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Communist Free LunchBrazil is known for their vastness, the Amazon forest, its beaches, fantastic gentlemen (and ladies), its carnival and lately because of its feats in the marketplace. After all, the B in BRICS stands for Brazil, right? So, if they are hitting a little bit of economic turbulence, what's the worst that can happen, right?

INTRO

Brazil switched from conservative governments to formally communist ones in 2002 with the advent of President Lula. In 2010 Lula's handpicked woman -Rousseff- won the election and she took control in 2011. Both belong to the "Partido dos Trabalhadores" which means "Worker's Party" and this much is obvious from their emblem below. If you are interested in recent Brazilian political history, go to Wikipedia and search for "Politics of Brazil".

From this we (as well everybody else in international "spheres that matter") expected nothing short of a revolutionary government such as in Chile during Allende (see The Legacy of the Chilean Coup DEtat). Yet, nothing of the sort happened. Lula behaved as a slightly populist, nationalist and socialist president to everybody's relief. His economic policies were more-or-less right there with EU politicians. Shocking!

Workert Party Emblem Brazil

DOOMSDAY!!!

Many right-wing pundits out-there are quite happy to see the troubles Brazil is in and are quick to lash out doom and gloom as well as guilt and fingerpointing by the truckload. Yet, we promised you that we won't lie to you. You won't find us in that group. We try -very hard- to be as objectives as possible and in order to be objective in this case, we need to see the numbers. This is not to say that when a government richly deserves our condemnation we will hold our tongues. We won't. But this particular case is not it. Let's take a look.

Brazilian Real

One of the elements on which many governments are judged is on the performance of their currencies, but over very long times, this is really not fair. Over long times should a country perform marvellously in the economic sense its currency will rise in value thus preventing exports and killing the economic boom. This is so precisely because the world does not have an incorruptible currency (e.g. gold) and all currencies "float" freely against each other. In order to remediate this "issue" governments devalue thus triggering currency wars (see for example the latest lunacy described in Operation Scorched Earth - The New Economic Policy). All governments do this without failing. Let's take a look what happened with the BRL.

Brazilian Real v USD

As you can see the value of the BRL oscillates within a limited margin. The current value is on its way to a low that was reached when Lula was first elected and everybody expected a communist dictatorship. But all in all it does not seem too bad, when we compare these values to the galloping debacles preceding governments created.

Brazilian inflation

Previous calamities can be seen in the following graph depicting inflation (and hyper-inflation) in the near Brazilian past.

Brazilian Inflation

As you can see, Brazil underwent hyperinflations in 1994, 1987, 1993 and 1994. Once this inflation was "brought under control" (i.e. the Brazilian government stopped printing) it did not recur, not even under Lula's government. This is quite an achievement for a communist government and also for a socialist one.

Business Confidence

And yet again business confidence was kept relatively high until recently when it has decayed to about the same levels as when Lula was first elected.

Brazil Business Confidence

Unemployment

Since the advent of Lula's government, unemployment has been decreasing steadily. This can be seen in the graph below, however, we must point to the continuous increase since 2013.

Brazil Unemployment

GDP

In this case we found undeniably that the communist government grew Brazilian GDP quite significantly, albeit it is clear that since about 2013 growth has begun to stagnate.

Brazil GDP

Public debt

In this case we found that the increase of public debt of the communist government was in line with the previous tendency.

Brazil Public Debt

ANALYSIS

The communist government in Brazil is not your typical communist government. It has kept economic stability; it has increased growth and the wealth of Brazilians. This is absolutely undeniable. However, we must once again bring one tiny detail to the attention of the reader. For as long as there is money to spend, any system, absolutely any system can be made to work, regardless of how ridiculous it may be. The communist party in Brazil has demonstrated to be anything but ridiculous and a blend between socialism and communism (this latter in terms of government projects) while following Chinese communism or commu-capitalism. As such, this Brazilian government has unleashed free market forces to a large degree but at the same time it has supported Brazilian growth with debt. This much is also undeniable.

However, all good things must come to an end, particularly when they are fuelled with debt to a large degree. Brazilian debt is now in the order of 60% GDP and if we add unfounded liabilities it reaches 100%. Brazilian debt pays one of the highest interests in the world and this won't change any time soon. Since 2014 the BRL has lost about 40% of its value, which means that every imported product or product dependent from imported goods and services is now "only" 40% more expensive than last year. Of course, the government is "combating" this situation with price caps (the preferred go-to so-called solution) with the net effect of producing shortages. Unemployment has begun to rise and it is unlikely that will drop back to its lowest point any time soon, if ever. Inflation is back in the horizon running at about 8% per year and rising. Do you see where this is going?

The Brazilian government has been, for any intent and purpose, an exemplary and well behaved example of socialist/nationalist/commu-capitalist administration. Yet, even in those conditions, it is unsustainable. This fact can now begin to be seen. The cracks are appearing. Most pundit commentators out there will be quick to point out only the most recent data and conveniently forget to look at the big picture. This is not only a mistake but a clear indication that they don't have a clue what they are talking about. If we cheat and lie and deceive, we are no better than the socialists in power right now.

And with these words, allow us to make a forecast; Brazil won't collapse. Not any time soon. But it's glory days are behind it. Everything is sloping down from this point on. Sure, there will be trends and counter trends, ups and down, slowdowns and miraculous recoveries but the main trend will remain down. The Brazilian government will soon realize that it cannot accumulate and spend debt into economic growth ad-infinitum. There is a limit and Brazil has begun to hit it. Sure, it will take decades, but it is already here. The wall is in Brazil's path. Now take a step back (or two or three) and watch the slow motion collision as Brazil hits the immobile object.

It all boils down to the very same tried and tired truth: there is no free lunch. Screw with free markets at your own peril. The Brazilian government is about to learn this lesson but the saddest truth is that Brazilian people will end up paying the consequences.

CONCLUSION

In the end, Brazil is yet another "worker's paradise". There is no free lunch. Not even for a well-intentioned socialist government. Much that people so wish, economic laws cannot be cheated. In this truth, we are all equal. Even people who believe that a balance between socialism and capitalism can be found. Even they. Nobody can escape economic laws. But you are free to try. Just one thing, on your way down, don't expect us to hold a safety net. You are on your own.

Note: please see the Glossary if you are unfamiliar with certain words.

3 Comments | Add yours
  • Guest (norman)

    I note that your graphs cover from the years 1975 to 2020 about 55 years. I've concluded that the best thing for the Brazilian's to do is to enjoy life, for in the long run we'll all be dead. Just like any prediction, the past is no indication of future performance.

    Like 0
  • Clarification. The lead and extension times are there purely for cosmetic purposes. Plot lines represent available data. No extrapolation should be implied unless specifically noted. Although it is true that there is no guarantee that the past will repeat itself in the future, it is also true that when we have 200+ years worth of economic history which points time and time again to the same catastrophes, with no deviations, it is safe to assume that we know how the future will unfold with a high degree of certainty.
    As to let Brazilians enjoy their lives, fair enough, but how about the next generation? And the next one? And the next one? All of them will be severely affected by what the last two Brazilian governments did. All these generations won't be able to enjoy anything because there won't be much left to enjoy. It is for these generations that we are here. Our generation is already toast, burnt, gone. But we still have hope for the future... unless "something is being done". In that case, future generations are also toast! Our two cents :(

    Like 0
  • Guest (asd)

    nice blog keep it up.

    Like 0
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