From Volume 37, Issue 18 of EIR Online, Published May 7, 2010

Ibero-American News Digest

Carry Trade Killing Brazilians

April 29 (EIRNS)—While the Spanish economy blows out along with the euro, in releasing its first quarter results for 2010 today, Spain-based Banco Santander, a wholly-owned asset of the British Empire's Inter-Alpha Group, tried to put a good face on its own bankruptcy, by pointing to its dependence on looting Brazil to show a "profit."

Santander's year-on-year profits inside Spain fell 8%, but their profits in Brazil soared by 38%, and by 17% in the United Kingdom. Brazil now constitutes 21% of the total profits of Santander. (Santander owns 20% of the collapsing British mortgage market.)

But Brazil, itself, is about to disintegrate as part of the same financial meltdown, Lyndon LaRouche has emphasized.

Consider what's happening with the Brazilian currency's carry trade. Brazil's Central Bank today aggressively increased its benchmark Selic interest rate by 0.75%, from 8.75% to 9.5%. Expectation is that there will be three more rate hikes this year, bringing the Selic to 11.75% by year's end—if the Brazilian economy survives that long. As Reuters noted: "The higher interest rate in Brazil will likely keep drawing in investors who, after borrowing money at near-zero rates abroad, look to Brazilian assets for higher yields. Last year that so-called carry trade helped the real [the Brazilian currency] strengthen 34% against the dollar."

This is going to kill the Brazilian economy and population. Today's interest rate increase means the government payments on public debt will leap from 146 billion reals per year (about $86 billion) to 180 billion reals ($103 billion). The existing Selic rate already translated into an average 27% interest rate for business loans in April, 42% for consumer loans, and a staggering 600%+ for credit cards. Now, all of those rates will rise. Understandably, the central bank announcement provoked a huge outcry inside the country, from both business and trade union sectors. The head of the machine tool producers association ABIMAC, for example, said the rate hike is a "crime against investments."

All rights reserved © 2010 EIRNS