News & Analysis
BRICs Begin to Crumble?
Brazil central bank cuts 2011 growth forecast to 3.5% ... Brazil's central bank has lowered its forecast for economic growth to less than half of last year's, partly blaming the slowing global economy. The central bank lowered its prediction for growth in 2011 to 3.5%, from 4% that it expected in June. Brazil has boomed as other countries have stalled, growing 7.5% last year. The bank pointed to "the deterioration in the international outlook" for the downgrade, and also to spending cuts enacted by President Dilma Rousseff. – BBC News
Dominant Social Theme: The world has troubles, but things will be fine. The BRICs are solid enough for the rest of us to build on.
Free-Market Analysis: In India, the government believes it's OK for up to 70 percent of the country to live on fifty cents (US) a day; in Brazil, growth is slowing markedly (see article excerpt above); and China continues to struggle with unrest and growing doubts about its ongoing industrial boom.
The world is focused mostly on Europe's problems and to a lesser extent America's, but it's the BRICs' struggles that may ultimately prove the most damaging to what's left of the world's economy. With half of Europe unraveling and America sliding further into recession, the BRICs have seemingly proven to be a bedrock of stability, but it may be an illusory one.
We've often pointed out that the whole narrative regarding the BRICs is somewhat phony – a dominant social theme purveyed by the Anglosphere power elite that wants the world to believe faux "capitalism" is effective in reducing poverty and providing people hope. Of course, this doesn't explain why billions live on a dollar a day, even in places where the capitalist "miracle" is supposed to have taken effect.
In fact, these industrial "miracles" have more to do with monetary stimulation than real, long term growth. But we're not supposed to notice that. The mainstream media does its job as best it can, trumpeting the progress of India, Brazil and especially China while avoiding any mention of the fundamental, pernicious and ultimately ruinous monetary stimulation.
Can it be otherwise? If one looks at these economies unsentimentally, the reality becomes clear. The BRICS are entirely dependent on Western style central banking economies and stimulation for their "progress." Both Brazil and China (India, too) have poured money into their economies with the same sort of crazed abandon – and results – as the West. Eventually, the bill will come due, as it already has in the West.
Once the economic infrastructure has been put into place, it's easy to over-stimulate economies by printing money and keeping interest rates low. Or in the case of Brazil, targeting industry and the larger economy with various kinds of pump-priming campaigns that then demand higher interest rates to keep price inflation under control.
Of course, when interest rates go up, capital is attracted and the hot money pours into the economy, often aggravating price inflation. Brazil's central planners have struggled with this as well. Brazil's interest rate has been held artificially high as a result – around 12.5 percent.
It's no wonder with those kinds of rates that "growth" has slowed and that central bankers are contemplating a "cut" to 12 percent. The government also intends to remove "stimulus" introduced since the 2008 financial crises. The same pattern can be seen in India and China, too, where interest rates have also been used aggressively to manipulate economic growth.
For China, the result of so much monetary manipulation has meant empty cities, unfinished infrastructure and vacant skyscrapers across the country. It has also meant, as infrastructure is completed, that the haste with which it has been built becomes increasingly evident.
Failing or shoddy roads, bridges and tunnels don't always call attention to themselves immediately, but large railroad accidents are impossible to cover up. According to the UK Telegraph, a pair of violent rail incidents, one in Shanghai just this week (on Tuesday) and another in Wenzhou that received a lot of publicity in July, have proven impossible to downplay.
The two accidents have given rise to the term "blood-stained GDP" and the Chinese Communist Party has reacted by vowing to fix problems and avoid further risks. "The tragedies in Wenzhou and Shanghai keep reminding people that China cannot afford failure," stated a recent editorial in a major Communist-run newspaper.
These are not small incidents, and railroad accidents rarely are. Perhaps 270 people were injured on Tuesday in a train collision and 40 were killed in a high-speed collision in Wenzhou. Making matters worse, the Wenzhou rescue effort was badly managed and further aggravated by a clumsy cover-up.
Now the anger is palpable and the normally cautious Chinese are venting, even on the Internet. "A blogger named Qi Jie on Sina Weibo, a popular Twitter-like service, suggested tying officials to the first car of every subway train to ensure that safety standards improved."
Unable to duck the problem, the Chicoms are reducing train speed, firing bureaucrats and generally retreating from the vision of nationwide high-speed rail. Here's some more from the Telegraph article:
Between 2010 and 2015, China will have invested $180 billion in subway lines, tripling the network's reach to 1,864 miles. It's an investment the country needs to get right, as China is now the world's biggest purchaser of automobiles and congestion has started to take an economic toll.
An IBM survey released last year determined that Beijing and Mexico City have the worst commutes in the world. The World Resources Institute has emphasized the need for sound transportation policy given the effect rising car ownership has on pollution and China's oil security.
But expanding the country's transportation network will now continue under a cloud of public skepticism. "Careful planning is a must before a city begins to construct its subway system. Otherwise, it'll be a regret that can last over 100 years," Shi Zhongheng of the Urban Rail Transit Research Center at Beijing Jiaotong University told the China Youth Daily.
The reaction of Chinese officials sounds good but misses the point. The various infrastructure plans come out of the same flawed central planning that has given China empty cities and cavernous, unpopulated malls. These are downplayed as part of the larger wisdom of Chinese central planning. The same sort of commentary was aimed at the USSR's "industrial miracle' circa 1950.
When the Chinese economy crashes – and we think it will happen sooner rather than later – the insanity of the 20-year easy money bubble will be more fully revealed. Much of the "growth" that China has experienced will be seen to be a race to fulfill industrial quotas set by the party. Nothing about the Chinese miracle is organic, at least not at the top. Same goes for the rest of the BRICs.
Scratch the surface of the BRIC miracles and you find central planning aided and abetted by monetary stimulation. In fact, one could argue that the real difference between the ponderous and inefficient socialist practices of the 20th Century and the hyper-charged "progress" of the 21st is merely the result of Western-style central banking.
Conclusion: Modern central banking economics is not sustainable. Sooner or later, the BRICs will find themselves facing the uncontrollable unraveling that Europe and America face. It's inevitable, and only the timing is unknown. China's railroad crashes are like the tolling of a bell marking the end of the BRICs manipulated "miracles."
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Posted by rossbcan on 10/02/11 08:24 AM
"elite "rule of man" lasts exactly and no longer than civilization's seed corn."
Which is WHY they are madly printing faux fiat "seed corn", to maintain their coercive apparatus of "carrots and sticks".
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Posted by rossbcan on 10/02/11 08:01 AM
"Our present society selects for mental capacity to a much greater degree. A total collapse would tend to select [ruthlessly] for physical traits."
Nope. The "gun" is the great equalizer, leveling the playing field (environmental factors) such that physical strength is irrelevant.
During collapse, those controlling resources such as petro will still NEED to trade, to survive. If they choose not to trade this vital resource, well, they have, by definition decreed that they will deprive all others who will then gang up on those who refuse to trade. The basic choice is trade or, be in conflict.
@DB: "we have contemplated the Darwinian aspect of the euro collapse. We hope it will be the last time"
What??? Don't confuse the terminology and the false baggage it carries with the truth. The truth is that "natural selection" EQUALS choice.
Environmental factors (carrots / sticks) determines choice in the realm of self-volitional (intelligent) mankind. The system we mutually LOATHE is an artificially constructed, forcefully maintained environment for the benefit of those who use forceful methods to impose their carrots / sticks in opposition to the carrots / sticks of natural law. And, natural law ALWAYS WINS against such ignorance, hubris and arrogance, by attrition costs of opposing. Which is why, elite "rule of man" lasts exactly and no longer than civilization's seed corn.
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Posted by Danny B on 10/01/11 05:20 PM
"total peaceful collapse". This sounds good on paper but, we already have 1% of Americans in the prison system. I suspect that total collapse would bring total anarchy. The veneer of civilization is very thin.
I see no possible way to have a total collapse and still have continuity of food and water production AND delivery. Energy is fairly important to those in northern latitudes also.
For most of man's history, Darwinian pressures have selected physical traits in greater proportion than mental capacity. Our present society selects for mental capacity to a much greater degree. A total collapse would tend to select [ruthlessly] for physical traits. This would be quite a regression. While I would welcome a return to the rule of law, I can't envision a return in a collapsed society. Rule of law would be implemented by whoever raided the most National Guard armories.
A cessation of carbon production and delivery would kill off 50% of the population in the first year. It all depends on the degree and duration of collapse.
The collapse that you envision,,, does it include a cessation of carbon availability to agriculture?
Thanks, Dan
Reply from The Daily Bell
What? This is the first time we have contemplated the Darwinian aspect of the euro collapse. We hope it will be the last time ...
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Posted by rossbcan on 10/01/11 01:16 PM
"If we must delineate by dividing people into producers---- non-producers, what is to be done with the non-producers?"
... restore the "rule of law" and property rights.
Then, the choice of "to produce, or not", becomes a matter of "to survive, or not", placing the survival (and lives) of individuals, where it belongs: in their own hands.
Of course, so long as predators are in control of the economy and enterprise is not free, who survives or not is determined by "them" (self-decreed gods). This is why the best case scenario is total peaceful collapse, to restore the natural law environment above, where "it's all up to you", to be "fit enough" to survive by peaceful, uncoerced trading, meeting the needs of your fellows and start rebuilding the civilization we so foolishly allowed to be "defined / decreed away".
As to "Collapse of Complex Societies", "Feedback Model of Intelligent Choice" provides more fundamental reasons WHY.
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Posted by Danny B on 10/01/11 11:24 AM
Rossbcan, I read your site and it is excellent work. There are a couple of ideas that are more "murky" in the real world. John Tainter Wrote about the "Collapse of Complex Societies". He wrote about a society reaching a level of complexity where it takes more energy to maintain the society that it can produce.
At the present time,,, at the most basic level, our energy for survival is provided by petroleum [carbon]. Carbon is slave number ONE.
Look at Exxon-Mobil, Chevron, Archer-Daniels-Midland, Con-Agra, etc, etc. You write about a "ratio" of producers to non-producers. Only 1 % of Americans work in agriculture.
While many of the non-producers live in the Hamptons and the beltway, MANY non-producers live in section 8 housing. The literacy rate in Detroit is only 50 %. Do we condemn all non-producers or only the well-paid ones?
The basic questions is; What should happen to individuals who have no niche in present day PRODUCTIVE society. If we must delineate by dividing people into producers---- non-producers, what is to be done with the non-producers?
Slave number ONE is carbon. I don't see a method to withdraw support from the predators. Any major shrinkage of support would kill off hundreds of millions before it would kill off the well-heeled predators. Have you envisioned a method that would significantly reduce the number of predators without doing the same to the producers?
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Posted by rossbcan on 10/01/11 06:14 AM
"I would like to project his ideas. Hopefully he will contribute. "
How?
I have thought about this and, my site suggests posters and sites link to my stuff. Not many posters do, but many sites have.
I know of only one lawyer, on a significant (to freedom) case who used the "rule of law" in argumentation. He got case dismissed, "contempt of court", a weekend in the pokey and, eventually, disbarred.
How do you rationally fight those who wield the guns of state, enforcing their basic OPINION: dissent EQUALS "smite the dissenter" with a near infinite number of Machiavellian (falsely framed arguments) excuses / pretexts?
You have other / better ideas?
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Posted by vivek on 10/01/11 12:47 AM
Fantastic. As Samix says below, the BRIC story was a huge Goldman Sucks ploy to move money here, more sheep to shear.
Even the name is so clever, BRIC, the new building blocks... India is mess, as I'm sure China is too, really, it's hard to describe how successful social engineering has been here in India. A culture taken apart in 15-18 short years...
The bust will be deep and hard, but perhaps, there few untouched by the curse of TV and mammon will be at the heart of the new revival.
DB, awesome work, as always!!!!!
Click to view link
Reply from The Daily Bell
Thanks, Vivek. And thanks for the link.
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Posted by Danny B on 09/30/11 09:48 PM
Oh great Bell, I'm back in town and I see that I have missed many great discussions. I love what Rossbcan has written. I would like to project his ideas. Hopefully he will contribute.
The economy has been severely twisted to where speculation is more profitable than actual production. The speculative/financial sector has sequestered the capital necessary for productivity AND for consumption. Wages and purchasing power are falling. The volatility induced by the speculators has made it impossible for the producer to be confident of any profit. He has closed up shop because he can't be certain of costs, price or profit.
The consumptive economy has throttled back to basic necessities. The banksters pushed credit like good crack dealers. They thought that they had no "skin" in the game because they created their drug from thin air. They weren't particularly worried about default because "regulatory capture" would always rescue them. They got over-confident.
They wrote [at one time] way over a $ quadrillion "worth" of various flavors of derivatives. Just the 4 big banks are holding $ 239 trillion in said paper. The counter-parties want their payoff. The banks refuse to MTM because that would kick off the defaults. These OTC contracts have NO guarantor. ANYBODY can default.
The banks are insolvent many times over. That won't stop them from clawing the walls all the way down as they sink into hell. You see that inter-bank lending has dried up. You see a lot of big lawsuits. Eventually, they will attack each other to squeeze out cash. They will turn vicious. We already saw that with Bear Stearns. Bear Stearns refused to participate in the bailout of LTCM. They got the axe for that.
The current [twist] by the FED is an attempt to drive down interest rates on long bonds. It won't do any good for the banks. The excess reserves that the banks are holding won't save them either.
Drocton says that the shorts on the S&P are over 11 million.
Click to view link
What will a S&P crash do to the banks? The banks may not MTM but there are plenty of other ways for them to become illiquid. The speculators will make sure of that;
Click to view link
Speculation makes more more profit that productivity,, FOR THE MOMENT.
The system will be drained. GS sent out a 54 page report to this effect.
This isn't just a blip in the road. There are a few writers who have a good grasp of the problem;
"At the same time the international system has now passed the stage of structural weakening to enter a phase of complete decay"
http://www.leap2020.eu/Global-systemic-crisis-Confirmation-of-a-Major-Alert-for-the-second-half-of-2011-Explosive-fusion-of-world-geopolitical_a6520.html
Click to view link
Click to view link
BTW, Russia and China have stopped exporting oil.
Dan B
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Posted by rossbcan on 09/30/11 04:04 PM
"The Central Banks' dominance over world affairs is a "fait accompli."
If you BELIEVE so, all of you choices will be in support of this, making it, so far as YOU are concerned, true (and contributing to their power, starting with your subservience, and wielding whatever resources you provide, to smite non-believers). THINK about it:
Click to view link
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Posted by FredMitchellJr on 09/30/11 11:53 AM
Your point on "the assassination route" is well-taken, especially with regard to Ron Paul. Dr. Paul probably understands the threat to his life that political success would mean. If that ain't courage, what is it?
Maybe he figures, like I do, his longevity has more to do with Divine Providence than with the "prowess" of a hired assassin. Clearly, Jackson had God on his side.
So far, the only evidence I have seen that Herman Cain is a "Fed plant" is his answer to a question about auditing the FED: "It would tell us nothing we don't already know." That could be simply an acknowledgement of the role of the media in covering up for the Central Bankers. Why has Joan Veon been ignored for so long? Take a look at her last DVD "When the Central Bankers Own the World." Why has the media never asked candidates about the "so-called" Central Banker conspiracy? I think I already know Dr. Paul's answer. "The Central Banks' dominance over world affairs is a "fait accompli."
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Posted by saintgeorge5 on 09/30/11 11:33 AM
It is true that West's failed, crony capitalism has creeped in BRICS major economy. West's adulation and sometimes pressure has gone into, some of the politicians head.
Take India for example the great outsourcing capital for UK and USA. This does not amount to real growth in this country. People get carried away by call centre economies. That is not the real growth. The solid back rock, for real economy ultimately depends on manufacturing and having an educated work force with local regional developments. Lifting the village economy and farming, to feed its own people. Of course is rampant by these fat and pot belly politicians. Even when funds are available are swallowd by corrupt politicians.
We should talk less about democracy and more about people power. As with all idealogies, politicians get obessed with their own idealogy.
Unfortunately the so called democracy has failed many people. Soth Korea would not have become a developed nation, if it was not for General Kim Parkes.
As mentioned in your article, all BRICS countries are somehow tied up with failed Western Banking system and follow the same path to their destruction.
All said and done our natins on this plane planet does not have a sytem or a structure to avoid boom and bust. What is the solution?
Reply from The Daily Bell
The solution is a return to a privately run economy with private money and private justice. The methodology unfortunately is probably some sort of economic collapse.
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Posted by DarbyJie on 09/30/11 11:15 AM
This is a Masterful, accurate summation of our current situation,IMHO.
"There is a distinct difference between free market capitalism and the bastardized version today which is really corporate fascism."
With regard to the above, what would you say is the difference between "corporate" fascism and just plain old "fascism??" Thanks:)
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Posted by Avatar on 09/30/11 11:07 AM
Free-Market Analysis: In India, the government believes it's OK for up to 70 percent of the country to live on fifty cents (US) a day; Result of Predatory Capitalism. Pay the people slave wages and justify it by saying they are better off than they were which is partly true in terms of purchasing power but more than offset by enjoyment of life.
It is so human for the Chinese to also expect government to be flawless. If the trains were not regulated and run totally by private corporations the probability be a higher accident rate based on US corporate records. Perhaps UPS would be able to better the Chinese government but the consumer costs would escalate. LOL
Reply from The Daily Bell
Ah, private companies were responsible for the infrastructure?
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Posted by Frank on 09/30/11 09:34 AM
"Scratch the surface of the BRIC miracles and you find central planning aided and abetted by monetary stimulation."
- DB
That is true. But it's also true that overall the BRIC nations have moved towards capitalism & smaller government whereas Western nations have overall moved towards crony capitalism (or outright socialism) & bigger government. One would think that Communist China would have socialized medicine... but that's not the case. Even they don't do that! We are moving in the wrong direction while they are (in fits & spurts) moving in the right direction. To the degree that the BRIC nations copy our failing central banking ideas, they are hurting themselves. Today, everyone has big prices to pay for economic & government mistakes. But the trend in the East is up & the trend in the West is down.
Reply from The Daily Bell
OK, good point. But one could also argue that sociopolitically and economically East and West have converged on a more sustainable authoritarian model.
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Posted by apberusdisvet on 09/30/11 08:53 AM
There is a distinct difference between free market capitalism and the bastardized version today which is really corporate fascism. The Masters of the Universe were finally able to implement this system with the creation of the Creature from Jekyl Island in 1913. Any pushback by politicians over the years has resulted in the assassination route (attempt on Jackson, success with Lincoln and both Kennedys).
Although one can hope, it has become increasingly apparent that only a full blown revolution will solve the economic mess before the ultimate feudal system is imposed under the watchful eye of an ever growing police state.
There will be no relief in 2012 because the choices have been largely predetermined. Bilderberger Perry vs. Globalist Romney vs. FED plant Cain; the winner vs. Obama, the CIA nurtured lightweight puppet. The fact that I don't mention Dr. Paul is that I want him to survive the process and at least be a countervailing voice. If the elites felt he had a chance, his life wouldn't be worth 2 cents.
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Posted by rossbcan on 09/30/11 08:35 AM
"The bank pointed to "the deterioration in the international outlook" for the downgrade, and also to spending cuts enacted by President Dilma Rousseff."
When you conceptualize and "measure" economic productivity (GDP) as:
Actual Real Production PLUS the Cost (a negative, treated as a positive) of Unproductive activity then yes, it can be plausibly stated (Keynes wet dream, to fools):
Reduce unproductivity and yes, you reduce economic activity, by this measure, but, in actual fact improve the prospects for real production equals prosperity.
"Mathematics of Rule" decimates this Keynesian fallacy:
Click to view link
The planetary economy is imploding because unproductive forces are pointing guns at the productive, destroying the reasons for and therefore motivation to be productive.
Civilization and prosperity is a matter of predator control. Predators are uncontrolled and are therefore running amok and will continue to do so until they are firmly opposed to the degree that "crime does not pay".
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Posted by samix on 09/30/11 06:24 AM
The India Growth Story is a fraud, a bit time fraud. The middle class Indian guy is crumbling under the weight of price rises and massive inflation caused due to over simulation.
Uptil a year ago I was in India, (I am Indian) now I am working in the middle east, I can feel the difference in everything. The quality of food, air, water, security and life.
Mumbai the biggest Indian city is nothing more than a self imposed concentration camp, have you ever travelled in a Mumbai local ?
This is how people travel in the next superpower of the world Click to view link
This is a everyday scene, and you know that was the first class compartment.
The gap between the rich and poor is staggering, some people have everything and even more own buildings to live in with self contained swimming pools, theaters, gyms for a family of 5 people Click to view link
and others do not even have enough ground to sleep on.
I can go on and on and on, it makes me sick, the only reason that the angloshpere keeps pumping India is to balance china.
