The New America
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- Published on Monday, 24 September 2012 13:12
- Written by Bill Bonner, Founder and President, Agora Inc.
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What brings us to Brazil's capital?
Well, it's the country of the future. It's the "new America." It's where it is all happening. Growth. Innovation. And wealth accumulation.
That's what our old friend Jim Davidson says. He's got a new book out on the subject, called Brazil Is the New America.
Is this place really the "new America?" We don't know. But it sure has a lot going for it that the old America would like to have.
Like less debt. Rising wages. And real growth. In Brazil, households are actually getting richer.
Speaking of which, the Fed's "all you can eat" QE deal is starting to look like a big flop. The idea is to get the stock market jazzed up before the election. That way, President Obama will keep his job... and Ben Bernanke can continue his high-school-level monetary experiments.
What happens when you add an infinite amount of new money to an economy? We're going to find out!
QE3 Has Been a Flop
Well, the latest QE is a flop because it's not doing much for the stock market. On Friday... just a week after the announcement... stocks went down. The big surge hasn't happened.
But Bernanke's goal is probably much more modest. His man Obama has a big advantage: the Republican candidate. Obama is not running a great campaign. And after 8%-plus unemployment, he should be a pushover.
But Mitt Romney is doing all he can to help Obama stay in office. With Mitt's help, all Ben has to do is keep stocks from collapsing, and the Obama team will almost certainly get another four years.
Whether or not Bernanke will be able to hold stocks up, we don't know. We wouldn't want to put money on it either way. It's pure gambling at this stage. And we don't like to bet... unless the fix is in.
In this case, the fix is supposed to be in. But these fixes have a way of coming unfixed as soon as you begin to depend on them.
A Diversified Modern Economy
So let's go back to Brazil. From Jim Davidson:
[Brazil] reminds me more of the America I knew as a young man. Brazil's current population of 203 million (as of July 2011) is roughly that of the United States in 1969.
Brazil has accounted for more of the world's real economic growth since Lehman went broke than any other country except China
Not only has Brazil been growing at a significant clip in recent years, while the U.S. economy flatlines, but Brazil seems to have much more scope for growth in the future.
Thirty-five years ago, Brazil was importing food. Today, it is the world's largest exporter of five major crops, and it's also a major exporter of beef and chicken. Brazilian scientists have engineered new, short-cycle tropical versions of temperate crops like soybeans and corn. These mature eight to 12 weeks faster than the original temperate versions, making it possible for Brazilian farmers to produce two crops a year, rather than the one farmers in the U.S. produce.
By 2002, the overall average yield for soybeans in Brazil (2.6 tons per hectare) surpassed the average yield in the United States (2.4 tons per hectare). More significantly, the cost of producing soybeans in Brazil fell to about $6.23 per 60 kg bag, just half of the U.S. level of $11.72.
With a population just two-thirds the size of the U.S., Brazil has created more than 15 million jobs over the past eight years, while the U.S. lost untold millions of jobs. (An exact comparison is rendered difficult by the shameful fact that U.S. employment data are grossly exaggerated and undependable.) Combining energy independence and vast natural resources, including 60% of the world's unused arable land and 25% of its fresh water, Brazil is the world's first tropical superpower, offering a whole new frontier of growth.
But don't make the mistake of thinking that Brazil is just a large, well-watered farm. Brazil has a diversified modern economy. In fact, agriculture represents only 5.5% of the Brazilian economy. Brazil also has a large mining sector, but 84% of Brazil's exports are manufactured products, beginning with automobiles and airplanes (Brazil is the world's third leading producer of commercial aircraft). Steel, machine tools, textiles and apparel, cement, chemicals, fertilizer, footwear, rail cars and locomotives are also important Brazilian exports.
The real median wage in the United States has been worse than stagnant for a quarter of a century, and one in every seven Americans now participates in the food stamp program, reflecting a disturbing growth of poverty. As reported on Sept. 12 by the Census Bureau in Income, Poverty and Health Insurance Coverage in the United States: 2011, real median household income in the United States has declined for the fourth year running. It is now lower than it was in 1995.
Even more startling, when the current, grossly defective, CPI-U (all urban consumers) is used to deflate median household income, it is lower than it was in 1969. But this actually overestimates the stability of median household income in the U.S. Over the years, the methodology for calculating inflation has been consciously altered to disguise and understate it, which thereby overstates real GDP growth and per capita real income.
As John Williams, of Shadow Government Statistics, points out: "The headline August CPI-U rose by 0.6%, versus a 0.05% increase (unchanged rounded to one decimal point) in July. In August 2012, unadjusted year-to-year CPI-U inflation increased to 1.69% from 1.41% in July. Adjusted to pre-Clinton (1990) method methodology, annual SGS-alternative CPI inflation was roughly 5.2% in August 2012, versus 4.9% in July, while the 1980-based measure was about 9.3% in August versus 9% in July."
The implication of the Census Bureau report on income and poverty is that all the expected income gains for the working lifetimes of baby boomers have been washed away in a torrent of red ink. Meanwhile, almost 40 million Brazilians rose out of poverty into the middle class in the last decade.
America Is the New Brazil
If Brazil is the new America, as Davidson says, what happens to the old one? Simple: America is the new Brazil. Davidson explains:
The good thing about Brazil is that the country suffered even higher and more impoverishing inflation over the last half century than the United States. Economists from Brazil's largest private bank, Bradesco, assert that the accumulated inflation in Brazil between 1961 and 2006 was 14.2 quadrillion percent.
Indeed, decades of hyperinflation provided Brazilians with a valuable education that residents of the U.S. living with a more gradual and tolerable inflation missed. Runaway inflation taught Brazilians that financial crises were not just theoretical possibilities or footnotes from the distant past, but vivid realities.
They also learned that chronic deficit spending and quantitative easing are recipes for economic disaster. Through the strong leadership of then-finance minister, and later the 34th president of Brazil, Fernando Henrique Cardoso, Brazil successfully implemented radical reforms to curtail deficits and outlaw their deficit financing by the banking system.
Cardozo and Franco "also criminalized a major source of inflation," and "threatened bank officials with jail if they lent money to the government." Do you think the executives of big banks who are members of the Fed's primary dealer system would go along with the gag and finance Obama's deficits if by doing so they faced arrest and the possibility of long prison terms? I don't. And that is one reason I think Brazil's economy has a brighter future than that of the United States, where the introduction of QE3 is the latest and least mistakable prelude to hyperinflation.
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