BRIC+ News & comments

[2inquisitive]

Billy T,

“ Originally Posted by 2inquisitive
Billy T, No, I am not forgetting where 400 billion real number came from. The Brazilian Central Bank is (was) holding almost 200 billion in US dollars. That money came from investment in Brazil and trade surpluses. ”

No STILL FALSE. About 40 billion dollars was what the Brazilian reserves were a few years ago, and had been for several years. The Real was weaker (about 2.8R$ required to buy a dollar.) back then (a few years ago). Then commodity prices began to surge upwards, bringing lots of dollars to PRIVATE Brazilian exporting companies, mainly agriculture and iron ore, whose price per ton more than double in about one year! This great increase in the flux of dollars into Brazil did NOT GOT TO THE CENTRAL BANK, as you are asserting.

Billy, we are both essentially saying the influx of dollars ended up with the central bank. I had forgotten that Brazil has such a patchwork foreign exchange system, one official FX controlled by the central bank, and another more like a black market system. The official foreign exchange functions as I said, the dollars come to the central bank either directly or through member banks which send the dollars to the central bank. The central bank then creates reias to pay and send to the reciepient. The central bank is then holding the dollars that came into the country in addition to the printing of new reias out of thin air. Bonds are then issued to soak up those new reias out of liquidity, which places the reias back in the central bank for lending. The dollars are then listed as 'foreign reserves' and used to buy US treasuries, etc. In your 'black market' system, the dollars go to the exporters first which they can exchange for reias at their leasure. The end result is the same, the dollars end up in the central bank. I looked back and found verification for what I claimed, the 'foreign reserve' amounts borrowed money from the Brazilian economy. When the 'hot money' (foreign investment) is withdrawn from the economy, those foreign reserves should be used to buy back those locally issued bonds to keep liquidity in the Real. Here is backup:

The net total external debt of a country is equal to total external debt minus international reserves minus Brazilian credit abroad minus commercial bank assets. In turn, a country becomes a net foreign creditor when their assets abroad are greater than its liabilities. In Brazil such fact was primarily due to the 200% increase in international reserves, from 2003 to 2007. One may then asks if the switch from net debtor to net creditor was also due to a decrease in total external debt. The answer is no: the total external debt remained relatively constant during this period, as displayed in table 1.

As correctly explained by Jose Antonio Ocampo, a large share of Latin America’s international reserves derives from portfolio investments and hence are extremely volatile. In turn, when Brazilian markets are victim of a ‘sell-off’, like the one in January one cannot simply affirm that Brazil is better off than other countries due to its high level of reserves. These reserves are borrowed and therefore when 'hot money' leaves Brazil (to cover the losses from the subrime crisis, for example) there is a one-to-one decrease in international reserves.

Given that total external debt did not present any important decrease since 2003 (despite the $5.8 billion Brady bond purchase in 2005 and the $6 billion from the 2006 National Treasury debt buyback) and that ‘hot money’ is the main source of the increase in the international reserves, we would like to understand why the market is praising so much the new status of ‘net foreign creditor’.
http://www.rgemonitor.com/economoni...te_brazils_new_status_of_net_foreign_creditor

and more:

Viewed as a whole, it is the latter period that generated the largest accumulation of international reserves in Latin America, and their origin was the capital, not the current account. About three-fourths of the accumulation of reserves since 2004 (slightly over $210 billion from the first quarter of 2004 to the third quarter of 2007, for which we have data for all six economies) is the result of capital flows, and the proportion has been closer to 90% since the last quarter of 2006. So, Latin American reserves are largely “borrowed”. The source is different from the past: there has been a larger proportion of portfolio capital inflows invested in Latin American stocks and bonds denominated in domestic currencies. This again has several advantages, as it has reduced the risks associated with the increasing domestic burden of debts after exchange rate devaluation, which were devastating during past crises.

Therefore, it is neither competitiveness nor high commodity prices that explain the large amount of international reserves that the region has accumulated, but pro-cyclical capital inflows. The future will show whether these “borrowed reserves”, with their new features –i.e. the composition of the inflows—, are more resilient to an international financial crisis than in the past.
http://www.rgemonitor.com/latam-monitor/author_name/jaocampo/

 

[Billy T]

To 2inqusitive:

I too think we basically agree now on the how and whys of Brazil’s surge in foreign reserves 200+ billion in a few years from about 40billion; and that was main reason for Brazil becoming a net creditor nation (with increased internal debt); and why the Real is now weaker wrt the dollar.

I distinguish hot money FDI/hm from regular investment FDI and both from trade balance (including Exp. Pat. funds sent home to Brazil)*. I agree with your articles that the recent slide down of the Brazilian stocks and value of the Real wrt the dollar is only in the lesser part due to the worsening of the traded balance (actually now one month negative - first time in years) I.e. the negative FDI of both types has been more important. I have told why it is FDI is now negative in prior posts (Banks in US &EU will not lend and some MUST have cash so are selling prior investments in Brazil). This is more a reflection of troubles in the US and EU than in Brazil. Likewise, (although I have not recently noted it in our exchange) the fact the FDI/hm has also turned negative has more basis in countries other than Brazil. Despite the 1% cut in basic interest rate (to 12.75%) Brazil has the highest real interest in the world (>8%) the strong Yen and recently stronger dollar have made the hot money investors fear they may not be able to repay the Japanese and US banks they borrowed from to invest in Brazil.

When one understands the cause of the Real & Brazilian stocks recent slide down has very little to due with the Brazilian economy, it looks like a great opportunity to make FDI in Brazil and protect form the almost sure to come “run-a-way” inflation coming to dollar and to a lesser extent to the Euro. Brazil will be hurt, but not enough to go into recession even as US and EU slide into depression. –MHO.

BTW, there is still a third official exchange rate: the “tourist rate” where you must show your out-bound airplane ticket to qualify for a limited amount of foreign exchange. Brazil, like China, claims to have a free floating rate and that is true to a large extent, but the government feels free to participate in the open market and help determine what it is, especially when it begins to hurt voters. Also there are controls on how long an exporter can hold the dollars, etc. earned before they must be converted. When dollars were in surplus andmaking real too strong, that period was increased. Brazil's economy is very complex with a constantly changing set of rules -no one really understands it fully. The courts will cancel contracts if they think it un fair etc. -You can alsways find a judge (bribes?) who thinks your way, until some higher judge over rules him. Some judges make a good living this way and others sell light sentences to drug dealers etc. Never dull living here, but hard to keep track of the scandels.
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*Until they began to be the “first fired”, many Brazilians of Japanese origin sent a lot of money back – In one year working there they could earn 4 or 5 times more than in Brazil – Sao Paulo is second only to Tokyo in Japanese population! In the large "Liberdadi" district, English is about as useful as Portuguese. All the signs on streets and in stores are in Japanese.)

 

[Billy T]

Chinese unemployment is estimated, by some, to now have reached 10 million. Some in the West are suggesting that may bring down the CCP or at least sow the seeds for its later transformation into a less authoritarian regime. One that must ask the people to approve new programs etc. I.e. the CCP would not be able to decree economic infrastructure projects like the new world's largest airport -The terminal is more than 1 km long, and yet has better flow of passengers than most in the West! (Built in less time than new terminal 3 at London's Heathrow spent in public approval hearings! It and many other amazing structures were quickly made for the Olympics.)

I do not think so - to put that 10 million unemployed into perspective, note the Chinese unemployment rate is less than half that in the USA. Many of the jobless are now returning to their villages for the new year (of the ox) and simply will again be poor farmers, not regime changers. Where will the US unemployed go?

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"... The jobless rate in the U.S. probably jumped in January to the highest level in 16 years ...
Unemployment climbed to 7.5 percent, and payrolls fell by 530,000, the 13th consecutive decrease, according to the median estimate in a Bloomberg News survey ahead of Labor Department figures Feb. 6. Other reports may show manufacturing, services and housing shrank further, signaling more firings ahead.

... Concern that the recession will deepen after the economy contracted at the fastest pace in 26 years last quarter is prompting President Barack Obama to push for quick passage of his stimulus plan.

'The labor market will look terrible for a while,' said Sung Won Sohn, a professor of economics and finance at California State University Channel Islands, in Camarillo, California. 'If the downward momentum is not arrested, the consequences could be disastrous.' ..."

{Why not say: "could lead to depression worse than 1930." as I have said was "unavoidable" some years ago?}

Quote FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=a3SOzrLB0skY&refer=home

 

[kmguru]

Chinese unemployment is estimated, by some, to now have reached 10 million. Some in the West are suggesting that may bring down the CCP or at least sow the seeds for its later transformation into a less authoritarian regime.

Extremely wishful thinking with a hint of jealousy

 

[Billy T]

Here is the first quantative estimate I have seen of what I have been saying is main reason that stock markets in BRIC fell more than in US. (Russia had other more serious problems and the greatest drop). Namely people and companies in US and EU that had to raise cash and could not get loans, sold in the BRICs where they often still had profits rather than in US where they had losses:

"On a percentage basis, investors cashed in twice as many shares of foreign-stock funds as domestic stock funds in 2008. ..."

From: http://www.moneyshow.com/investing/articles.asp?aid=GURU-16093&iid=GURU&scode=011415


PS I agree with kmguru's post 84 comments, but need to correct my ~10e6 in post 83 to ~20e6. Thus Chinese unemployment rate may be about the same as in the US, but again I note these fired Chinese are mainly the ones that migrated to the cities for higher pay in the last few years. So they will sadly go back home and farm again. (I recommend they raise pigs as most in the cites are still growing richer and eating more pork.)

Again I ask: Where will the US unemployed go? I gave the scary answer some years ago (and recently in another thread* again by quoting those old posts.)
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*See: http://www.sciforums.com/showpost.php?p=2156629&postcount=1

 

[Billy T]

"... To get onto a sustainable long-term growth path—and to help pull the rest of the world out of recession—Asia’s economies need to become less dependent on exports in other ways. Asian governments must introduce structural reforms that encourage people to spend and reduce the need for them to save. In China, farmers must be given reliable title to their land so that they can borrow money against it or sell it. In many countries, including China, governments need to establish safety-nets that ease worries about the cost of children’s education and of health care. And across Asia, economies need to shift away from increasingly capital-intensive manufacturing towards labour-intensive services, so that a bigger share of national income goes to households. ..."

From: http://www.economist.com/opinion/displaystory.cfm?story_id=13022085

And if they do decrese exports to service better their domestic demands, then the US needs to find a new buyer for Treasuries (or balance its budget - but that seems imposible now. US must spend trillions more to climb out of GWB's hole.)

 

[Billy T]

Brazilian Economy:

Many erroneously think Brazil is very dependent upon exports but in fact it is not. Only 14% of Brazil’s GDP is exported. Exports of Chile are 45% of GDP; of S. Korea 60% of GDP; China & Germany both 30% 0f GDP. Although Brazil does export cars and airplanes, etc. most of the exports are basic material with relatively steady demand. Here is what was most exported (in millions of tons, not dollars) in Jan09 and change from Jan08:

Iron ore 1,029.2 .……..+12.1%
Sugar 420.6 ...….........+140.6%
Chicken (meat) 338.4 ..…-6.7%
Crude oil 324.5……...…..-44.8%
Cellulose (pulp) 303.4 ...+6.3%

Here is the dollar value (in billions) by destination and change from Jan08:

To USA $1,171 down 36.0% (Too poor now. - Consumption has dropped every month for last 6.)
To Asia $2,137 up 14.2% (Growing richer and population is living better despite job losses.)
To Europe 2,337 down 27.2% (Too poor to buy like it once did.)
To L.A. & Caribbean 2,152 down 37.4% (Argentina was big market in Jan08, but now is a “basket case” with imports essentially blocked to keep currency reserves.)

Total exports were 9,788 billion dollars and total of above four is $7797 so one can infer that RoW (Africa, Mid East, Canada etc.) total was $1991 but no data is given in my local paper as to sales to RoW in Jan08.

Thus US now buys less than 12% of Brazil’s exports and Asia buy nearly 22%, mostly to China. If US’s 36% drop and Asia’s 14.2% increase were to remain unchanged in Jan 2010 vs. Jan 2009 then US buys $749.4 billion and Asia buys 2,440.5 billion or Asia is 3.26 times more important to Brazil’s exports than the USA in Jan2010. This "no change" estimation is a conservative estimate as the US economy is shrinking and Asia’s is growing. I.e. In about one year, Asia will be ~3.5 times more important customer for Brazil than the USA and US will be buying less than 10% of Brazil’s total exports which are only 14% of Brazil’s GDP.

SUMMARY: Starting now, Brazil could sell NOTHING to the USA and Brazil’s GDP would DROP BY LESS THAN 2% ! If China did the same, its GDP would drop about 5%, I think, but I have not done the same detailed analysis as above for China. US is already not very important to the parts of the world that have growing economies because they are mutually trading with each other more and more every year. -Why I have said that even as US and EU slip into depression, Brazil and China will still have positive growth.

As noted in prior post Bolsa Familia has expanded Brazil's internal demand more than its cost, even in the short term.* Lula's recent expansion of it has boosted his approval rating to new record: 84%. I doubt if any elected president has ever come to the end of his term with even 75% approval. Anyone know of a counter example? Not bad for a poorly educated boy who got his first shoes at age 12!
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*The long term benefits of a healthier, better educated population are enormous, but incalculable.

 

[Billy T]

China's plans (for it reserves & economy):

"... Government borrowing will probably reach $2.5 trillion during the fiscal year ending Sept. 30, according to Goldman Sachs Group Inc. Speculation has risen that China, which holds $681.9 billion of Treasuries as the single largest investor in U.S. debt, may stop or slow the purchases of U.S. debt as its own economic growth slows.

“To the extent that the Chinese and others do not have the necessary funds, someone has to buy them,” Gross* said. “It is incumbent upon the Fed to step in. If they do, that will be a significant day in the bond market and the credit markets.”

Gross, 64, increased his holdings of U.S. government debt, a category that includes agency securities, in December for the first time in a year, according to the company’s Web site. He said today that he will not buy Treasuries. ..."

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*Gross manages the $132 billion Total Return Fund, the world’s biggest bond fund.

from:http://www.bloomberg.com/apps/news?pid=20601087&sid=a_qX29XEwEqg&refer=home

"...Mr Wen {Jiabao, Premier of China} says China, which is the largest foreign holder of US Treasury bonds, would continue to be an active participant in the market. ... But he also issues a veiled warning that China might rethink its long-term investment strategy for its reserves once the immediate crisis is over, when some economists believe the huge borrowing the US is undertaking could lead to a slump in the value of the dollar. “We will take into account China’s own needs to maintain the safety and good value of our foreign exchange reserves,” he says. ..."

From: http://www.ft.com/cms/s/0/ae6805b4-...NL/USFeb2009/Vanilla_jiabao/0/&nclick_check=1
A rare, long and informative interview with a video segment.

 

[2inquisitive]

Billy T,

Thus Chinese unemployment rate may be about the same as in the US, but again I note these fired Chinese are mainly the ones that migrated to the cities for higher pay in the last few years. So they will sadly go back home and farm again. (I recommend they raise pigs as most in the cites are still growing richer and eating more pork.)

Billy T, most of those migrant workers left their parents farms when they graduated high school. They don't have farms of their own, so have to return to their parents and grandparents farms, jobless and broke. Here is a typical migrant worker who just lost her job at a jewelry factory. She doesn't look much like a pig farmer:

Again I ask: Where will the US unemployed go?

To the unemployment office and food stamp office. If they can't get by on the unemployment benefits and food stamps, then they will have to return to their parent's or grandparent's home just like the chinese migrant worker. Where does the jobless Brazilian worker go? A jobless worker from any country? In a recession, a wealthy person may worry about the de-valuation of his savings from possible inflation, but those without savings have to worry about where they and their families will live. Yes, it is sad, but a fact of life. That is why governments will borrow or 'print' any amount of money necessary to create jobs for their unemployed.

Here is the first quantative estimate I have seen of what I have been saying is main reason that stock markets in BRIC fell more than in US. (Russia had other more serious problems and the greatest drop). Namely people and companies in US and EU that had to raise cash and could not get loans, sold in the BRICs where they often still had profits rather than in US where they had losses:

"On a percentage basis, investors cashed in twice as many shares of foreign-stock funds as domestic stock funds in 2008. ..."

Billy, you and the Brazilian media like to pretend that GDP is composed of exports and internal consumption only, in an attempt to retain 'consumer confidence' and internal spending. It is not true, there are many components to GDP, including imports and FDI. I remember reading that Foreign Direct Investment accounted for over 30% of Brazil's GDP. Europeans and Americans have invested heavely in Brazil. If those investors pull out, Brazil's GDP will take a huge hit.

As far as Brazilian trade by country goes, the US was still Brazil's largest trading partner in 2008, with $53.4 billion, followed by China with $36.4 billion and Argentina with $29.9 billion.

 

[Billy T]

To 2inqusitive:

I agree most who lose their job and cannot get another do take social aid their society may provide and when that is exhausted revert back to earlier conditions (live with parents etc.) in most societies. My point was that if most of their society is more than a generation disconnected from the land - a land based life style, then it is much harder for them than if in their younger days they did manual labor on a farm etc.

Most Chinese who migrated to the cities for factory jobs (>90% I would guess) do have this background, even the girl in your photo who worked in city jewelry shop, I bet at least feed chickens, planted rice, etc. as a child. In other words, the social disruption of 10% of the labor force losing their jobs will be harder on Americans than on the Chinese, IHMO, for this "cultural shock reason" (return to a simpler life which they never had before).

Likewise, the many of the unemployed in Brazil are not far removed from the land. In fact most Brazilians who can afford it still own a small farm (fazenda) to visit on the week-ends. Labor is cheap so for about $100 / month some rural person, barely in the "cash economy" will watch over it, feed the animals etc when you are not there. There is a saying here: One of the happiest days of your life is when you buy your fazenda - when you sell it you are even happier. I keep mine for 10 years - saying was true for me.

You posted: "As far as Brazilian trade by country goes, the US was still Brazil's largest trading partner in 2008, with $53.4 billion, followed by China with $36.4 billion and Argentina with $29.9 billion." and I have no reason to doubt that. Data I posted was for January 2009 ONLY. The US (and Argentina) are dramatically less important for Brazil's exporters now. China and Asia in general are dramatically more important now. This is just a reflection of the fact US is in recession, Argentina is a basket case, near new default and already doing so on some bonds, and China is growing at least twice as fast as the US average back when US was not in recession.

BTW, I have not seen it (as not available via the website) but Brazil has a 10 page presentation in current issue of Foreign Affairs my newspaper said. Perhaps a library near you has it? If you read it, tell me what your impression of it was.

 

[2inquisitive]

Billy T,

Most Chinese who migrated to the cities for factory jobs (>90% I would guess) do have this background, even the girl in your photo who worked in city jewelry shop, I bet at least feed chickens, planted rice, etc. as a child. In other words, the social disruption of 10% of the labor force losing their jobs will be harder on Americans than on the Chinese, IHMO, for this "cultural shock reason" (return to a simpler life which they never had before).

I don't know the percentage, but would agree that most of China's migrant workers are '1st generation' migrants. I think you may have an outdated image in your mind of the rural farms in China though, something akin to the rural rice farmers I saw in Vietnam during 1968. Both the Vietnamese and Chinese are much more advanced today, such as access to formal educations and mechanized rice growing methods. The girl in the image was likely a '2nd generation' migrant as the farm she returned to was her grandfathers. It was probably something as a cultural shock to her too, she seemed very 'westernized' with even English writing on her clothing. Here is a link to the photos of her and some other migrant workers that have lost their jobs.
http://www.spiegel.de/fotostrecke/fotostrecke-38637-2.html

Data I posted was for January 2009 ONLY. The US (and Argentina) are dramatically less important for Brazil's exporters now. China and Asia in general are dramatically more important now. This is just a reflection of the fact US is in recession, Argentina is a basket case, near new default and already doing so on some bonds, and China is growing at least twice as fast as the US average back when US was not in recession.

I don't think stating trade with the US and Argentina is 'dramatically less important' is quite accurate as December and January were the first months in years that Brazil's imports exceeded their exports. Brazil also had a large budget shortfall in January.

BTW, I have not seen it (as not available via the website) but Brazil has a 10 page presentation in current issue of Foreign Affairs my newspaper said. Perhaps a library near you has it? If you read it, tell me what your impression of it was.

I found it online. From my perspective, the impression was that it was more of an upbeat advertisement to spur pride and consumer confidence in the population.
http://www.foreignaffairs.org/sponsored_sections/country_focus/brazil/brazil.pdf

 

[Billy T]

Thanks for the link to FA's paid section on Brazil - I am losy at searching. I wonder how much it cost Brazil? Maybe it helped - The bovSP went up 8.8% yesterday.

...I don't think stating trade with the US and Argentina is 'dramatically less important' is quite accurate as December and January were the first months in years that Brazil's imports exceeded their exports. Brazil also had a large budget shortfall in January...

Yes, Brazil is following the US's example (or a Keyensian plan) and has started to deficit spend more*, and also is suspending many minor taxes, and giving back prior tax collected by withholding but not yet refunded as was in dispute and being investigated. - Some has been held 5 years as Brazil's IRS is understaffed. (California is holding back all refunds as state does not have the money to pay.)

I was speaking about the trade balance, not the budget balance. That made the newspaper as it turned negative for first time in 8 years in January 09, but then only modestly (0.645 billion). In December it was positive and greater than 2 billion.

The best three months of 2008 (in billions) were:
Exports -Imports = Trade Balance
19.303 - 15.230 = 4.073 in May
20.451 - 17.134 = 3.317 in July
20.017 - 17.291 = 2.726 in Sept.
For a three month total of 10.116 billion surplus.

I.e. the Jan09 trade deficit of -0.645B would have been a surplus if only 7% of the exports in these three months had been deferred until January 2009, but the downward trend is worrisome, I admit; however, nothing like the US’s trade problems.

I think running a deficit now is the right thing for Brazil to do. I am very pleased that it is by lots of small measures, giving money to little people in need. For example, the poor living in government built house (as owners, paying modest mortgage to the government) are just today excused from making their mortgage payments for next 24 to 36 months, depending on their family income. (Only those with that less than 5 salary miniums family incomes are eligible.) Also great was the expansion of the Bolsa Family I described a few post back. Brazil's stimulus plan is a much more intelligent approach, IMHO, than giving billions to banks. It is even better than Ben firing up his helicopter as it does the same thing without the cost of gas and maintaince on the helicopter!

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* Perhaps in 2009 the "primary account" will even turn negative.

For more on Bolsa Famila see:
http://www.sciforums.com/showpost.php?p=2154610&postcount=76 (start to read at third paragraph)

I have a post somewhere I can not now find, giving more details on the excusing of the poor from their mortgage payments for 24 to 36 months also.

 

[Billy T]

BAD newS for China (but good of Brazil)AND THE BALTIC DRY INDEX:

"... The drought in the North China Plain, the worst in half a century, is hitting eight provinces which contain about half of China’s wheat-growing areas. The ministry now says that 10.7 million hectares under wheat have been affected, a 15% increase from the figure it gave at the beginning of the week.

More than 4 million people and 2 million cattle face drinking water shortages, according to the Office of State Flood Control and Drought Relief.

China declared its highest level of emergency on Thursday. President Hu Jintao has ordered provincial officials to make drought-relief a priority. The government is accelerating the disbursement of 87 billion yuan ($12.7 billion) of annual subsidies to farmers, including those for irrigation and fertilization, state media reports. "

AND:

"... As drought spreads across China's wheat-growing heartland, a new threat to the country's wheat crop is emerging: stripe rust, a virulent fungus (Puccinia striiformis) that could cause widespread damage to the summer crop across the country.

The agriculture ministry said Feb. 6 that the disease had affected more than 750,000 hectares of wheat fields in seven provinces, including not just those in the drought-stricken North China Plain (see China's Food Problem) but also in southwestern Sichuan and Guizhou provinces.
Stripe rust is an annual affliction but the blighted area is two-thirds larger than at this time a year ago. ..."

BOTH FROM: http://www.forbes.com/2009/02/06/ch...eat_fungus.html?partner=globalnews_newsletter

PS to 2inquisitive:
Again thanks for your link at end of post 91. One thing new to me about Brazil was that "Registered Brazilian tits” are all over the world now. Quoting from 10 page [iForeign Affairs[/i] ad:

“Latin America’s only manufacturer of silicone breast implants, and the third-largest company of its kind in the world. … Today its products are exported to over sixty countries. … Silimed is the only silicone implant maker that stamps a serial number on each product, thus assuring 100 percent security in product traceability. In 2007, the company exported around 160,000 implant units,” (earning about 90 million dollars.)

IMHO rest of article is fair and accurate AFAIK, but the high speed train between São Paulo and Rio is still mainly on paper. Distance is about the same as DC to NYC, but I can only guess which will run first, probably Brazil's with French technology.

 

[Billy T]

Brazil, as another stimulus, has just raised the minimum salary. From R$4.15 to R$ 4.65 or a real increase of 6.4%. Most helped are the retired as 66% of Brazil's Social Security recipients get benefits tied to the minimum wage. 45 million workers* will see this increase in the purchasing power. (Brazil's population is about 185 million.) Total cost (annual, I think) is estimated to be R$21 billion, which is small but significant injection of funds compared to Brazil's GDP.

In last 6 years under Lula, the accumulated REAL increase in minimum wage has been 46.05%. - Little wonder Lula is by far the most popular president in the world. This increase in minimum wage with the recent increases in Bolas Familia, will keep exports falling as a percent of GDP. They are only 14% now.

No recession for Brazil, thank you, but GDP growth may drop to 2% before increasing again.
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*Most get more than the minimum wage, but because of Brazil's prior inflation problems, contracts still express salaries in "x times the minimum wage" not in currency amounts.

UPDATED NEXT DAY:
Four states, including Rio & Sao Paulo have just increased their mimium wages. In Brazil these local requirements are tied to the type of job skills: For example:
Rio: R$487.50 for field workers all the way up to R$1,308 for lawyers and accountants employed by firms.
SP:R$505 maids & field workers and top required is R$545 for medical technicians etc.
Currently (as I type) a dollar bys 2.302 R$

Does the US have local mimimiums? Makes no sense for it to be the same in NYC and Bluefield, W. Va.

 

[Billy T]

I scooped Bloomberg by 4 days in post 93 about China increasing imports and effect on Baltic Dry Index. (Forbes, my source did too.)
Here is Bloomberg, 4 days late:
http://www.bloomberg.com/apps/news?pid=20601087&sid=agVgG8lEahnI&refer=home
The title of which is:
"Shipping Index Surge Signals Commodity, Currency Gains"

Amazingly (and incompetently) Bloomberg's article does not even mention Brazil, but does mention that iron ore imports are rising due to China's stimulus plan. (Brail is China's largest iron ore supplier, or at least the greatest volume exporter of the world. Also article fails, as I did not, to note the impact of the drought and wheat rust in China will have on grain imports -Brazil is a world leader there, especially with Australia having historic drought.)

 

[Billy T]

Looks like Brazil's small* negative trade balance in Jan08, first in eight years, will be a "one month deal" - not the start of trend.

In first 15 days of Feburary08, exports were US$5.101 billion and imports were US$4.405. As I mentioned in post 92, the shut downs and strikes in the auto industry during December 2008 hurt January exports, but that is over and as noted in post 93 and others, Chinese demand for iron ore and grains is expanding again.

No recession for Brazil, thank you.

*From Post 92:

...Jan09 trade deficit of -0.645B would have been a surplus if only 7% of the exports in these three months had been deferred until January 2009...

 

[Billy T]

China An optimistic POV from Inside China Dispatch by Robert Hsu (I have told more about him in prior posts.):

"... 20 million {laid off workers} actually accounts for less than 2% of China's total workforce. ...this is not the first time that China has experienced an elevated unemployment rate. ... in the late 1990s, many of China's state-owned enterprises (SOEs) collapsed or became private entities. This compounded with the Asian Financial Crisis in 1997 to 1998 was a far more severe situation than the current unemployment issues in China, as more than 50 million former SOE employees were out of a job back then.

In the current situation, it is more likely that China's $586 billion stimulus package will help solve the country's unemployment problem, as it is funneling funds into infrastructure spending. So while many of the migrant workers who lost their jobs will return home to the countryside for subsistence farming, many others will find short-term jobs from infrastructure projects.

Early estimates project that China's stimulus package will create more than 40million new jobs in the next two years. And the magnitude of this fiscal expansion will have the ability to offset a large percentage of the unemployment created by the decline in exports. In addition, the strength of the Chinese consumer will help the service sector in China expand.

Many retailers and businesses in the food service industry already have expansion plans in the work, which could create millions of new jobs this year.
In fact, McDonald's has already announced that it will open 170 new restaurants in China in 2009. This expansion will involve hiring 10,000 new workers and create thousands of additional jobs.

The growth in the Chinese service sector will also stimulate even more consumer spending, which is the leading driver of economic growth in China. So the fact that many Chinese businesses are expanding will likely boost domestic spending in China and propel the country's recovery forward. ..."

 

[quadraphonics]

Chinese unemployment is estimated, by some, to now have reached 10 million.

No no no. That 10 million is not total Chinese unemployment, but the number of workers who have lost their jobs in 2008 alone. China's workforce numbers in the high hundreds of millions, so even if you believe the official unemployment rate of 4% (which nobody does), that would still be many tens of millions unemployed, in the best of times. If you employ the more realistic estimates of around 10% unemployment, you're getting close to 100 million workers with no jobs.

And unemployment is expected to grow rapidly in China in 2009. It is not inconceivable that they will face a pool of unemployed workers the size of the total US workforce, within the year.

(Built in less time than new terminal 3 at London's Heathrow spent in public approval hearings! It and many other amazing structures were quickly made for the Olympics.)

Indeed, and it's exactly because there is no substantiative environmental or demographic review process that this happened to quickly. Many thousands of Chinese families were kicked out of their home, for joke compensation, to make room for those projects. In Britain, at least, you have the right to a fair hearing before the government bulldozes your house to make room for an airstrip.

I do not think so - to put that 10 million unemployed into perspective, note the Chinese unemployment rate is less than half that in the USA.

The official rate, which applies only to urban areas and excludes workers in those areas who migrated from the cities, is not taken seriously by much of anyone.

China's GDP growth numbers are similarly cooked, with the result that they exaggerate growth during downturns. Accounted for using the same methods employed in essentially every other country in the world, China's GDP has already stopped growing, and is probably contracting as we speak.

Many of the jobless are now returning to their villages for the new year (of the ox) and simply will again be poor farmers, not regime changers.

What makes you think that the two categories are mutually exclusive? The current Chinese regime was put in place by mobilizing the rural peasantry, you may recall. Likewise, the CCP spends lots of time and money repressing the 10's of thousands of protests that occur in rural areas each year even in the best of times.

But anyway, the real threat to the regime is not underemployed farmers, but unemployed, middle-class urban residents. Something like 30% of the graduates of Chinese colleges and universities are presently unable to find jobs upon graduation.

 

[Billy T]

No no no. That 10 million is not total Chinese unemployment, but the number of workers who have lost their jobs in 2008 alone....

You are quoting from old post 83 and way back in the PS of post 85 I had already corrected that to 20 million, which seems to be quite a common estimate now, still. For example, post 97, just today of Hsu (see my most recent post, prior to this one)

I am basically, just posting what very seasoned experts like Hsu publish. He is an American, of Taiwan origin, not part of Chinese government. – just one of the more successful advisors on investing in China. (He leads tours of big spenders there at least once each year to met with Chinese CEOs etc. Hsu seems to have some high level contacts in the government.)

 

[quadraphonics]

You are quoting from old post 83 and way back in the PS of post 85 I had already corrected that to 20 million, which seems to be quite a common estimate now, still.

Not for total Chinese unemployment. 20 million is the estimated number of unemployed migrant workers, whose total number is about 130 million. So the migrant workers are already displaying an unemployment rate of over 15%.

http://www.nytimes.com/2009/02/06/business/worldbusiness/06yuan.html

The total number of unemployed workers is much, much larger. I can't seem to find good numbers, but I would consider 50 million to be a conservative estimate, given the size of China's workforce.

As far as job creation efforts go, those are great, but the Chinese workforce has been growing by 20 million people every year. There is pretty much no way they are going to avoid increased unemployment. Just keeping unemployment where it is now would require creating 20 million new jobs in 2009, which is never going to happen. They'll be lucky if they only lose 10 million jobs.

Similarly, China's imports and exports both have taken nose-dives:

http://edition.cnn.com/2009/BUSINESS/02/11/china.trade/index.html?eref=edition_business