Well it’s official. The I.M.F has structured a $41.5 billion international bailout, designed to protect Brazil’s currency. The U.S. share is $18 billion ($600 is your share!) What a waste of time and money, and do you know what is going to happen? The money will last long enough to get the “big boys” out. They will sell and receive payment in full. Then Brazil’s currency will be allowed to falter. Haven’t we seen this movie before? The point that allows such a bailout is the idea that a Brazilian devaluation may start a global financial meltdown? That's interesting. Every official spokesman that I hear talks about this wonderful prosperity. I think the real intent is to lull us all to sleep and regain investor confidence. This may prevent a descent into Asian-style chaos. Brazil’s currency should be allowed to fall.
The investors who put their money there should lose it, but instead we will bail them out. The “hot shots” will take their money and run and then the currency will be allowed to collapse. Who will suffer? Why, the Brazilian people of course. Especially the working class. Boy, does this sound familiar. The fact of the matter is that the Brazilian Real is overvalued. If we really want to help them, then let it go now. If a devaluation would be allowed now, those responsible would bear the brunt of the losses. Brazil’s exporters would become more competitive and their interest rates would fall. The pain would be spread to those who benefited the most. After all, Brazil should be able to manage a controlled devaluation.
It has done so before, in 1995, after Mexico’s crash. President Fernando Henrique Cardoso has made it clear that devaluation would be a “political disaster”. But the other shoe has to fall. We can not continue to support the banker’s follies throughout the world. The U.S. economy is operating on a stock market driven consumption boom, and the stock market itself has reached unrealistic levels. Asia’s problems are far from over and elsewhere in Latin America, the concerns about who could be next, have created the ingredients for a global crisis.
Sure we have faced this before and survived, but at what cost ? A heavy rate of taxation and deficits that just won’t quit. Whether or not a disaster can be avoided will depend primarily on whether markets maintain their faith that America’s Treasury will come to the rescue. I certainly do not see that perception changing. We seem to be more than willing to clean up the losses created by our privately owned banking system. How about we share the profits? This will be just one more failure in a run of I.M.F farces. Just like the Russia situation, any attempt to prop up a country with high interest rates and big loans have failed. In fact if the I.M.F fails this time they should never be given another American dime.