What Happens When The Dollar Double Whammy Lands on You (Again)
The comments below are an edited and abridged synopsis of an article by Jeffrey Snider
Social divisions will always exist, and they become increasingly untenable where hopelessness sets in without opportunity. Every political regime seeks robust economic growth because it reduces so many social maladies.
India’s central bank chief recently asked the Federal Reserve to do something about flaring dollar problems. The US was largely spared the wrath of the rising dollar, but it’s a mistake to think they were lucky; it was merely a continuation of an 11-year monetary saga without an end in sight.
Most emerging market economies survived 2008 with no prolonged collapse, but by 2012 things were coming apart. Brazil and China went through a rough spot in 2013, but that merely forewarned what was to come. To these places, what happened in 2015-16 was their 2008.
This year’s statistics bear that out. While positive for the most part, that is meaningless compared to years of contraction. A small rebound after a big drop is no different from the drop. This seems to be how Brazilians feel about the ‘recovery,’ a sentiment they share with people worldwide.
Brazil’s economy has likely seen the best of a rebound, and it wasn’t much. That starts with the dollar. One thing that doesn’t yet plague Brazil’s system is high consumer price inflation. During the real’s crash in 2014 and 2015, consumer prices skyrocketed as the cost of funding the country’s ‘dollar short’ had to be passed on to Brazil’s workers and consumers.
With the rial once again leading the renewed emerging market crisis, this isn’t likely to be the case in the coming months. There is every possibility that things could go from bad to worse as BRL sinks down toward 4.00, and the world’s economists struggle to define, let alone explain, it.