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The 7th largest economy on the entire planet is completely imploding. I have written previously about the economic depression that is plaguing Brazil, but since my last article it has gotten much, much worse. During 2015, Brazil’s economy shrank by 3.8 percent, but for the most recent quarter the decline was 5.89 percent on a year over year basis. Unemployment is rising rapidly, the inflation rate is up over 10 percent, and Brazilian currency has lost 24 percent of its value compared to the U.S. dollar over the past 12 months.

At this point, Brazil is already experiencing its longest economic downturn since the Great Depression of the 1930s, and things are getting worse for ordinary Brazilians every single day. The following comes from CNN…

But with Brazil plunging into its worst recession in over two decades — hopes for a brighter future are fading. The Brazilian economy shrank 3.8% in 2015, according to government data published Thursday. That’s the biggest annual drop since 1990 and the country is in its longest recession since the 1930s.

“I have never seen anything like this,” said Alves, 24, as he stood on his balcony overlooking Rocinha, a massive lower middle class neighborhood or favela in Rio de Janeiro where he grew up. “My parents would tell me about hard times, but today it is really tough. Prices are going up every day.”

So how did this happen?

Well, there are a couple of factors that are really hurting South American economies.

Number one, during the “boom years” governments and businesses in South America absolutely gorged on debt. Unfortunately, many of those loans were denominated in U.S. dollars, and now that the U.S. dollar has appreciated greatly against local South American currencies it is taking far more of those local currencies to service and pay back those debts.

…click on the above link to read the rest of the article…

The Economic Collapse Of South America Is Well Underway

March 4, 2016

The Economic Collapse Of South America Is Well Underway

But with Brazil plunging into its worst recession in over two decades — hopes for a brighter future are fading. The Brazilian economy shrank 3.8% in 2015, according to government data published Thursday. That’s the biggest annual drop since 1990 and the country is in its longest recession since the 1930s.

“I have never seen anything like this,” said Alves, 24, as he stood on his balcony overlooking Rocinha, a massive lower middle class neighborhood or favela in Rio de Janeiro where he grew up. “My parents would tell me about hard times, but today it is really tough. Prices are going up every day.”

So how did this happen?

Well, there are a couple of factors that are really hurting South American economies.

…click on the above link to read the rest of the article…

Ukraine Collapse Is Now Imminent

February 28, 2016

Ukraine Collapse Is Now Imminent

Via GEFIRA,

Two years have passed since Yanukovich was deposed and, as it turns out, another ruthless clan of oligarchs has taken power. No wonder then that Ukraine is heading for a new wave of violence and chaos. Oligarchs are fighting each other, the IMF is pulling out of the country, officials issue laws and regulations only to see them repealed within a day or two by others, and raided European companies are leaving the country after being robbed by the so-called pro-Brussels oligarchic elite.

It was evident from the beginning that the US and NATO-sponsored power transition was doomed to fail. Prime Minister Yatsenyuk made no secret on his personal website about his principal partners, NATO and Victor Pinchuk’s foundation. Victor Pinchuk is a link between the Ukraine corrupt oligarchic establishment and the Western political elite. In 2005, the BBC depicted him as a paragon of Ukraine’s kleptocracy:

“Ukraine’s largest steel mill has been bought by Mittal Steel for $4.8bn (£2.7bn) after an earlier sale was annulled amid corruption allegations.

The Kryvorizhstal mill was originally sold to the son-in-law (Mr. Pinchuck) of former President Leonid Kuchma for $800m.

It was one of the scandals that sparked the Orange Revolution and propelled President Viktor Yushchenko into power.”)

Directly after the power transition, European leaders understood that the situation in the Ukraine was unmanageable, which we know from a confidential telephone conversation between Minister Paet (Minister of Foreign Affairs of Estonia) and Mrs. Ashton (High Representative of the Union for Foreign Affairs and Security Policy) that became public. Both politicians understood that the Maidan protesters had no trust in the politicians who formed the new coalition. Mr Paet said, “there is now stronger and stronger understanding that behind snipers it was not Yanukovich, but it was somebody from the new coalition.”

…click on the above link to read the rest of the article…

What Could Go Wrong? Brazil Plans To Kill Zika With Gamma Radiation Burst

February 24, 2016

What Could Go Wrong? Brazil Plans To Kill Zika With Gamma Radiation Burst

Having “nailed it” with the feces-infused water for the Olympics, killed the golden goose of its economy, and unable to crackdown on widespread corruption, Brazil now has a ‘great’ idea to solve its utterly disastrous Zika epidemic… by zapping millions of male mosquitoes with gamma rays from drones to sterilise them.

As The Telegraph reports, Brazil is planning to fight the Zika virus by zapping millions of male mosquitoes with gamma rays to sterilise them and stop the spread of the virus linked to thousands of birth defects.

Called an irradiator, the device has been used to control fruit flies on the Portuguese island of Madeira. The International Atomic Energy Agency said on Monday it will pay to ship the device to Juazeiro, in the northeastern state of Bahia, as soon as the Brazilian government issues an import permit.

“It’s a birth control method, the equivalent of family planning for humans,” said Kostas Bourtzis, a molecular biologist with the IAEA’s insect pest control laboratory.

Brazil is scrambling to eradicate the Aedes mosquito that has caused an epidemic of dengue and more recently an outbreak of Zika, a virus associated with an alarming surge in cases of babies born with abnormally small heads.

The new epidemic threatens to scare visitors away from the Rio 2016 Olympic Games in August. A Brazilian non-profit organisation called Moscamed will breed up to 12 million male mosquitoes a week and then sterilise them with the cobalt-60 irradiator, produced by Canadian company MDS Nordion, said Dr Bourtzis.

After an initial programme in a dozen towns near Juazeiro, the Brazilian government would have to decide on scaling up the sterile mosquito production with more funding for use in cities, where they would be released from the air, possibly from drones, said Dr Bourtzis.

…click on the above link to read the rest of the article…

Brazil Cut To Junk By All Three Ratings Agencies After Moody’s Joins The Fray

February 24, 2016

Brazil Cut To Junk By All Three Ratings Agencies After Moody’s Joins The Fray

Back in December we warned that Brazil faced a “disastrous downgrade debacle” that would eventually see the beleaguered South American nation cut to junk by all three major ratings agencies.

S&P had already thrown the country into the junk bin and just six days after our warning, Fitch followed suit.

Between the country’s seemingly intractable political crisis and worsening public finances, the outlook is exceptionally dire and just moments ago, Moody’s cut Brazil to junk as well.

MOODY’S DOWNGRADES BRAZIL’S ISSUER, BOND RATINGS TO Ba2 W/ A
BRAZIL’S ISSUER & BOND RATINGS CUT TO Ba2 BY MOODY’S
DETERIORATING DEBT METRICS WILL RESULT IN A MATERIALLY WEAKER CREDIT PROFILE IN THE COMING YEARS

Watch the BRL and the Bovespa. Things likely won’t be pretty.

Below, find the rationale.

* * *

From Moody’s

Moody’s downgrades Brazil’s issuer and bond ratings to Ba2 with a negative outlook

The downgrade was driven by

The prospect of further deterioration in Brazil’s debt metrics in a low growth environment, with the government’s debt likely to exceed 80% of GDP within three years; and
The challenging political dynamics, which will continue to complicate the authorities’ fiscal consolidation efforts and delay structural reforms.

The negative outlook reflects the view that risks are skewed toward an even slower consolidation and recovery, or further shocks emerging, which creates uncertainty over the magnitude of deterioration of Brazil’s debt profile over the rating horizon.

RATIONALE FOR THE DOWNGRADE

Brazil’s credit metrics have deteriorated materially since the Baa3 rating with a stable outlook was assigned in August 2015. That deterioration is expected to continue over the coming three years, given the scale of the shock to the Brazilian economy, the lack of progress made by the government in achieving its fiscal and economic reform objectives and the political dynamics expected to persist over that period.

…click on the above link to read the rest of the article…

Wikileaks Releases Proof Of NSA Spying On Merkel, Netanyahu, Berlusconi And Others

February 22, 2016

Wikileaks Releases Proof Of NSA Spying On Merkel, Netanyahu, Berlusconi And Others

In a shocking new set of cables released by Julian Assange’s Wikileaks organization, highly classified documents show that the NSA bugged meetings between UN Secretary General Ban Ki-Moon’s and German Chancellor Angela Merkel (over climate change); between Israel prime minister Netanyahu and Italian prime minister Berlusconi (begging for help to deal with Obama); between key EU and Japanese trade ministers discussing their secret trade red-lines at WTO negotiations; as well as details of a private meeting between then French president Nicolas Sarkozy, Merkel and Berlusconi, exclaiming that the Italian banking system would soon “pop like a cork.”Time for some more explaining Mr.President.

As Wikileaks details:

Some documents are classified TOP-SECRET / COMINT-GAMMA and are the most highly classified documents ever published by a media organization.

WikiLeaks editor Julian Assange said:

“Today we showed that UN Secretary General Ban KiMoon’s private meetings over how to save the planet from climate change were bugged by a country intent on protecting its largest oil companies.

We previously published Hillary Clinton orders that US diplomats were to steal the Secretary General’s DNA.

The US government has signed agreements with the UN that it will not engage in such conduct against the UN–let alone its Secretary General. It will be interesting to see the UN’s reaction, because if the Secretary General can be targetted without consequence then everyone from world leader to street sweeper is at risk.”

Some examples are as follows:

European NSA Intercepts

EU, Japan Study Ways to Respond to U.S. Tactics in Doha Round Talks

Date 2006

Classification TOP SECRET//COMINT//NOFORN

WikiLeaks Synopsis

NSA report on intercepted Japanese diplomatic talks reveals details on U.S. and EU participation in Japanese economy, and commitment of EU to avoid “under-the-table” deals with the U.S.

(TS//SI//NF) EU, Japan Study Ways to Respond to U.S. Tactics in Doha Round Talks

…click on the above link to read the rest of the article…

“It’s Worse Than 2008”: CEO Of World’s Largest Shipping Company Delivers Dire Assessment Of Global Economy

February 10, 2016

“It’s Worse Than 2008”: CEO Of World’s Largest Shipping Company Delivers Dire Assessment Of Global Economy

Earlier today, we highlighted the rather abysmal results reported by Maersk, the world’s largest shipping company.

To the extent the conglomerate is a bellwether for global growth and trade, things are looking pretty grim. Maersk Line – the company’s golden goose and the world’s largest container operator – racked up $182 million in red ink last quarter and the outlook for 2016 isn’t pretty either. The company now sees demand for seaborne container transportation rising a meager 1-3% for the year.

“The demand for transportation of goods was significantly lower than expected, especially in the emerging markets as well as the Group’s key Europe trades, where the impact was further accelerated by de-stocking of the high inventory levels,” the company said, in its annual report.

Just how bad have things gotten amid the global deflationary supply glut you ask?

Worse than 2008 according to CEO Nils Andersen who last November warned that “the world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting.” Here’s what Andersen told FT:

“It is worse than in 2008. The oil price is as low as its lowest point in 2008-09 and has stayed there for a long time and doesn’t look like going up soon. Freight rates are lower. The external conditions are much worse but we are better prepared.”
As FT goes on to note, “capacity in the container shipping industry increased 8 per cent in 2015” despite the fact that Maersk only sees global trade growing at between 1% and 3% in 2016.

Imports to Brazil, Europe, Russia, and Africa are all falling, Andersen warned. The company’s business, Andersen says, is suffering from a “massive deterioration.” That, you can bet, will likely lead to a “massive deterioration” in Maersk’s shares, which took a substantial hit on Wednesday in the wake of the quarterly and annual results.

…click on the above link to read the rest of the article…

Warming linked to spread of zika virus

February 5, 2016

Warming linked to spread of zika virus

The Aedes egypti mosquito has now spread to 80% of Brazil.
Image: James Gathany via Wikimedia Commons

Scientists believe that record average temperatures may be helping to create an environment that has led to big increases in the number of disease-carrying mosquitoes.

SÃO PAULO, 5 February, 2016 – The Zika virus, transmitted by the same mosquito as dengue fever, has spread with alarming speed throughout South and Central America – and scientists in Brazil suspect that global warming is exacerbating the problem.

Although the virus, named after the Ugandan forest where it was first identified, usually causes only mild symptoms and often passes undetected, it has been associated with a surge in the number of cases of babies born with microcephaly, which can cause brain damage.

The World Health Organisation (WHO) has now declared the situation an international public health emergency.

The numbers are alarming. Until last year, while dengue fever claimed many victims, Zika was unknown in Latin America. Since first detected in April 2014, there have been over 4,000 births of babies with suspected microcephaly in Brazil, compared with a previous yearly average of 154.

Twenty-four countries in South and Central America have reported cases of microcephaly, and the rapid spread of the virus is being attributed by some scientists to global warming.

Abnormal warming

Last year was the hottest on record, with temperatures for the first time about 1°C above pre-industrial levels. But in some parts of Brazil, average temperatures rose by between 3° and 5°C, according to data from the Centre for Weather Forecasting and Climate Studies at Brazil’s National Institute for Space Research. The abnormal warming of the Pacific caused by El Niño contributed to this.

Studies by Brazilian scientists show that the Aedes egypti mosquito has spread to 80% of the country, an area of 6.9 million sq km (2.6 million square miles) − four times larger than a decade ago.

…click on the above link to read the rest of the article…

Zika Virus Threatens “Disaster In Rio” Olympics As WHO Declares Global Emergency

February 1, 2016

Zika Virus Threatens “Disaster In Rio” Olympics As WHO Declares Global Emergency

From the initial discovery in the heart of Ugandan forest darknessto mysterious genetically-modified Mosquitoes in Brazil, the newest threat to human health (most notably pregnant women) is the ominous-sounding Zika virus. The epidemic is spreading from its epicenter in Brazil – threatening disaster at the Olympics with “female athletes to consider participation “very carefully”“, to Colombia (with 2100 pregant women infected), and further north in America with CDC confirming 6 cases in Texas.

As we previously introduced, The World Health Organization is convening an Emergency Committee under International Health Regulations today, concerning the Zika virus ‘explosive’ spread throughout the Americas. The virus reportedly has the potential to reach pandemic proportions — possibly around the globe. But understandingwhy this outbreak happened is vital to curbing it. As the WHO statement said:

“A causal relationship between Zika virus infection and birth malformations and neurological syndromes … is strongly suspected. [These links] have rapidly changed the risk profile of Zika, from a mild threat to one of alarming proportions.

“WHO is deeply concerned about this rapidly evolving situation for 4 main reasons: the possible association of infection with birth malformations and neurological syndromes; the potential for further international spread given the wide geographical distribution of the mosquito vector; the lack of population immunity in newly affected areas; and the absence of vaccines, specific treatments, and rapid diagnostic tests […]

“The level of concern is high, as is the level of uncertainty.”

Zika seemingly exploded out of nowhere. Though it was first discovered in 1947, cases only sporadically occurred throughout Africa and southern Asia.

In 2007, the first case was reported in the Pacific. In 2013, a smattering of small outbreaks and individual cases were officially documented in Africa and the western Pacific. They also began showing up in the Americas. In May 2015, Brazil reported its first case of Zika virus — and the situation changed dramatically.

…click on the above link to read the rest of the article…

The Big-Oil Bailouts Begin

January 31, 2016

The Big-Oil Bailouts Begin

The hundred-billion-dollar question.

Despite a bounce this week, low oil prices continue to sow fear, uncertainty, and mayhem across the emerging market complex. On Wednesday, it was leaked that the IMF and World Bank would dispatch a team to oil and gas-dependent Azerbaijan to negotiatea possible $4 billion emergency loan package in what threatens to become the first of a series of global bailouts stemming from the tumbling oil price.

In Latin America’s largest economy, Brazil, the government has refused to rule out bailing out Petrobras, once the jewel of the nation’s crown but now a scandal-mired shadow of its former self, weighed down by $127 billion in debt, most of it denominated in dollars and euros.

If it is unable to sell the $15 billion in assets it has targeted by the end of this year – a big IF given how the prices of oil and gas assets have deteriorated – Petrobras might need some serious help from Brazil’s Treasury. According to Citi, that help could reach $21 billion – just enough to plug the company’s cash hole and fix the capital structure on a sustainable basis. That’s a big payment for a government that has on its hands a widening budget gap, a 4% economic contraction, and double-digit inflation.

Brazil is not the only Latin American economy entertaining a bailout of its national oil company. The government of Mexico just announced that it quietly injected 50 billion pesos ($2.7 billion) of public funds into the coffers of state-owned oil company Pemex.

The timing of the announcement could not have been more convenient, coming just a day before Pemex was due to launch a $5-billion bond issue, which was predictably gobbled up by investors. In all likelihood, it will be the first installment of what could end up being a very large, very costly bailout of Mexico’s oil sector. Pemex is the world’s second largest non-publicly listed company, with $416 billion in assets. But things are looking decidedly grim.

…click on the above link to read the rest of the article…

“The Level Of Alarm Is Extremely High” As Zika “Spreading Explosively” WHO Warns

January 28, 2016

“The Level Of Alarm Is Extremely High” As Zika “Spreading Explosively” WHO Warns

Meet the new Ebola.

Well over a year since the global fears over the Ebola epidemic sent US stocks reeling in late 2014 ahead of an even sharper rebound, today the head of the World Health Organization delivered a very stern warning when she said that the Zika virus, a mosquito-borne pathogen that may cause birth defects when pregnant women are infected, has been “spreading explosively” in South and Central America.

“The level of alarm is extremely high,” WHO director general Margaret Chan said Thursday in an e-mailed statement according to Bloomberg. Chan said she will convene an emergency meeting on Feb. 1 in Geneva to consider whether to declare the outbreak a “Public Health Emergency of International Concern,” which can coordinate government responses to direct money and resources at the virus. She added that the spread of the mosquito-borne disease had gone from a mild threat to one of alarming proportions.

Bloomberg adds that according to Chan researchers are working to determine the exact link between the virus and birth defects such as microcephaly, which causes babies to be born with abnormally small heads and potential developmental problems. “The possible links, only recently suspected, have rapidly changed the risk profile of Zika, from a mild threat to one of alarming proportions,” Chan told members of the WHO executive board in Switzerland.

One way in which the Zika virus is comparable to Ebola is that in both cases there is no vaccine and it could take years before one is available.

Another way the Ebola scenario could come back with a vengeance is that the WHO said that it expects the infection to eventually become common in the U.S. Travelers from countries with outbreaks have already been diagnosed on their return to America.

…click on the above link to read the rest of the article…

Mises.org: Brazil’s Easy-Money Problem

January 27, 2016

MISES.ORG: BRAZIL’S EASY-MONEY PROBLEM

Brazil is undergoing what is considered its worst economic crisis in seventy years, and there is usually no agreement when it comes to the causes of this situation. President Rousseff and the Labor Party say that it was the corollary of the “International Crisis,” a ghost of the 2008 depression created in their minds. The reality, however, is different. Since ex-president Lula Da Silva of the Labor Party entered office in 2003, the government has clung to the typical Keynesian project of growth-by-government-spending. Interest rates were lowered constantly, the amount of loans grew to an unprecedented level, savings per capita dropped, and government spending continued to grow.

For the advocates of government intervention, the country’s economy was heaven on earth. It should be of no surprise that Paul Krugman, the defender of America’s Quantitative Easing, said that Brazil was not a vulnerable country. However, those policies so strongly defended by some economists and by bureaucrats led the country toward the terrible situation in which it is now.

From the Brazilian government’s point of view, it could hardly get any worse: the country is facing an economic depression that is likely to last at least two more years, the country’s rating was downgraded to junk by Standard & Poor’s, and a corruption scandal may lead to the impeachment of the country’s president, Dilma Rousseff. We must recognize, however, that even though this was the result of the government’s action, it simply put in practice the most prevalent ideologies of the country, which is a mixture of Marxism in politics and in the universities with Keynesianism in economics. This national ideology praises, in general, a complete dependence of the people on the government. The fact that “Brazil’s tax burden already amounts to 36 per cent of GDP” is held with pride by professors and economists throughout the country, who spread the word that public policies will create jobs and contribute to people’s welfare.

…click on the above link to read the rest of the article…

Why A Former Fed Official Fears A Global Meltdown

January 26, 2016

Why A Former Fed Official Fears A Global Meltdown

Authored by Gerald O’Driscoll, former vice president at The Dallas Fed, posteed op-ed at The Wall Street Journal,

Are we headed for another global financial crisis? The market convulsions of the past week reflected a continuation of a market selloff that began on the first trading day of 2016. Investors have reasons to be fearful—but not terrified.

This year is likely to be one of financial crises in industries and countries around the world. Whether those turn into a global financial crisis is an open question, and the answer will likely turn on the health of the U.S. financial industry and broader economy. No crisis is global if American financial markets hold up. The best I can foresee, at this moment, is that a true global financial crisis is not likely.

Pundits are focused on collapsing oil prices, which reflect the technological revolution in production among nimble private producers, combined with weakening global demand for their product. The result has been layoffs in the energy industry, and there will be more. Weak and highly leveraged energy firms have gone bankrupt and more will. But bankruptcy doesn’t necessarily mean that production will decline.

Creditors who lent to these energy producers will suffer losses on their loans, and they too might become financially impaired. If past is prologue, those lenders will be reluctant to fully realize their losses, and they will continue to view future energy prices through too-rosy glasses. Banks will be reluctant to mark down the value of nonperforming loans and book losses, or even set aside sufficient loan loss reserves. They will instead “extend and pretend”—i.e., extend maturities and pretend they expect the loans to be paid back. Will federal and state banking regulators aid and abet the process?

…click on the above link to read the rest of the article…

Canada’s “Other” Problem: Record High Household Debt

January 20, 2016

Canada’s “Other” Problem: Record High Household Debt

Earlier today, the Bank of Canada surprised some market participants by failing to cut rates.

True, the loonie was plunging and another rate cut might very well have accelerated the decline, further eroding the purchasing power of Canadians who are already struggling to keep up with the inexorable rise in food prices, but there are other, more pressing concerns.

Like the fact that some analysts say the CAD should shoulder even more of the burden as Canada struggles to adjust to a world of sub-$30 crude. In short, if Stephen Poloz could manage to drive the loonie lower, the CAD-denominated price of WCS might stand a chance of remaining above the marginal cost of production. Barring that, the shut-ins will start and that means even more job losses in Canada’s oil patch, which shed some 100,000 total positions in 2015.

Alas, Poloz elected to stay put, characterizing the current state of monetary policy as “appropriate.”

We’re reasonably sure that assessment won’t hold once the layoffs pick up and as we noted earlier, the longer Poloz waits, the larger the next cut will ultimately have to be, which means that if the BOC waits too long, Poloz may have to rethink his contention that the effective lower bound is -0.50%.

While there are a laundry list of concerns when it comes to assessing the state of the Canadian economy and the impact of either higher rates (the loonie is supported but growth is further choked off) or lower rates (the economy gets a boost but consumer spending is stifled as Canadians watch their purchasing power evaporate), perhaps the most important thing to remember is that Canada is now the most leveraged country in the G7.

According to a new report from the Parliamentary Budget Officer (PBO) the household debt-to-income ratio is now a whopping 171% which means, for anyone who is confused, “that for every $100 in disposable income, households had debt obligations of $171.”

…click on the above link to read the rest of the article…

Brazilian Real Crashes Most In 4 Years As Hope Fades

December 30, 2015

Brazilian Real Crashes Most In 4 Years As Hope Fades

Following recent strength on the heels of hope for a new finance minister, news that Ruosseff has sent the minimum-wage-hike Bill to Congress appears to have crushed the hype of any fiscal rectitude and sent Real tumbling. Down over 4% – the most since September 2011 – BRL is back above 4.00 per USD, giving up all the recent gains.

Broad weakness in EMFX…

Seems to have been exacerbated by:

*BRAZIL ROUSSEFF SENDS BILLS ON CIVIL SERVANT WAGES TO CONGRESS

A Bill that could cost BRL 4.77 billion, wrecking hopes of any improvment in the fiscal situation. As Bloomberg reports,

Brazil’s bigger-than-estimated minimum wage increase and potential credit expansion make it harder for govt to control around 11% on year inflation and cut budget gap, Marcelo Schmitt, portfolio manager at investment firm Sul America, says in a phone interview.

These initial policy steps after Barbosa replacing Levy as finance minister are concerning, says Schmitt.

And so…

This is the biggest drop in BRL since September 2011.

Charts: Bloomberg

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