Fed Chairman Ben Bernanke and his ilk refuse to see the connection. They’re too busy ogling inflation in the US that is suspiciously low. But China has its eyes riveted on the revolt in Brazil. Like all revolts, it’s about deep-seated issues and inequalities, but the spark that lit it – after price and asset inflation had made life too expensive for the middle class – was an increase in bus fares.
The warning shot came in September 2010. From Brazilian Finance Minister Guido Mantega. In a speech, he denounced the “international currency war” that the money-printers in Washington and elsewhere were waging against his and other countries, and the hot money that they sent sloshing around the world, particularly the developing world. “This threatens us because it takes away our competitiveness,” he warned.
He’d taken aim at the Fed’s “bold” efforts to hand trillions to the big players – the hot money – who didn’t invest it in production and jobs in the US but plowed it into every conceivable “asset class,” such as commodity and currency speculation and similar productive uses. It hit prices in Brazil and drove up the Real.
Brazil counterattacked last year. The Real plunged 24% against the buck. Prices of imported goods soared – adding to the inflation that had already been zigzagging up from 3.7% in 2007. In May, it hit a red-hot 6.45%.
It was just too much for the 40 million people who’d made the transition from poverty into (barely) the middle class since the turn of the millennium. Products they buy on a daily basis have jumped: tomatoes are up 96% over last year, onions 70%, rice 20%, chicken 23%. Since 2008, rents are up 118%. Rio de Janeiro has become the third most expensive city in the world.
But the economy is languishing. Last year, it eked out a minuscule gain of 0.9%, after having edged up only 2.7% in 2011, dreadfully slow for a developing nation. Stagflation!
So cities increased bus fares – in Rio by 6.7%, from R$ 3.00 to R$ 3.20 ($1.47). The spark that ignited the fire. On Thursday, 5,000 to 10,000 protesters rallied against the fare increases, set a bus on fire, smashed windows. The police responded with force, shot seven reporters of the daily Folha with rubber bullets, enthusiastically teargased TV reporters who were filming the mass arrests….
By Monday, 200,000 people were on the streets spread over the cities of São Paulo, Rio (100,000 according to independent observers), Salvador, Curitiba, Belém, and the capital, Brasília – where some of the demonstrators managed to get on the roof of Parliament to sing the national anthem before descending.
The ballooning size of the protests took authorities by surprise. Momentum is picking up. The social media play a crucial role in organizing the masses. And the next few days are going to be hot. Yet protests are not the norm in Brazil. There have been sporadic ones, but nothing major since the demonstrations in 1992 against the corruption of President Fernando Collor de Mello’s government. And violent protests are rare – in contrast to the everyday violence in their neighborhoods.
This is a revolt of the young middle class, of students, of people in suits, of bystanders. Bus fares sparked it, but now they denounce the rising cost of living, the wasteful costs of the World Cup, the corruption of the elites, high levels of inequality, lousy public service, inefficiency, and crime.
“The entire Brazilian youth” was there, wrote a student participant. People “seemed determined to continue the movement.” One likened it to the “euphoria of the Carnival.” Many participants didn’t see the violence and considered the protests peaceful – until they saw it on TV. Banners covered a spectrum of concerns and hopes. One of them read, “Here lies a conformist nation. Brazil woke up!” Some vandals were reprimanded by the crowd. A banner brimmed with youthful optimism: “We’re the future of the nation.” Government corruption was a favorite target. “Today I saw my country change,” wrote a 38-year-old participant in Rio. “We don’t need a new soccer stadium, we need a new country.”
For the elite and political class, this mayhem comes at an inconvenient time: Brazil will host the soccer World Cup in 2014 and the summer Olympics in 2016 – events designed to goose the stagnating economy and line their pockets. While the country is plowing $15 billion into the Olympics, it’s the less costly World Cup that is being targeted by protesters, whose bus fares were hiked, and who want hospitals and affordable housing, not glamorous stadiums.
On Tuesday, the government tried to diffuse the protests before they spiral out of control. They talked about dialogue. The mayor of São Paulo, Fernando Haddad, was willing to meet with representatives of the protesters but refused to budge on the bus fares; there was a stadium to pay for, and his budget was squeezed. President Dilma Rousseff, a target of the protesters, admitted, “These voices, which go beyond traditional mechanisms, political parties and the media itself, need to be heard.” She went all out to embrace the restive crowd: “The greatness of yesterday’s demonstrations was proof of the energy of our democracy,” she said.
Palliative words. Whether they will soothe the spirits, heal the wounds of police brutality, douse the fire of discontent, bring inflation under control, and make life more affordable remains to be seen. Whether this is just a blip, or a long-term event that will drag down further the seventh largest economy in the world also remains to be seen. Meanwhile, the effects of the Fed’s monetary policy continue to ricochet around the world.
“We’ve intentionally blown the biggest government bond bubble in history,” confessed Andy Haldane, Director of Financial Stability at the Bank of England. The bursting of that bubble was a risk he felt “acutely.” He saw “a disorderly reversion” as the “biggest risk to global financial stability.” Seatbelts are being fastened; the clicks can be heard worldwide. Read….Biggest Bond Bubble In History Is Turning Into Carnage