Welcome To Hell – Central Banking At Work In Brazil and Beyond

But Lula’s term was anything but that. Brazil made major inroads in Global Economy Prospects. It is part of BRIC club, hosting both Olympics and World Cup Football etc.

Since prosperity was all along nothing more than a eurodollar illusion, the widespread eurodollar retreat left EM economies increasingly vulnerable to financial-driven irregularity. Thus, Brazil’s economy in the last few years acts as if it has reverted to the worst forms of monetary irregularity in its modern past. The amount of economic chaos is really proportional to the level of growth that was “allowed” to condition the overall economy to the eurodollar itself. That suggests we really have no idea just how far and how long this depression might last in Brazil because the eurodollar expansion had been at work for more than a decade to 2007, and then another four or so years after that.

What we find in Brazil is, however, only just the most extreme example of what we find all over the world – not just China and other EM’s but also the US and its own “manufacturing recession” that is already itself nearly two years old likewise without visibility as to its potential end (and therefore increasingly expressive of depression). These are all variable forms of the same condition – monetary strangulation on a global scale. Unfortunately, unlike textbook currency elasticity there is no money supply “cure.” As I wrote last week in identifying bond yields that go only further and further down (the warning of the interest rate fallacy):

The resulting paradigm shift in eurodollar money has been an equivalent paradigm shift in the economy. No matter what central banks attempt or propose, they cannot possibly succeed. That is what bond markets and interest rates have actually been declaring this entire time outside of a few discrete periods of euphoric, emotional mania (the last being the middle of 2013). Monetary conditions in the real economy are exceedingly “tight” and getting more so all the time. This has nothing to do with the business cycle, real or assumed. It’s not about recession, it is about depression; a more than temporary deviation from health…

Unfortunately, the answer is not to increase the eurodollar supply because there is simply no way to do so. The eurodollar must be replaced, but our central bank “heroes” are busy instead coming up with ways to explain why QE didn’t fail (it was the economy’s fault). The end result is thus the familiar social and political upheaval that accompanied the earlier extremes in monetary imbalance.

The end result is “Welcome to Hell”, an increasingly familiar global condition. Brazil is not an isolated case of idiosyncratic factors, it is the worst example of the “dollar” decay that has yet to identify its own worst case. It is the economic side of the bond market’s warning.

Just clueless about what is happening…

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