. Gkishot: I would like to hear your argument behind this statement. ***** October 20, 2009 SouthAmerica: I thought I gave the answer to your question on my prior posting, but here is further clarification for you. There is good foreign capital = long-term foreign capital (over 5-years) that can be used to build something of value in Brazil such as a factory or other long-term investment that in turn creates Brazilian jobs, and helps create a sound economic activity inside Brazil and so forth⦠There is bad foreign capital = hot money that is speculative money that creates nothing of value â other than making a quick buck for the people who are doing the gambling - and this type of bad foreign capital you can look at it as a form of âcancerâ that in due time would destroy the health and the foundations of your economy and even cause a collapse and meltdown. The 2 percent tax on all foreign capital might discourage the good and productive kind of foreign capital â the type of foreign capital that helps develop a country â but it does very little to stop the harmful and bad foreign capital and the gambles and speculators with their fast moving hot money. .
Brazil is on "bubble watch," as far as I'm concerned. Given the instability and stratification in the country, any commodity shock to the downside will severely undercut Brazil's economy. The gains in the real and Brazilian equity markets have gotten so far ahead of themselves that it's hard to overstate the bubbly.
SouthAmerica: It is not the real that have gotten so far ahead of themselves - it is the value of the US dollar that is being turned into Confetti by the US government policies. The smart money is getting out of the US dollar (ahead of the herd) and that is inflating the value of other currencies such as the euro and the real. .
I think you have it exactly backwards. Much of the FDI into Brazil is "dollar carry trade" due to the very low cost of borrowing in USA and very high real rate of return in Brazil. In past when the IOF (at 1.5%, now 2%) existed, it applied to both the entry and exit of funds, so that is a 4% burden on the short term dollar carry trade. - Same as if the FED raised interest rates 4%. I.e. it will kill the short term dollar trade as now the risk > reward. The flood of dollars into Brazil, caused by US excessive borrowing and printing too many, is in part just trying to preserve owner's purchasing power as dollar declines. This FDI has been hard on Brazil's exporters. In some sense the US's effort to save its self is damaging Brazil. Thus the new 2% IOF is just a "self defense" measure.
October 20, 2009 SouthAmerica: Maybe the next century will be China's century. Who knows? But the current century will be a different ball game and we will have 4 or 5 distinct major economic superpowers: 1) the US group, 2) Euroland group, 3) Asian group, 4) The Gulf states group, and a 5th group that might not be even in the radar at this point. But I am not smart enough to figure out what the world is going to look like 100 years from now - a world with all kinds of new technologies that we don't even have a clue about them today. It makes sense to me that Brazil be part of the Asian group with Brazil and China complementing each other on its economic development goals for decades to come. In the economy of the future Brazil has a major advantage over China regarding the potential to lift the standard of living for the largest number of people on both countries since Brazil has only 200 million people and a lot of resources (Brazil even has the capability of being 100 percent self-sufficient in every sense) and China has over 1.3 billion people and it depend for its survival in bringing natural resources from around the world to be able to build its economy. .
Billdic: I think you have it exactly backwards. Much of the FDI into Brazil is "dollar carry trade" due to the very low cost of borrowing in USA and very high real rate of return in Brazil. ****** October 20, 2009 SouthAmerica: Today, the US economy is an artificial economy based on US government intervention and all kinds of distorted information based on Mickey Mouse accounting rules. The low interest rate that we have in the US is an artificial rate designed to blow bubbles and create a mess in the US economy for the long run. Brazil has the wrong policy right now. To destroy this artificial "dollar carry trade" the Brazilian government has to create a heavy tax to punish the people who are playing the "dollar carry trade" game. If there is an 80 percent exit tax on all these "dollar carry trade" game gains then the speculators might move their hot money game somewhere else and screw some other countryâs economy. .