It Gets Ugly in Brazil

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“Pretty Soon We Have to Start Labeling this a Depression”: Goldman on Brazil

Brazil, the largest economy in Latin America, now the 8th largest in the world, down from 6th place during the glorious BRICs days of 2011, is sinking deeper and deeper into trouble.

An epic corruption and kickback scandal surrounding state-run oil company Petrobras is spreading up the government pyramid to the highest levels – a week ago, the government’s Senate leader was arrested for allegedly trying to meddle in the investigations. As the scandal is metastasizing, political decision-making is gridlocked, and the confidence of consumers and businesses has been demolished.

The budget deficit is ballooning as the economy is spiraling down. On Monday, the government imposed a partial shutdown and froze discretionary spending. Standard & Poor’s has slashed Brazil to junk, citing government finances, the political mess, and the deepening economic nightmare. Moody’s and Fitch still rate it just above junk, with their downgrade fingers itching to pull the trigger.

All this comes at the worst possible moment for the economy. GDP fell 1.7% in the third quarter, the national statistics institute (IBGE) announced today. Year over year, GDP plunged 4.5%, the sixth contraction in a row, and the worst since the beginning of modern records in 1996.

“There is no room for any growth in the coming quarters,” Andre Perfeito, chief economist at Gradual Investimentos in Sao Paulo, told Bloomberg. “The situation is really, really bad,” he said, likening the GDP report to “an obituary.”

This is what Brazil’s annualized GDP growth rates look like for the past 12 quarters:


The economy was dragged down at all corners. Manufacturing fell 3.1%. Business investment dropped 4%, down for the ninth quarter in a row. But this year, even consumer spending is plunging, whacked by rising unemployment – now at 8.9%, according to the official unemployment rate – and soaring inflation, now over 10%, which is sapping the purchasing power of the lucky ones that still have jobs.

“The idea that consumers might not have income to service debt in the years to follow I think is what terrifies them,” Barclays economist Bruno Rovai told Bloomberg.

To fight rampant inflation and put a floor under the real that has collapsed 46% against the dollar since June 2014, the central bank has been jacking up its benchmark rate, now at 14.25%!

With borrowing costs this high, companies that are already struggling have shelved any thoughts of investing and expanding.

So industrial Production in September, as the IBGE reported earlier, plummeted 10.9% year over year, the 19th month in a row of contraction. The problem started in 2012, when industrial production began falling, though there were spurts of growth in between. But since April 2014, it has been a bumpy downhill slope.

Business confidence in November, reported by the Confederacao Nacional da Industria (CNI), rose to 36.4, bouncing off the all-time record low in October of 35. Even during the Financial Crisis, businesses were more optimistic, with confidence never dipping below 47. Below 50 indicates a lack of confidence, and now it has been below 50 for the 20th month in a row.

“We’re at the bottom of a deep pit and it seems that we’re still digging,” Alberto Ramos, chief Latin America economist at Goldman Sachs, told Bloomberg. “When you look at the numbers just on the domestic demand side, excluding net exports, the way this is going, I think pretty soon we have to start labeling this a depression rather than just a recession.”

It looks even worse going forward. Markit just released its Brazil Purchasing Managers’ Index for November: it dropped to an 80-month low of 43.8 (below 50 = contraction), last seen during the depth of the Financial Crisis. It has been below 50 for 10 months in a row. And “the rate of contraction accelerated and was the most pronounced in 79 months.”

It looked terrible all around. New orders fell for the 10th month in a row, “and at a sharp rate” due to “deteriorating demand conditions and a fragile economic situation across the country.”

Companies lowered production levels again and cut their purchases at a rate that “remained steep,” as average purchase prices “rose at a sharp rate.” Manufacturing “posted a sharp decline in output.” The backlog of work fell again. Cost cutting prevailed, as companies slashed their workforce numbers at the “quickest pace since April 2009.”

“The downward trend appears to be exacerbated by sharp inflation rates,” Markit said, pointing at rising input costs and output charges.

The outlook for the sector looks bleak. Falling employment combined with rising tax rates, soaring borrowing costs, and a subsequent drop in income look set to deepen the country’s downturn. Even the weaker currency is failing to lift foreign orders. Higher cost burdens are proving to have a greater detrimental impact on firms, which struggle to compete at the global level in an already – subdued demand environment.

Brazil accounts for over 3% of global GDP. And it’s not the only major economy that is struggling. Russia is in a deep recession. Taiwan and Japan are in a technical recession. Canada just emerged from a technical recession. Italy is threatening to sink back into a recession, after having spent several years in a recession. China is slowing down. Other countries are mired in slow growth. The US faces a swoon in manufacturing and exports, weak retail sales, and ballooning inventories….

It’s not an ideal situation.

You’d think that after seven years of global central bank interventions, waves of QE, relentless ZIRP, and more recently NIRP, plus record government deficit spending – the biggest stimulus of all – in addition to the greatest asset price inflation the world has ever seen, that the global economy would be hopping by now. But it appears the experiment has failed miserably.

They tried to spin it in the most favorable light in the US, and even then it was ugly. Read…  There Better Be a Miracle for Retailers

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  18 comments for “It Gets Ugly in Brazil

  1. polecat
    December 1, 2015 at 9:47 pm

    yeah……..Goldman Sachs, with their “depressionary ” tentacles sucking every sovereign on the planet dry

  2. VegasBob
    December 1, 2015 at 11:07 pm

    No country in world history has ever printed or borrowed its way to national prosperity.

    Despite the idiotic delusions of the world’s central bankers, this time is NOT different…

    What’s happening now in Brazil will be the American story as well when America’s economic bubbles finally implode.

    • CrazyCooter
      December 1, 2015 at 11:25 pm

      Yup. I like to tell people to pay attention to Greece, because that is the trial run for everyone else.

      Everyone these days making good money is usually involved in “skimming operations” (or closely tied to one) rather than productive enterprise. Health insurance is not legitimate insurance, it is a redistribution scheme (car insurance is a legitimate insurance, it redistributes risk). Real estate and banking/finance are middle men in a bit scheme to produce nothing and charge something. I get that service industry has a place – but if I look at what I spend my monthly salary on it is goods; food, fuel, energy, clothes, and such. Maybe there is some value there for all this busy middle work, but not worth what they charge – it has become perverse.

      With the lobbyists always layering on more complexity to carve out their market protections for their clients, at the expense of others, we are on a fast track to outright oligarchy with no chance for innovation, improvement, or even the working Joe to have a shot to climb up out of the muck – despite his/her talent, ability, work ethic, or morals.

      This is an abject waste of our most valuable capital; people. And for the benefit of very few.

      PCR railed on the ZH crowd for mocking the Greek women selling themselves for essentially sustenance. But that is what is coming our way – collectively. Good if you are an oligarch (or an employee of said oligarch) with no moral compass – but this has never ended well in history nor will it this go around. See the French Revolution (among many potential candidates for illustration).

      We have a vastly complex society that needs literally millions of different kinds of skills sets going to work every way to enjoy the prosperity we savor in this moment. The poorest in American today are richer than the kings of two hundred years ago, by orders of magnitude. But that will surely change if the breadth of society is not busied with productive work – supporting their families and our next generation.



    • ucde
      December 2, 2015 at 12:32 am

      That’s really not true. America did just that during from the New Deal to WWII era, which formed the groundwork for the 50s-60s-(early)70s period now widely regarded as the American golden age.

      “From 1933 to 1935 the Public Works Association spent $3.3 billion with private companies to build 34,599 projects, many of them quite large.” Infrastructure investment galore.

      WWII was also deficit-funded. And it was primarily the outcome of that war which led to America becoming the world’s superpower.

      What has generally never happened, in my historical reading, is unregulated free market economics (translate: monopolists and rentiers running things) has never lead to the ascendency of successful, high social capital, industrial societies. Take Germany and Japan as two more examples of countries which, by dint of deliberate public investment, also became leading nations in their industrial and cultural development (relatively speaking).

      Take the UK and US in the period 1980-2015 as striking counter-examples. Our trends have been towards deregulation, in other words, we have favored monopolists and rentiers. Because Goldman Sachs is supposedly better than the despised government.

      Starting from positions of industrial and cultural pre-eminence totally unrivaled in modern history, these two nations have… effectively done nothing much of note at all in the last two decades, aside from spawning the Computer revolution (admittedly, that’s a huge accomplishment, which was also born of publicly funded research which was slowly incubated in the 60s-90s). We have certainly not pulled ahead. And while it may be said that both countries have practiced money printing, its not money printing per se that matters, its the method of distribution which is decisive.

      I can’t find an example of a free market economy with low government spending which gave birth to anything of note. Hit me up with counterexamples, if you have them. Free market Russia and Soviet Bloc proved you could ‘accept the new gods’ and … not really go anywhere fast. I understand that Austrians think deficit spending is the cardinal sin of governments. That illustrates of a lack of understanding, in my way of seeing things, that government deficit = private surplus. And the never-ending cocktease of currency crisis fears isn’t doing them any favors either, the Cato institute’s own investigations showed that the 56 hyperinflation events in recorded history were “caused by exogenous factors” e.g. “hyperinflation is not a monetary event”. (see

      • Nicko
        December 2, 2015 at 5:47 am

        Ucde, I like your thinking. Capitalism is on the brink, we’re teetering on the edge of full blown feudalism (if we aren’t back there already). Governments around the world are starving for funds and change is in the air. When things get really bad, people usually end up rallying behind government, so that is a good indicator of where growth will inevitably come from.

      • Mike Sutherland
        December 3, 2015 at 2:58 am

        “I can’t find an example of a free market economy with low government spending which gave birth to anything of note. Hit me up with counterexamples, if you have them.”.

        WTF. What a thoroughly ridiculous and completely arrogant statement. Just about everything you have and your life depends upon was done without a dime of government spending. To wit:

        Electric power (Edison, Tesla)
        Electric lighting (Edison, Tesla)
        Electric motors (Tesla)
        Flight (the Wright bros)
        Television (John Bardsley)
        Relativity and Special relativity (Einstein, patent clerk)
        Internal combustion engine (Daimler, Benz, Otto, Diesel, Atkinson, and others)
        The transistor and first CPU (inventors at Fairchild, Texas Instruments)
        Theory of electromagnetism (Maxwell, Heaviside)
        The printing press (Gutenberg)
        The Laser
        The Radio (Marconi)
        Modern Steel production (Besemer)
        Modern structural design (Brunel et al)
        Boyancy (Archimedes)
        The Lorenze Transform, precursor to Relativity (Lorenze)
        Calculus (Newton)
        Theory of Gravity (Newton)
        Thermodynamics (Carnot, Rankin, Kelvin et al)
        Ideal Gas Law
        Vulcanized Rubber (Goodyear Corp)
        Nylon and other synthetic fibers (Dow Corning)
        Most elements on the atomic Table (Mendeleev, Priestley, Et al)
        The VCR (Sony, JVC)
        The personal computer (Commodore, Jobs, Wozniak – perhaps you’ve heard of the last two)
        The centrifugal pump
        The tricone drill bit (Hughes)
        Rotary Drilling
        The windmill and its later variants
        Mass production (Ford, Whitney, and others)
        Pressure Gauges (Bourdon and others)
        The Bernouli Equation (Bernouli)

        Not a single cent of your beloved government money was spent on the inventions noted above, and most of them were done at times when governments were nothing more than dictatorships, monarchies, fascists, and generally oppressive at that. But I guess a liberal government accolyte such as yourself would conveniently forget about such things.

        “Hit me up with counterexamples, if you have them.”.


        • December 3, 2015 at 8:47 am

          I think that you might have misunderstood ucde’s statement: “I can’t find an example of a free market economy….”

          What you listed are examples of great inventions. But ucde was looking for examples of “free market economies” that did certain things. So perhaps something like this: “X country in the 1860s with y kind of economy that produced a,b, c, and d.”

  3. economicminor
    December 2, 2015 at 12:02 am

    I liked most of your comments until you got down to the poorest being richer than kings of old… That is blatantly absurd. People who owe more than everything they possess and have debts beyond their earnings have a negative net worth. They are essentially slaves or serfs, Most of them don’t even have a witch doctor to go to and their medicine is pot or alcohol. And just like Rome of old, there are games to distract the masses while the elite play in their saunas and baths and dine with pretty people hand feeding them the fruits of the day.

    I see our *new* current system akin to the old feudal system with the only real difference is what we use for energy. Back then it was hay and peat and wood and today it is NG and oil. Many things have changed but for most of the workers or those who can’t find even meaningful employment, a serf is still a serf at the masters beckon and call.

    • CrazyCooter
      December 3, 2015 at 2:29 am

      I said ” The poorest in **American** today are richer than the kings of two hundred years ago.”

      Today, a poor working father, with a bit of cash in his pocket, can go into a Doc-In-The-Box when his daughter is running a horrible fever, pay 50 bucks (or 100), get a script, go to WalMart, pay 10 bucks (or 25) and she won’t die from a simple infection. The poor are fat. The poor are entertained with TV, smart phones, video games, and cheap drugs like pot and alcohol. Depending on their circumstances and where they live, they almost always have flushing s**ters, a refrigerator, heat and/or air conditioning, electricity, and a dozen other modern marvels such as an electric/gas stove.

      The kings of yore had hundreds of humans, ready to take care of any need, but they had none of these luxuries.

      And absent an employed working class, it will all go away for the working class.

      Yes, they are debt slaves, but that is a choice they make – mostly through their own ignorance. However, due to blogs such as this one, more and more are seeing the game and opting out. Eventually, this might “catch fire” so to speak.

      We agree about employment opportunities.

      The old folks around me, when I was much younger, used to say a lot of things. Some of it stuck. Much I didn’t understand until later in life. As weird as it sounds, I feel I rediscover stuff they said years, or even decades, after the fact. I mean, something happens, the light goes on, and I sort of remember being told this ages ago. In this case, I think the saying goes, “most folks are as happy as they want to be.”

      If people choose to be debt serfs, it is their choice. If you try to educate them, you might just piss them off instead. If you had a 1.0 batting average clueing people in, you could make big bucks doing a blog and you might just be JC come back to us. Accept the nature of humans for what they are – work from there to make things better.



  4. BoyfromTottenham
    December 2, 2015 at 12:33 am

    Perhaps the government in Brazil has confused “NIRP” for “NGRP – negative growth rate policy”!

  5. Paulo
    December 2, 2015 at 9:34 am

    How many see the poor boy from some city lay down his Glock or MAC and sign up to build a road through Glacier Natl. Park, or the Hoover Dam? I don’t. First, there will be crime increases, then protests, a shooting mistake or pepper spray event and….Kaboom. (Oh darn, much of that is already happening).

    From Wiki:

    “Almost every community in the United States had a new park, bridge or school constructed by the agency. The WPA’s initial appropriation in 1935 was for $4.9 billion (about 6.7 percent of the 1935 GDP), and in total it spent $13.4 billion.[2]

    At its peak in 1938, it provided paid jobs for three million unemployed men and women, as well as youth in a separate division, the National Youth Administration. Headed by Harry Hopkins, the WPA provided jobs and income to the unemployed during the Great Depression in the United States. Between 1935 and 1943, the WPA provided almost eight million jobs.[3] Full employment, which was reached in 1942 and emerged as a long-term national goal around 1944, was not the WPA’s goal. It tried to provide one paid job for all families in which the breadwinner suffered long-term unemployment.[4]”

    Somehow, I think the Govt. of the day will just run more deficits, make sure the EBT cards work, ensure big corporations increase their profits off of the situation, and speak about their good friends Warren Buffet and Bill Gates, all good folks who would pay more taxes if only…….

    Spare time, no easy and apparent opportunites, lack of work ethic, and family disintegration is not a recipe for pulling oneself up out of misfortune and bad luck. No, there will be, “You have _______, I want it, and I will take some if you don’t give it to me, now”.

    There are some cities it might be prudent to leave before this show begins.

    • CrazyCooter
      December 3, 2015 at 2:41 am

      They put a lot of lipstick on it in the history books, but works programs were a desperate attempt to keep people working/busy to avoid what happens when people are desperate, without work, and with nothing to lose.

      Mark my words – we have this now with EBT and all the other social programs. If these funds are ever cut off – all hell will break loose in the areas where benefits are most concentrated. Do your homework and move the hell away (hundreds of miles – minimum). This is old, but makes a very clear point on the subject:

      Many other regs were simply straight up attempts to control everything from a central command. This was so ridiculous at one point, you got this as a SUPREME COURT CASE:


      And I didn’t want to get into it with the dudes up thread, but the US came out on top because the war (numero dos) wasn’t fought on our soil, we came in late, and dictated the future. To the victor go the spoils. We got BrettonWoods, screwed it up with Vietnam (and NASA if I must be honest) and lost it by ’71. War is a HORRIBLE use of capital. I get pissed when folks even bring it up, but it has never worked explaining it to them.

      War is about killing people and blowing things up – it is economic progress in full reverse. The folks that cite it almost exclusively never volunteered or felt or smelt the blood. It does not produce prosperity, but it can transfer prosperity from many to a few. Those few who benefited think it is dandy when they forget the cost.



  6. Markar
    December 2, 2015 at 10:51 am

    So Petunia, how bad does it need to get in Brazil before the Brazilians start dumping their Miami condos en masse? It seems the Miami RE market has seen this show before.

    • Petunia
      December 2, 2015 at 11:54 am

      I don’t think they will dump their condos in Miami. The condos are bank accounts for them. If they had the money in Brazil the govt would definitely tax it.

      What I am wondering is how much outsourcing is going on in Brazil, especially to India and the Middle East.

      • CrazyCooter
        December 3, 2015 at 2:45 am

        People laugh at this, but it is true. Back when NAFTA first passed, there were many businesses that shipped jobs to Mexico. Ten years later I was reading news where those jobs were going to India and China and the Mexicans working these jobs were getting laid off.

        Globalization is a race to the bottom (from my perspective) … work is sent to the cheapest place where the risk is palatable and still profitable. The highest wage earners in the world have the farthest to fall, and those with the lowest wages have the most chance to rise up – this system wants to equalize wages across the board.

        Ironically, China has this problem now, as wages keep rising – so companies are now looking for the next place to set up show with cheaper wages – which is India.



  7. Joe
    December 2, 2015 at 11:34 am

    How long before the “Generals” take over?

  8. prepalaw
    December 2, 2015 at 11:55 am

    This one of the best threads on Wolf Street. The fundamental problem is the insatiable quest for great efficiency. I will ignore quests based on fraud and greed because they are off subject.

    The world lives by the credo of doing more with less. For example, how could you employ the 94 million workers in the US, who are not counted as unemployed. Do we dispatch them to WPA camps and give them shovels to dig drainage ditches and canals. One modern excavator can do the work of a 100 ditch diggers. Robotic devices are replacing workers in factories. The trend will continue until there will be no more production workers in a plant – only maintenance personnel and bookkeepers. Plainly stated, there are not enough jobs to go around.

    Governments try to fill the void by employing some people – many jobs are redundant, low skill and good pay, etc. But the headcount isn’t that much and there are limits to the number of government jobs.

    Governments could instigate wars – but I doubt that in the 21st century you will find very many volunteers to participate. Absent extreme coercion, wars “employing” millions of people are thing of the past.

    Corporations are doing everything to reduce their people costs – moving jobs overseas; and moving lower paid workers onto US shores to replace American workers. It would help the job market greatly by forcing corporations to make everything in the US – that would require the USA to become an insular society – repudiate commercial treaties and tariff imports very hard to “level the playing field”. That action would stimulate the US economy at least for 10 years. And cost the corporations little in net profits, through tax gimmicks, higher prices and the elimination of foreign competition. But looking deeper into the future, the processes of automation will continue unabated until very few humans are required to make stuff.

    When I grew up in the NE in the 1950s and 60s, the entrepreneur was worshiped. The guy invented something in his garage. Today, I guess the guy being worshiped, is that person who floats a company on the stock market and becomes an instantaneous billionaire. When I grew up, there was the concept of the “public interest”. The cost of a post-high school education at a state college was low. Government workers received pay lower than in the private sector in exchange for good pension and healthcare benefits. Today, they get better pay and better benefits. America was back then somewhat underpopulated. Today, America has reached population saturation.

    There is no one in government or in authority who says: There aren’t enough jobs to go around – we need to do something. And for this question, I have no answer.

    • CrazyCooter
      December 3, 2015 at 3:01 am

      Wonderful comment. I look forward to seeing your posts on future threads if they are as thoughtful.

      I view this as an energy issue and the energy surplus, primarily fossil fuels (coal, oil, nat gas) is rolling over. This isn’t an OMG its PEAK, but these things are toppy as far as supply goes and new supply won’t be cheap. Too many processes depend on the older business model of cheaper inputs, particularly energy and petro chemicals, although the later being the lesser problem.

      This is going to greatly squeeze, over time, the old way of doing things. This leads to my next point.

      I also view this in the lens of Kondratiev waves where computing tech was the last cycle (very long in the tooth) and it is enabling the next cycle (early phases – boom to come). I thought for years the next cycle would be nano-tech (my best horse), but might be bio-informatics. It turns out that automation looks to be the next K-Wave, at least that is what I see in front of me now.

      Which is precisely what you just pointed out will unemploy the whole freaking world. Yet at the same time, could significantly cut energy inputs to achieve the same production, at least in some markets/fields. Kind of like the cost of 100 men to dig a ditch versus one in a Cat – it is fossil fuel and tech versus meals and tooling for the crew (and other overheads – labor is expensive and ObamaCare doesn’t help).

      I need a nice hike in the rain forest … or enough days of snow so I can go panning …



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