The Big Lie: The Economic Downturn

When the announcement came that our economy was about to collapse, everyone immediately stopped hiring new workers and began laying off the ones they had, they cut back production, they stopped buying materials and supplies and some even closed up shop to hold on to the resources they had. All of this occurred because of one event and it wasn't due to the number of foreclosures or because of the unemployment rate. I realized what was going on as soon as it happened, perhaps even before the government of the largest and strongest economy in the world did, but when they did, they also realized it was the perfect time to take further freedoms away from the people and place a tighter reign on everyone.

In fact, it's safe to say that all of this current economic mess that's put people out of work and into an ever-growing unemployment line is the result of the greed of those who already have more money and resources than they need and certainly rule all the world's governments and banks. But it was simply because of the voice of one man, someone whose words command incredible power, a power that is currently being misused for the sake of the rich elite.

However, even though these rich and powerful have managed to steal even more money from the world, what they fail to realize is that the lower class will be the first to be eliminated, because those people have the smallest reserves to fall back on. While this may not seem all that important to the ones who caused this or even to you who are reading this, what we must realize is that life is a delicate balance which must be maintained so that we all may live and contribute. It's the contributing part that's the most vital element in the equation, because these workers are the only ones that will do certain kinds of work. They have the basic skills that contribute to our food production through farming, grocery store workers, as well as stocking our department stores and working in the mills.

Middle class workers simply will not do these kinds of jobs, so if the lower class is completely eliminated, doesn't it make sense that our entire world will collapse in the same way that a house with no foundation would? For now, these people still have jobs, but if, or rather when, they can no longer afford to feed their families or put gas in their cars to get to work, the positions that they have always filled simply won't have anyone even remotely interested in doing them. Farming and food production will stop, department stores will close, mills will no longer be able to afford to continue to make clothing and shoes. All of this will greatly impact the entire planet, including the rich elite, who might last a bit longer than the rest of us will, but they, too, will cease to exist, and all because of their own greed and selfishness.

And all of this mess happened because of the words of one man, the one who was on your local news to predict that this is what was going to occur, yes, from the words of just one financial forecaster. This very same thing went on for ages with the big energy monopolies. All it takes for gas prices to rise is the words of one man, the one who is responsible for forecasting whether the price of a barrel of oil will rise or fall. And believe me when I tell you that these men will NEVER forecast anything good or anything that will fail to fill the pockets of the rich elite.

These people should be arrested and jailed without the possibility of parole for contributing to the terror that their words have struck into the hearts of the good people of our world. Just for a moment, imagine how things would be if these financial forecasters didn't exist. Yesterday, today and tomorrow, it would be business as usual, because nobody would have any reason to cut production, stop hiring or lay off workers. Our freedoms would still be intact, instead of threatened because of the selfishness and greed of the rich elite.

While you may not agree with distributing the wealth so that everyone has a real chance to survive and even succeed in this world, only those who are also just as selfish and just as greedy as those in power are, would disagree with this idea. There is plenty of abundance to go around, but we've all been taught that there is scarcity instead. The things we are taught are what we tend to believe, even if it's inaccurate. We each create our reality by the what we believe to be true.

Australia's First Aboriginal Leader Confirmed

In a move which many will believe was well overdue it was today confirmed that Adam Giles was sworn in as the head of the Northern Territory government in Australia. This is one of two Australian mainland territories which are to all intents and purposes the equal of the six states in the country. However, it is more the fact that today sees the first aboriginal leader brought into such a position that is catching the headlines around the world.

Multicultural Australia

It will seem bizarre to many people that a country which is regarded as one of the most multicultural in the world has only just this week confirmed its first aboriginal leader of a major territory. When you bear in mind that the aborigines we here well before any European settlers it does beg the question why it has taken so long.

It will be interesting to see whether this appointment is the first of many such moves by the various territory and states of Australia. This is a country which has built its wealth and its culture upon immigrants, this is a country which has very strong ties to Europe and the UK in particular but this is a country which was populated by the aborigines well before the settlers arrived.

Politics in Australia

The old stereotypical image of the Australian is something of a distant memory today as this is a country which has developed, grown and certainly become more welcoming of foreigners over the years. This is a country which has a more settled political system than at any time in its history and indeed the current coalition government seems to be working well. Even though Julia Gillard has called an election for September 2013 we are unlikely to see any major changes in economic policy going forward no matter who is voted into power.

The government has also done very well to improve and grow relations with overseas partners including China and India. These have assisted in increasing the country's political profile overseas as well as improving the economy in the short, medium and potentially longer term. The Australia we see before us today is so different in many ways from that of 20 years ago or in some ways even 10 years ago.

A country built on different cultures

There are so many different cultural influences in Australia that it is sometimes difficult these days to bring out a common thread. There is a massive UK expat community, a relatively large Indian community and indeed those from the US have also shown great interest in the country. When you also take into account the very strong backbone of aboriginal culture which is still prevalent across much of Australia we certainly have a great mix of different ideas, different ways of life and ultimately different cultures.

It has taken many years of campaigning to bring aboriginal leaders into the public domain, it has taken even longer to confirm their rights and only just this week we see the first aboriginal leader of one of the major territories. Times are certainly change in Australia, politics is developing in a way few would have predicted 20 years ago and each of the different cultures and different communities across Australia is having more of a say in how the country is run. This must be good news for the expat community in Australia, the domestic Australian community as well as for the aboriginal community.

Australia's First Aboriginal Leader Confirmed

In a move which many will believe was well overdue it was today confirmed that Adam Giles was sworn in as the head of the Northern Territory government in Australia. This is one of two Australian mainland territories which are to all intents and purposes the equal of the six states in the country. However, it is more the fact that today sees the first aboriginal leader brought into such a position that is catching the headlines around the world.

Multicultural Australia

It will seem bizarre to many people that a country which is regarded as one of the most multicultural in the world has only just this week confirmed its first aboriginal leader of a major territory. When you bear in mind that the aborigines we here well before any European settlers it does beg the question why it has taken so long.

It will be interesting to see whether this appointment is the first of many such moves by the various territory and states of Australia. This is a country which has built its wealth and its culture upon immigrants, this is a country which has very strong ties to Europe and the UK in particular but this is a country which was populated by the aborigines well before the settlers arrived.

Politics in Australia

The old stereotypical image of the Australian is something of a distant memory today as this is a country which has developed, grown and certainly become more welcoming of foreigners over the years. This is a country which has a more settled political system than at any time in its history and indeed the current coalition government seems to be working well. Even though Julia Gillard has called an election for September 2013 we are unlikely to see any major changes in economic policy going forward no matter who is voted into power.

The government has also done very well to improve and grow relations with overseas partners including China and India. These have assisted in increasing the country's political profile overseas as well as improving the economy in the short, medium and potentially longer term. The Australia we see before us today is so different in many ways from that of 20 years ago or in some ways even 10 years ago.

A country built on different cultures

There are so many different cultural influences in Australia that it is sometimes difficult these days to bring out a common thread. There is a massive UK expat community, a relatively large Indian community and indeed those from the US have also shown great interest in the country. When you also take into account the very strong backbone of aboriginal culture which is still prevalent across much of Australia we certainly have a great mix of different ideas, different ways of life and ultimately different cultures.

Indian Students in Australia

The NRI community is spread right across the world and when you look at the figures it seems as though Australia continues to be something of a magnet for non-resident Indians. Over the last few years we have seen a significant increase in the number of non-resident Indian students in Australia and even though there have been some difficulties, they look set to play a major role in the economy going forward.

There are a number of elements attracting the NRI community to Australia and in particular the student community which has been very active around the world.

Australian investment in education

If there is one thing which the Australian government has been very successful at over the last 20 years or so it is investment into the Australian education system. The country now boasts a system which is the envy of many around the world and due to a number of educational exchange partnerships between the likes of India, the USA and the UK for example, this is an area of investment which has certainly created a healthy return.

There are very few leading universities around the world which do not have some kind of direct relationship with the Australian education system. The Australian government has invested billions upon billions of pounds into the school system as well as the university system and overseas students such as those from India will play a major role going forward. This policy has not only brought significant revenue for the Australian economy but it has also brought some of the brightest minds to Australia who will in all likelihood eventually transfer their skills and experience to the employment market in Australia.

The Australian economy

Time and time again the Australian economy has been put forward as one of the better performing areas of the world since the 2008 mortgage crisis. The country managed to avoid a recession, the economy continues to grow and strengthening relations with the likes of China and India have to a certain extent insulated the country from the dark clouds encompassing the worldwide economy.

While you may not immediately put together the education system and the Australian economy these are two elements of Australian life which go hand-in-hand. Over the last couple of years we have seen ongoing friction between the government and various unions with regards to the use of imported skilled labour. The problem is that in many areas of Australia, in many areas of the employment market, the skills and experience required for new projects such as mining operations are currently not available. So what else can the government do?

As we touched on above, the Australian government has been very proactive in the education market and in particular the university sector. By attracting some of the brightest minds from India and other areas of the world the Australian government is able to breathe new life into the economy because skills learnt by overseas students in Australia will eventually be transferred to the employment market. These will be fully fledged taxpaying workers who are based in Australia, have been there for some time and have often contributed more than their fair share both physically and morally.

Conclusion

Many years ago the Australian government decided to invest a significant amount of the federal budget into the education system, with particular emphasis on the university sector. The idea was to attract some of the brightest students, including NRI students, from around the world who would ultimately move into the employment market and assist in training the domestic Australian workforce. They would also be able to transfer their own skills and experience into the wider employment arena and therefore reduce the requirement to continue importing specific skills and specific experience.

Large Jump in Australian Employment Figures

While the rest of the world struggles to come to terms with the ongoing global recession, it seems things are very different in Australia. The Australian Bureau of Statistics today confirmed that February saw an additional 71,500 jobs created in the Australian economy against estimates from experts of just 9,000. Of the 71,500 increase it seems that 17,800 were full-time positions with 53,700 part-time positions. So what does this mean for the Australian economy?

Australian economy remains strong

Over the last few years, there is no doubt that the natural resources industry has kept the Australian economy afloat although the ongoing improvement in economic performance is more widespread today. Time and time again experts have been trying to talk down the Australian economy only for it to bounce back and surprise on the upside. It does seem as though the rate of growth will fall during 2013 but when you compare this to the ongoing problems within Europe and North America it is not a real surprise.

Unemployment in Australia remains at 5.4% which is near a historical low and perfectly illustrates the strength of the economy. Indeed the Australian government has time and time again come under pressure from various unions and working associations in relation to importing skilled workers. However, you have to say that with 71,500 additional jobs created in February 2013 the vast majority of these jobs will be associated with the domestic Australian workforce.

Monetary policy

Due to the strength of the Australian economy going forward the Australian central bank has been left with a number of options to consider at the first sign of softening economic growth. There are no alarm bells ringing with regards to a slowdown in economic growth but there is no doubt that the monetary policy of the central bank of Australia has been tweaked on various occasions to give the economy a helping hand.

When you also take into account the fact that Australian base rates are currently 3%, compared to less than 1% in the UK, there is certainly more scope for fiscal support if the economy was to slow further. There are more options open to the Australian government than the US government and the UK government put together. This is something which investors have noticed and last month's employment data gives something of a rubberstamp to the government's ongoing employment policy.

Technological Advancement - Backbone of Banking Industry

Technological advancement, newer financial strategies, customer demands, rising industrial sector, faster breakthroughs has dramatically transformed the banking industry. Now banks are completely accessible by any one from anywhere. Banks are consistently offering value-added, fast, and customized services to its business customers as well as users. In fact, banks are embracing changing technological trends and offering every service at lightning fast speed. They are leveraging IT and developing their services around it. No doubt, rapid adoption of breakthrough technology by banks and financial institutions has successfully facilitated the communities. These services are highly responsive and help in successful development of business infrastructure for stimulating faster growth.

Another transparent advantage of technology is the lowering of service cost. It has attracted small-scale business owners and simultaneously encouraging banking bodies to introduce more enticing yet advanced offering by banks.

Currently, small percentage of people has access to banking technology and its advanced services. This is the reason banks are making their services online. They are growing their service-standard and improving efficiency & productivity at the same time. This will enhance the standards of living and resolve several business criticality. In addition, this help will help in smooth growing and ideal use of business resources. Banks are also expanding to deliver innovative and proper solutions for long-term business success.

Banks are also making large investments in IT filed to strengthen their overall infrastructure. They are looking for substantial improvements in service and product quality. They are making serious efforts to develop financial products that are helpful in business planning and investment. Banking executives and economists are busy in developing world-class analytical tools, fraud detection techniques, multi-channel environment, and adoption of mobile platforms, banking technology trends, and leading public cloud applications. This will help them in offering secured solutions and services that are capable of helping big business structures.

In addition to that, banks are also evolving faster and introducing core banking solutions and risk management solutions to help businesses and people to access services efficiently. In fact, they are extensively investing in software, hardware, geographic insights, foreign exchange solutions, emerging markets, and communication as well as other technological solutions for vivid support. For better identification, banks are resolving customer queries and responding to their concerns. Even, banking executives are developing tailored business-based solutions and services so that business people can have banking support every time. This will mitigate the potential business risks, improve productivity and bring prosperity in communities.

Mexican Central Bank Cut Base Rates

Last week's news that the central bank of Mexico reduced base rates by 0.5% was initially seen as a sign of weakness with many experts predicting that investors would flee the country with concerns about the short to medium-term economic outlook. However, the situation could not be any different and the reduction in base rates to 4% has actually reinvigorated investor interest in Mexico and given the government a significant shot in the arm as deadlocked reform discussions continue.

Why did the central bank reduce base rates?

The Mexican economy is still performing relatively well, especially when compared to the rest of the world, but there are many experts who believe it could do an awful lot better. Indeed over the last couple of years the Mexican government has been attempting to combat inflation with relatively high base rates although the average inflation rate has fallen to around 3.7% over the last two years which is a full percentage point lower than the previous two years. As a consequence, the central bank now believes it can take its foot off the brake and breathe new life into the economy.

We must not forget that the Mexican economy grew by 4% in 2012 although there was a significant slowdown in retail spending and industrial production in the fourth quarter of the year. It now seems as though the reduction in base rates, to the lowest level on record, could prompt more significant changes within the Mexican economic framework.

Political deadlock

Political parties are currently at deadlock with regards to potential reforms to the business arena which many experts believe will breathe new life into the economy. The reduction of base rates towards the end of last week was something of a surprise to many people although renewed interest in the economy could prompt the deadlocked talks to move forward.

There is no doubt that Mexico has the potential to be more productive, increase its spread of exports (currently around 80% of Mexican exports go to the US) and while there was a short-term blip in the fourth quarter of 2012, it seems as though the economy may well be back on track. The pressure on the political elite in Mexico is now growing and investors, businesses and consumers are chomping at the bit to play their role in revitalising the economy and pushing it yet further forward.

Economic Growth in Chile

When you look at Latin America it is the likes of Brazil, Mexico, Colombia, etc who grab the headlines with other countries such as Chile often left in the shadows. However, while economic growth in Brazil and Mexico continues to push forward at a slower rate it was interesting to see that earlier this week it was announced that economic growth in Chile was actually well above expectations.

This perfectly illustrates the reason why so many expats are now considering Chile as their home of the future. It is a country which has been in the doldrums for some time, it is a country rich in natural resources and finally it is one which is beginning to fulfil its potential.

Economic growth in Chile

Economic growth in Chile was reported at 6.7% for January 2013 compared to the same period in 2012. This is a very impressive result and continues the 19 month long trend of economic growth in excess of 6%. This is the kind of figure which European counterparts can only dream of and even the likes of Brazil and Mexico are nowhere near this kind of growth.

While it is unlikely that growth for the full year will match the 6.7% rise in January 2013, it is still expected to exceed 5.4% with potential for further upward revision. Even this figure of 5.4% is well in advance of the International Monetary Fund's prediction of 4.4% annual growth in 2013. If anything, the Chilean central bank is erring on the side of caution because there seems to be great momentum behind the upward curve in economic growth across the country.

What is behind the increase in economic activity?

While there is no doubt that retail sales, up 9.5%, and mining production, up 8.4%, during the last 12 months have had a major impact upon the overall growth figure, there is more to this than meets the eye. There is now a general feelgood factor throughout Chile which is likely to lead to more confidence from internal and international investors going forward. The fact that the country is finally beginning to fulfil potential income streams from its array of natural resources is a bonus which looking back has been replicated across many successful economies - most notably Australia in recent times.

Taking a step back from the situation, the Chilean government will need to ensure a balance between economic growth and sensible management of the economy. It would not take much to tip the economy one way or the other and overheating of the Chilean economy would be very difficult to cool down.

Benefiting from Latin America

Even though the likes of Brazil and Mexico continue to grab the lion share of both internal and external trade amongst Latin American countries, Chile is beginning to benefit from ongoing trading arrangements. Many of the Latin American governments have come together to speak as one voice on the international trading stage to gain more access and more business for the continent as a whole. While the vast majority of the new business is going the way of Brazil, Mexico, Colombia, etc there will be opportunities for the likes of Chile to build on recent economic growth and push ahead for the future.

China Eclipsed the US As the Biggest Trading Nation - Questions to Ask From an Austrian Perspective

Last month one of the Bloomberg's headline news was titled "China Eclipses the U.S. as Biggest Trading Nation". There seems to be of concern China's 2012 reported trade of $3.87 trillion surpassing the U.S. report of $3.82 trillion. For the full article click on the link below, at the bottom of this article.

The concern arises with the fact that...

"China's growing influence in global commerce threatens to disrupt regional trading blocs as it becomes the most important commercial partner for some countries. Germany may export twice as much to China by the end of the decade as it does to France, estimated Goldman Sachs Group Inc.'s Jim O'Neill."

Why worry so much about an Olympic athlete that had worked hard for many years to win the gold medal? The benefits of twenty and some years of manufacturing and producing real capital in the world are evident and well deserved. As far as Germany increasing its exports to China there should be no big surprise. Germany, one of the few productive economies left in the EU, needs to find a strong trading partner with whom to exchange goods and services. The key word is "strong", financially strong. Who else should Germany trade with? France, Spain, Italy, Greece, countries which are literally economically insolvent?

O'Neill goes on saying that...

"For so many countries around the world, China is becoming rapidly the most important bilateral trade partner. At this kind of pace by the end of the decade many European countries will be doing more individual trade with China than with bilateral partners in Europe."

So, what's wrong with that? If I owned a company and found that my best consumers for my product are on another continent, I would not hesitate. In addition, knowing that my consumers are financially capable of buying my products gives me even more reasons to target that market. Why settle for local consumers heavily in debt who can't afford my products and/or would have to acquire more debt to afford it? Competition and free markets are key components of growth and success. At this point, those European countries should pay serious attention and do whatever it takes to become competitive in the market.

Then, under the chapter U.S. Leadership, we're finding out that...

"When taking into account services, U.S. total trade amounted to $4.93 trillion in 2012, according to the U.S. Bureau of Economic Analysis. The U.S. recorded a surplus in services of $195.3 billion last year and a goods deficit of more than $700 billion, according to BEA figures released Feb. 8. China's 2012 trade surplus, measured in goods, totaled $231.1 billion.

The U.S. economy is also double the size of China's, according to the World Bank. In 2011, the U.S. gross domestic product reached $15 trillion while China's totaled $7.3 trillion. China's National Bureau of Statistics reported Jan. 18 that the country's nominal gross domestic product in 2012 totaled 51.93 trillion yuan ($8.3 trillion).

"It is remarkable that an economy that is only a fraction of the size of the U.S. economy has a larger trading volume," Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington, said in an e-mail. The increase isn't all the result of an undervalued yuan fueling an export boom, as Chinese imports have grown more rapidly than exports since 2007, he said."

As far as services versus goods provided this is a clear sign that the U.S. does not provide enough goods. Goods are of two kinds. Consumer goods (those items we shop for such as cars, furniture, toys, clothing, jewelry, etc) and capital goods (which are the machinery and equipment with which consumer goods are being produced). Maybe the U.S.'s protectionist agenda, taxation, heavy unionism in conjunction with a national trend of favoring a socialist, if not fascist, economic system did not help after all. Maybe the corporate bailouts and Quantitative Easing did not in the end help the private manufacturing sector.

If I were in a position of power I would wonder - and would want to find out - how come my country with a GDP of $15 trillion has a trade deficit higher than my competition, which has a GDP half of my country's GDP. Could it be that too much of our GDP is comprised of 1. the growing of the federal government, and 2. military exposure all over the world? Could it be that such a big economy has little to justify its big number considering its producing capacity is in a less than desirable stage? Mr. Lardy addresses such a question but he seems surprised. But the small businessman in America is hardly surprised. Why? Because it's become very hard for the small business owner to compete with the government subsidized corporations when he has to jump government imposed barriers in form of rules and regulations, when he's coerced with providing health insurance coverage to his employees, and when he's faced with minimum wage restrictions. Then Mr. Lardy brings up a good point. China's imports are now replacing its exports. The answer is: Think of the U.S. back during the 1980′s, when it was the largest manufacturer in the world and the largest creditor. There seems to be a role reversing going on.

The article goes on...

"Biggest Exporter

The U.S. emerged as the preeminent trading power following World War II as it spearheaded the creation of the global trade and financial architecture. Protectionist policies in the 1930s had exacerbated the global economic depression. At the same time the U.K., the leading trading nation of the 19th century, began to dismantle its colonial empire."

Wait a minute, did I read that right? It says that Protectionist policies in the 1930′s had exacerbated the Depression. Wasn't Goldman Sachs concerned with Germany not trading locally within the E.U. territory? What Germany is doing is simply trading in a free market exchange. Why use protectionism to stifle it?

If the article referred to the U.K. as a colonial empire what makes today's U.S.A. different than Great Britain during the beginning of the last century?

"China began focusing on trade and foreign investment to boost its economy after decades of isolation under Chairman Mao Zedong, who died in 1976. Economic growth averaged 9.9 percent a year from 1978 through 2012."

After a long period of central planning and economic regression under the communist system China recognized that hard work and free markets are the answer to economic prosperity.

"China became the world's biggest exporter in 2009, while the U.S. remains the biggest importer, taking in $2.28 trillion in goods last year compared with China's $1.82 trillion of imports. HSBC Holdings Plc forecast last year that China would overtake the U.S. as the top trading nation by 2016."

This begs the question: Is the U.S. consuming too much and producing too little?

The article continues with claims from a few banking institutions that China's export figures could be manipulated. Maybe or maybe not. What I know is that wherever I shop in the U.S., whether Walmart or JC Penney, I can't help noticing the "Made in China" tags.

Eswar Prasad, a former International Monetary Fund official who is now a professor at Cornell University in Ithaca, New York, says...

"The U.S.'s bilateral trade deficit with China, which peaked in 2012, could remain a flashpoint of tension between the two countries."

Why tension? Is it mutual from both countries, or unilateral? The question of who benefits the most out of the trading partnership at this time has not been addressed enough. What would happen to American people if Chinese goods imports would stop over night? Has the American politician explained how the lifestyle of the average American would be impacted? Has it been argued that an unemployed American may suffer drastic changes? The typical comment out there is "let's build American". Sure, I am all for it but with what? There is no savings to produce the capital required to produce goods. Or should we borrow more and increase our debt? Should we allow unions to force manufacturers to keep wages up? If we do, it means that we should also expect to pay double, if not triple for a product that otherwise would have cost us less if it were imported from China.

On the other side would China and its people be affected as much? Do they need the U.S. to consume its products? Maybe. But what if the Chinese renminbi is allowed to freely float? If that happens, the Chinese people's purchasing power is increased. If their currency goes up it means their people would be able to afford more. With a population of more than 1.3 billion I would think there would be a large enough market to consume the locally manufactured products. Not to forget the rest of the countries in the region, some with affluent residents (such as Singapore) and some emerging countries with growing industries and growing wealth (Indonesia, Malaysia, Vietnam, etc).

Mr. Prasad continues...

"This trade imbalance is not representative of the amount of goods actually produced in China and exported to the U.S., but this perspective tends to get lost amidst the heated political rhetoric in the U.S."

If it's not indicative of the productive nature of China then what does it represent? The answer is just that. China: Large production and little consumption. U.S.A.: Little production and large consumption.

Goldman Sachs', O'Neill, is concerned with...

"the trade figures underscore the need to draw China further into the global financial and trading architecture that the U.S. helped create. One way or another we have to get China more involved in the global organizations of today and the future despite some of their own reluctance. To not have China more symbolically and more importantly actually central to all these things is just increasingly silly."

Why bring China to be part of the Wall Street game? So that it becomes part of the Debt web and contributes further to the global economic instability? No, it's not silly to be sovereign. No, it's not silly to be self-sufficient. And it's not silly to be rewarded for hard work leading to production of real goods. Better than Goldman Sachs' paper derivatives. Common sense, if applied, should lead us to think of this as an advance warning. Maybe it's time America starts producing real hard assets instead of Wall Street paper assets.

Brazilian Economy Is Building Momentum

Earlier this month we saw confirmation that the Brazilian economy grew by just 0.9% during 2012 which was well below initial expectations of 4.5% in early 2012. In many ways this was something of a hangover from growth of the previous year and the fact that the ongoing European debt debacle is still continuing. However, there do seem to be signs that the economy is building up yet more momentum although many experts are reluctant to issue forecasts for 2013 at such an early stage.

Economic momentum in 2012

At the start of 2012 there were high expectations for the Brazilian economy with growth of around 4.5% predicted. However, very quickly it became clear that this figure was unachievable due to a mixture of factors which came to the fore during the first half of 2012.

It is also worth noting that the final three months of 2012 saw economic growth of 0.6% which in many ways saved the day and boosted the annual figure to the published level of 0.9%. There is a feeling that momentum is again starting to build within the Brazilian economy, that government plans to cut taxes and lower interest rates will begin to kick in and perhaps the situation is not as dire as many had assumed?

Putting Brazilian economic performance in context

Brazil, along with Russia, India and China, makes up the so-called BRIC Group of emerging economies which have become powerful as one unit over the last few years. It is worth noting that the likes of Russia, India and China have all experienced a reduction in GDP growth over the last 12 months. Such is the influence of this relatively small group of countries that overall worldwide economic growth could be impacted by as much as 0.5% over the next five years due to the slowdown in these economies.

However, we must note that it is very difficult to look forward with any real confidence under the current economic clouds. The European debacle is very much alive, the American government is still to confirm details of its budget and while Latin America has performed admirably during this very difficult time, it could not continue forever at historic growth rates.

Debt burden in Brazil

One factor which has caught the attention of some economists is the fact that the average Brazilian householder is now spending around 20% of their income servicing existing debts. This figure is far in excess of that associated with US households prior to the 2008 economic collapse but it is a very different situation and should be looked at in a very different context.

The recent boom in Brazilian consumer spending was there for all to see and was fuelled by an improving employment market and economic growth. Many Brazilians took out credit cards, loans, etc in the knowledge that they would be able to finance these debts going forward due to improved employment prospects and improved income.

So while the 20% figure quoted above may seem excessive, the vast majority of Brazilians will be able to pay down their debts far quicker than their US counterparts. Indeed there have been reports of some Brazilian employees experiencing wage increases of 100% over the last 2 or 3 years which has obviously taken them to a different level with regards to income.