassified audio tape of Lyndon Johnson being briefed by phone at his Texas ranch, as the Brazilian military mobilized against Goulart. "I'd put everybody that had any imagination or ingenuity…[CIA Director John] McCone…[Secretary of Defense Robert] McNamara" on making sure the coup went forward, Johnson is heard to instruct undersecretary of State George Ball. "We just can't take this one," the tape records LBJ's opinion. "I'd get right on top of it and stick my neck out a little."
Among the documents are Top Secret cables sent by U.S. Ambassador Lincoln Gordon who forcefully pressed Washington for direct involvement in supporting coup plotters led by Army Chief of Staff General Humberto Castello Branco. "If our influence is to be brought to bear to help avert a major disaster here-which might make Brazil the China of the 1960s-this is where both I and all my senior advisors believe our support should be placed," Gordon wrote to high State Department, White House and CIA officials on March 27, 1964.
To assure the success of the coup, Gordon recommended "that measures be taken soonest to prepare for a clandestine delivery of arms of non-US origin, to be made available to Castello Branco supporters in Sao Paulo." In a subsequent cable, declassified just last month, Gordon suggested that these weapons be "pre-positioned prior any outbreak of violence," to be used by paramilitary units and "friendly military against hostile military if necessary." To conceal the U.S. role, Gordon recommended the arms be delivered via "unmarked submarine to be off-loaded at night in isolated shore spots in state of Sao Paulo south of Santos."
Brazil expects China to become its No. 1 trade partner in the near future, visiting Brazilian President Luiz Inacio Lula da Silva said Wednesday in Shanghai.
The United States and Argentina are Brazil's top two trading partners now.
"China and Brazil have plenty of market potential to develop their foreign trade relationship," Lula said in a news briefing Wednesday.
I remember that stupid coup and the following one, taking over Chile. And Argentina. Guatamala. El Salvador. Mexico. Bolivia. Etc. Including many small islands. The US dominates this hemisphere via our military power. We try other methods but when push comes to stealing stuff, we steal stuff. This means Brazil can't trust us of they have financial difficulties. We are happy to do business until they stumble and then we revert to wolf-behavior and crush their throats. So Brazil is understandably nervous tonight. Will they be attacked by the ravening three-headed hedge fund hell hounds?
They do have hope this time around. Over the years, they have cultivated closer and closer ties to China starting in 1973. Around when we decided to deep six the dollar and sneer at everyone, daring them to not enable us as we crushed world monetary systems and spat it out. Here is a classic sneering article by the ruling class, sneering at both Brazil and China and claiming, both were screwing up and both hated each other.
THE high point came last November, when Hu Jintao, China's president, arrived in Latin America to sign a series of trade and investment deals that heralded a new relationship between a rising superpower and a continent eager for economic growth. Nowhere was he greeted more warmly than in Brazil. Its left-leaning president, Luiz Inácio Lula da Silva, sees China as the country's most promising business partner and an ally in boosting Brazil's global influence.
Toasting their “strategic partnership”, Lula predicted that trade with China would more than double to $20 billion in three years. China promised to invest $10 billion in Brazil, mostly in infrastructure. Brazil, along with Argentina and Chile, recognised China as a “market economy”, thereby constraining their ability to retaliate against imports. Brazil hoped for Chinese backing for its bid for a permanent seat on the UN Security Council.
But the euphoria has already given way to a rising fear of Chinese imports, disappointment at the pace of investment and Brazilian anger that their government has weakened the country's trade defences without getting much in return. China is “not a strategic partner”, says Roberto Giannetti da Fonseca, head of trade issues at FIESP, which represents industry in the state of São Paulo: it merely “wants to buy raw materials with no value added and to export consumer goods.” As for infrastructure investment, Paulo Fleury, a specialist in the subject, detects “lots of smoke and little fire”. Meanwhile, on the diplomatic front, China is opposing Brazil's joint bid (along with Japan, German and India) for permanent membership of the Security Council, though this is to block Japan, its arch rival, rather than Brazil.
Um, Japan used Brazil as cover to gain access to the Security Council. And Brazil triangulated with Japan just as it triangulates with every great power. This is how diplomacy works. The US should try this once and a while. We might be happily surpized. But this article was a false flag. Things were not getting worse and worse. The Chinese, unlike us, don't want everyone to love them all the time no matter how abusive the relationship. The Chinese want to do business and they carry no grudges. They just keep on making more proposals.
Under the slogan of "peaceful rising", China is selling itself to the developing world as an alternative model for ending poverty.
The pitch is now winning an audience in Latin America, and Washington is despatching the assistant secretary of state responsible for the region, Thomas Shannon, to Beijing to find out what is going on.
His aim is to negotiate the precise line which China must not cross in creating its new strategic alliance with Latin America, which has seen billions of dollars of Chinese money earmarked for infrastructure, transport, energy and defence projects there.
"We want to make sure we don't get our wires crossed," said one official arranging the talks.
Nothing gets our right winging lunatics angrier than the idea that someone wants to end poverty. Shannon rushes off to 'draw a line' which is code for 'make nasty threats and hint that we will subvert the military and egg them into assassinations, abductions and coups.' Yup. Bet the Brazillians were really impressed by his efforts. Contrary to the Economist's hopes that China would hate Brazil, the fact is, China is now Brazil's top protector. By playing off China with the US, Brazil might be able to slip the noose the irritable US rulers want around Brazil's neck.
"As a nation we need to understand that this Communist dictatorship is a government without a conscience," says Senator Lindsey Graham who has recently been to China.
"The status quo cannot be accepted and tolerated by this country any more than the Soviet Union's practices were tolerated by Ronald Reagan."
In Brazil itself, the view is very different. It is about two developing countries, the giants of their regions, forming a natural alliance.
"It's wonderful. It's amazing," says Alexandre Solis, an aircraft engineer who spent more than two years in the Chinese city of Harbin, setting up a joint venture for the ultra hi-tech Brazilian Embraer commuter jet company.
Oh my god. Boeing is always very pissed when their market share is challenged. And the childish charges of Graham cracked Lindsey is astonishing. The nation without a conscience is the USA. Graham should visit Bush and ask him how many Bush family members are in contracts with or to Chinese entities before he yells about China. Indeed, money is power and the Chinese are gaining that here by the hour! I guess they didn't think Graham was powerful enough to bribe.
China isn't stupid. They know they must share something in order to have some sort of relationship. So they offer Brazil all sorts of high tech-stuff.
Chinese Vice President Zeng Qinghong said on Thursday in Beijing that China would work closely with Brazil to promote bilateral relations to a high level by deepening cooperation in various fields.
China and Brazil, as large developing nations, share extensive common interests, said Zeng in talks with visiting Brazilian Vice President Jose Alencar in Beijing.
Bilateral relations have developed in an all-round way since the two countries set up a strategic partnership in 1993, Zeng said.
Alencar is here for a six-day visit. Chinese President Hu Jintao will meet with him on Friday. He will also co-chair with Chinese Vice Premier Wu Yi the first session of the China-Brazil High-level Committee on Consultation and Cooperation.
The two countries are expected to "bring the committee into full play" and boost cooperation in areas such as politics, trade, technology and culture, Zeng said.
Zeng called on the two countries to enhance high-level exchanges, explore new ways of cooperation and enhance coordination in international and regional affairs.
Alencar reiterated Brazil's adherence to the one-China policy and peaceful reunification.
A Brazilian legislative commission cites insufficient funds as the main reason for the failure of Brazil's space program. The space program has seen three unsuccessful attempts at sending a rocket into space The latest failure took place on August 23, 2003, when a rocket that was going to send two national satellites into orbit exploded, killing 21 Brazilian experts.
According to the government-appointed commission, the government budget for the space program was reduced from 86 million dollars in 1998 to 15.3 million US dollars in 2002. In addition, Terezinha Fernandes, a member of the commission, said low salaries at the Space Base of Alcantara force many technicians and officials hold extra jobs to make ends meet.
The commission has proposed structural changes in the space program and suggested that the Brazilian Space Agency report directly to the president, not to a ministry.
The chairman for the Brazilian Space Agency, Sergio Gaudenzi, announced that countries such as Ukraine, China, the United States and Russia would participate in a new phase of satellite launching at Brazil's Alcantara launch center.
Both Russia and China are interested in Brazil. So is Venezuela. Everyone is courting Brazil but the ruling empires want to curb Brazil via the old fashioned way: by wrecking Brazil's finanaces. This is why we are unpopular there. And a lot of places. Why we want this burden puzzles me. When Brazil goes into currency hell, they won't reach out to the US for safety, they will ring up Beijing on the cell phone. And the US will be even more enraged.