Comments by Juliano Camargo

Ponzi or not?

Is is invested anywhere? NO

Does it earn interest? NO

Is it compulsory? YES ( worse than private Ponzi Schemes and last longer )

Does it promise a good payout? YES, specially at the beggining.

But if it is not invested, where the payouts come from? FRUITS OF LABOUR OF THE NEXT GENERATION, that will be obliged to work for you.

Isn't that kind of immoral? WHY WOULD IT BE? We did the same with you, so you deserve to do to others. Think of it as a fraternity prank.

Can it be tinkered with to last longer? YES, but payout will certainly not be worth it even at artificial ultra-low intererest rates. You would be better off not paying SS and putting it on an account. But it is not up to you, really.

What will happen when interest rates rise? YOUR GUESS

If we balance it, is it going to be an even bigger drag on the economy? YES, but who knows about it.

Now regarding transparency

Is it easier to rely on PAYG for retirement than building a pool of savings? ABSOLUTELY, specially at the beggining of the scheme, which is what matters. Once started, nobody will want to get out.

Do most people think SS is an investment? YOU BET

Do they think it is THEIR money which goes to some kind of account? SURE

Does the government uses terms such as 'trust fund' in order to mislead the public? ABSOLUTELY.

But is it true, in any way? OF COURSE NOT

Are you going to get elected telling the voters the hard truth? PROBABLY NOT.

Is the problem going to disappear after we shoot the messenger and hide his body? OF COURSE NOT.

Has the media warned about Ponzi schemes and Social Security? NO, but they are first to step in to contain the damage once the word is out.

A united and sovereign European Federation should have as common currency a metallic currency. It is the only cross-border, apolitical and thousand-year proved money system we know of. And it was not invented, it emerged, as it happens with the most robust systems known to men. It took many centuries until men could design an airplane wing, but they surely did not start a flying company with their first prototypes.

We could have it all - open markets, different cultures integrated on the same economy, each one with their own governments, at their own pace and unique saving/spending patterns. We just needed to settle that suspicion on each others papers and promises with metal.

They could possibly keep their national currencies, but that would be a big reason for quarreling, for national currencies exist for the sole purpose of being continuously rigged to adapt to national groups of interests and political circumstances.

If we take the transformation of metal currency into national fiat currencies, we see it was a long historical process, of ever-increasing money market manipulation, until one day there was no metal and only paper.

It was not a simple construction, and it only works when coerced and backed by a single political entity. Again, the ECB can not coerce national governments to keep in line with the euro. The ECB can not convince by force, and it is certainly not the Pope or the Holy Roman Emperor to convince them from authority alone, even if they would like to believe that.

So their warnings and threats were ignored. And the ECB was obviously given the ultimate impossible mission to be implemented on a short time frame.

If economists and politicians would be more humble, they would at least put the euro-plane on the wind-tunnel for some decades, and not hurry everybody on board.

It is looking like they will follow along the same lines of economic populism, creative accounting and inflation index fiddling. Mantega has zero credibility. The country has huge challenges ahead and they promptly dismiss each one of them as not worthy of attention. In fairness, Serra would probably do the same. Everybody here is living a dream and they will have to wake up only when they take a turn for worse.

Even Meireles at the end compromised his good credentials, because he went very lax close to the elections, and inflation now in Brazil is rampant. So imagine the kind of political pressure they will put on Tombini.

Also there is this case Panamericano, a bank that works with subprime credit and actually broke at the beginning of the crisis, and apparently everybody, including Central Bank, turned a blind eye to the fraud they used to inflate their assets, while government gave the go-ahead for Caixa to 'invest' on them.

There is no miracle coming from the emerging countries economic performance, at least not from this corner. We always have too much of our own internal crisis.

The reason why Austrian Theory is not accepted is basically because it proves the whole system wrong. It is the classical story with the boy shouting that the king is totally naked and people telling the boy to shut up.

What do they aim to achieve with that? Higher prices for american consumers of cheap products?

It looks to me the american government just needs an excuse to get more revenue and devalue their debt.

Your suggestion looks exactly like what happened in the years before the crisis, with dropping interest rates and the banking system apparently functioning, selecting suitable candidates to receive the easy credit.

As we know, even this better form of monetary expansion was flawed. Why should a second round of credit expansion be any better?

Most central banks have rates already close to zero. You can only drop rates once, so they are engaging in quantitative easing, a very primitive form of credit expansion. The resulting misalocation will be even worse.

I have to agree with 90 and counting. Ireland succumbed largely to cronyism. I have to agree with Dr Sherman. The source of problems in Ireland is not the costs of a social state or public service, as it happens so often, even if those costs went up a bit. The main source of trouble is simply bad debt, arising from the implicit guarantee given to property developers and speculators that government would do something. They all knew that.

But I have to strongly disagree with MalTaylor and other commentators saying that Ireland does not have a real economy. Of course they do. Largely run by foreign companies, while most Irish businessmen predictably decided to stay in those areas where political connections and local knowledge get more points.

But anyway, I believe that compared to other countries the Irish economy is certainly one of the most advanced in the world. That is their advantage, compared to Portugal and Greece.

Unfortunately, as it happened elsewhere, those real parts of the economy became small numbers when compared to banking and property development. The bill is just too heavy for such a small
economy, no matter how advanced.

"Did the economist forget that after the 18th century, both India and China were victims of colonialism? "

It is most simplistic to portray big predator empires such as the Mughals or the Chinese as 'victims' of much smaller fish at the time. Why China and India could not defend themselves? Why small powers like Portugal, then Netherlands and Britain rose to prominence from very simple backgrounds? To the Ming dynasty they were no more than barbarians. Traders, pirates and monks. How could they threaten their mighty empire? Like the Aztec and Inca, the Ming perished by self-isolation. They failed to adapt to new times.

And, most strikingly: it was the Chinese inventions on European hands that started an age of exploration and warfare. In China they were used as sophisticated magical toys. Because, you see, there was no unified Europe, but hundreds of kingdoms, republics, monastic states. One hundred different states trying slightly different things. Actually, two of the most dynamic parts of Europe, Italy and Germany, were so fragmented that failed to unify and build empires. But were on the forefront of financial and technological innovations.

The Catholic Church was what unified Europe, and what held it back technologically for centuries. But after stability was sacrificed for dynamism and constant change, even religious ideas were challenged, and the reformation branched out. Eventually catholic Europe declined, and lagged behind protestant Europe.

Later it happened again. Mechanical designs that were used in China and in some European courts as royal entertainment, to build fancy toys and clocks , in Britain were used to build time-saving machines.

Progress and technology changes hands, and the rest of the world follows. It may be that it shifts back to Asia. But those crying over the past or unable to accept the latest methods and technology will never be on the forefront.

We hear enough of this babble in South America and Africa: 'they are rich because we are poor'. So wrong! They are rich because they benefited from capital, knowledge and innovations, while other parts of the world got used to live isolated, under religion, primitive institutions, or, it seems to be the case of China, under a bad economical system.

Same thing applies for the Western countries. If they rest on their laurels and focus on enjoying the benefits rather than on creating wealth, they will squander it. The most astonishing development to me is how capitalism in the West has depleted its savings through the use of central banks, welfare systems and low interest rates. Another example of collective blindness similar to what happened to the Chinese inventions. It could be the case that the West improved capitalism so that now Asians, along with some others net savers work very hard, live with less, and provide us with capital at low interest for us to have our fantastic career opportunities and life styles?

It seems logical that if capital will come from Asia, Asian countries will rule the world in the next decades. It is a trend, but the Western countries can change course, and China also faces many risks.

Indio's scored a big point. The ideologues of Lula's party are all in favour of the new socialist movements in South America, with absolutely no reserves. They consider Chávez regime to be 'democratic', and would just wish it could be possible to see that in Brazil in their lifetime.

They all have a very high degree of tolerance with the FARC, that they invited and rubbed shoulders in their summits, until someone decided it was not a good idea, since it could be used by the 'right-wing fascists', which is how they call the opposition.

I got all this first-hand. The press did not mention the FARC links with our politicians for a long time. It was always denied. But I went into one of these university meetings myself. The FARC paraded 'ambassadors' preaching about their struggle, cursing America and Uribe, boasting their official supporters in Brazil and justifying the use of teenager soldiers in their army (because they eat Colombian corn and grow very quick). They had meetings with PT politicians. When things got more difficult, Dilma even transferred the wife of this FARC ambassador to a federal job, to be safer and close to him while he was on trial. Left-wing organizations campaigned vigorously against 'plan Colombia' and also on a 'free father Medina' campaign. He used his connections and his brazilian wife to keep living in Brazil as a political refugee, and is still an unofficial ambassador of the FARC with the brazilian government.

The PT obviously do not approve the way things turned out in Colombia. They wished the FARC to win this war in the first place, and since it has lost, they wished at least a favourable deal and, who knows, maybe some state money to be given to its prominent leaders as indemnity, for being arrested and tortured and shot at. It would not surprise me.

I do not share the general positive opinion of this article. It focus too much on the surface and ignores the continuous move with Lula towards a paternal autocracy style of government. With Dilma, it will certainly move towards an even more state-driven model, with the economy controlled by the state, and the state controlled by a single party, that will use any means necessary to stay on power forever. It is not the kind of model this magazine should defend, but the correspondent must think it must be good enough for Latin America and Africa.

You also put a lot of hope on 'income redistribution'. That policy does not have the power to change whatever social background people have. Education would have some chance to do that. But that is not the focus.

The party simply need the masses to get there cast the vote - hopefully on the right horse - and assume control the commanding heights of the economy, the pension funds, the huge state and para-state company budgets, and use it for financial or ideological purposes.

One of the major sources of inequality in this country has been its culture of privilege and special benefits to those close to the state. That will just change hands.

http://trilhaliberal.blogspot.com/

Will the euro survive? Maybe in some form different from now. Everytime the ECB changes its rules, the euro changes. It has already changed much, and we are not at the end of it.

Some time ago I believed, as other people, that the euro could even take the reserve currency status of the dollar. That now seems impossible. The euro is broken. Is it possible to repair it?

http://trilhaliberal.blogspot.com/

Why is it so hard to understand, even to people trained in economics, that the most important price in the economy is not following market rules?

The Fed and other central banks manipulate money and interest rates. Their mission is to expand credit just enough so that consumers never experience deflation on a 'basket of goods'. They call that 'price stability'. An elusive idea, not compatible with market forces. But it does seem convenient. Of course, this 'basket' is just the tip of the iceberg, it is just what people buy. There are millions of other prices in the economy down the production chain being ignored or driven completelly wild by the fed pumping, and in different levels.

By playing this game, the banks and credit takers are allowed to reap the benefits of deflationary prices brought about by people competing very hard on the real world to improve production and processes. Banks are protected from being squeezed by the market, since they can always call the central bank to provide a 'help-line'. The states are quite happy to have a money system backed by government debt. If needed, they can always count on the central bank fresh money as a last resource buyer of government bonds, at any rate they wish. And with all the abundant credit, it does seem that the general public is getting something for free, at least for a good while.

Have economists in the past really explored all the consequences of this mechanism? Some did, and were solemnly ignored by the mainstream. Most economists were too happy just to be put in charge of the Midas machine and do the job that banks, politicians and states expect from them.

There are many books by the Austrian School of Economics written a long time ago pointing to the market distortions brought about by Central Banking. Austrian Theory of Business Cycles.

One of the latest is "Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse" by Thomas E. Woods.

Sadly, governments and the specialized media are completely pointing at the wrong direction. But as investors we can check what those old thinkers had to say, that nobody wanted to hear, and prepare for what will happen next.

http://trilhaliberal.blogspot.com/

I don't see this as having something to do with appropriate behavior. It shows more about the mass behaviour of uneducated college students.

In Brazil, students with good backgrounds end up going to the free public universities, which in general provide a better environment for higher education. There are exceptions on the larger and more afluent cities, where we find a hand-full of high-quality private institutions.

But for the hordes of people unable to pass exams, and, in fact, mostly unable to write, read and reason properly, we have private colleges like UNIBAN, where all of this happened. These colleges became huge business in last decades. They are little more than diploma factories. Big primary schools for young adults, where people that received a failed education maybe learn how to read a text and receive a diploma on something, in a country firmly attracted to the culture of 'diplomas'.

Colleges like UNIBAN did not create them, but they cater for them. They are millions. They are on their 20's and mentally are still on their teenage years.

These students could as easily start a riot about something else on their intellectual universe, like weekend football or the latest TV show controversy.

I never read anything so wrong on this magazine. It is the old 'broken window fallacy'. What is next, are you going to recommend burning stocks of commodities with 'excess supply', as some countries did on the 30's?

BNDES has no problem of execution. It has a problem of concept, as it is central planning. It assumes that the person that earns the money is incapable to save and invest his own money. Or spend it, if it seems better. So this person will surrender control to the wise people at the government and the technocrats from the brazilian state universities, that will give below market returns on his money with the country best interests on their hearts.

In monetary matters, I agree that Brazil is a world on its own.

We have to keep in mind that the country went through hyperinflation just some decades ago. The money supply was completelly out of control. The banking system was perceived as risky, and some goverment packages only contributed to that. In Brazil and Argentina there is also a fair chance of bank runs. And by bank run we mean it the old style, with panic and violence, not orderly customers queuing on a Northern Rock branch.

After much suffering and many failed attemps, they managed with the Real to have a functioning currency back again.

One key aspect of the plan was pushing up rates and reserve requirements to tame the money expansion. High reserve requirements is something that bankers complain every time they are asked about high banking spreads. They are among the highest in the world.

If you study the money creation process, you will see that raising rates stops the money supply from expanding. The reserve requirement determines the multiplier. Here we have a very low multiplier, while on US we have 10x1 and even more in Europe.

A high multiplier is the cost of insuring the system against bank runs. Yes, we could drop it and run a money system with no reserves and plenty of artificial credit like US and Europe. But let's think twice and see what have they done. We are watching the financial collapse of the West thanks to the debasement of money, and distortions caused by artificially low interest rates. Their societies by large have been reeducated to spend, and not to save.

In Brazil I think we can see the opposite. The average brazilian did not receive that habit by heritage. They are learning to save through high rates. When they buy something on credit or go on overdraft they feel how much more they pay.

The high interest policy is seen as benefiting the banking cartel. But how much better for them would be to have high rates and high leverage, running on almost no reserves. With higher leverage the rates would go down. But instead of loaning the same money twice, they would do it 10x. At the end they could profit even more. It is this fraudulent possibility of the money system that makes banking so lucrative, and makes bankers loan so willingly. In the process they offer leverage to others, that on a low interest rate scenario, will lead the search for even riskier investments. Some of them, variations on a Ponzi scheme. That process was averted in Brazil. So the banks make money in more visible ways: on the high spreads, charging high fees. And people save money to invest not only in stocks, but on low-risk fixed income instruments or on the 'poupança'. Compare that behaviour with Japan, where regular people gamble on forex platforms to make a return on their savings - actually, I wonder why the japanese still bother to save. This process of culture change happens very slowly.

Now, for the first time, the brazilian central bank set rates below two digits. That is being celebrated, but will start to create disincentives for saving. They are already discussing in Brazil about how to lower the return rates of the national saving scheme (poupança), which has been the nesting egg of those not able to understand complicated investment options.

Of course we would all like to have credit as cheap as possible. The bottomline is, there has to be balance between savings and credit demand. Low rates are not natural or sustainable in the long run.