Brazil’s Minister of Economy Paulo Geudes told members of the local press last month that the country was on track to lose about 300,000 “formal” jobs in 2020. Though employment growth has slowed there in the second half of the year, as it has worldwide, Geudes was quite proud of his achievement. After all, though hundreds of thousands of Brazilians have been left unemployed, at least it wasn’t Euro$ #3 bad.

We will possibly reach the end of this year losing 300,000 jobs, that is, 20% of what we lost in 2015 and 2016.

For this nation, and quite a few others, COVID was an economic walk in the park when compared to the devastating (euro)dollar crisis which struck them more than half a decade ago. But they aren’t out of the woods just yet.

Though the real has rebounded over the last few weeks on vaccine-aphoria loosening dollar supplies globally (modest risk-taking), the Brazilian government had been placing all its hopes on 2021 long before Pfizer and Moderna’s announcements. Borrowing at a rate never before seen, the federal government there has followed much the same plan as the US federal government, exploding deficits so as to send direct cash payments to those out-of-work and of the lowest income tiers.

In order to do this, the state has been forced to pay up. Local currency yield spreads are now enormous, unlike those in the US (despite what yield curve hysteria passes for American “analysis”). The 5-year spread, the difference on maturing bonds when compared to those maturing 5 years ahead, is back more than 435 bps. It had been this much, or higher, starting in May 2020 and then a record more than 450 bps at the end of September.

In recent weeks, unlike the repo-hungry primary dealers in US government auctions, several Brazil federal sales have failed to sell out their full allocations. Not only did that push longer yields back higher, the Brazilian Treasury had to go begging to Banco do Brasil (central bank) for a reported 325 billion reais in funds transfers to maintain cash-on-hand balances.

With a whole bunch of shorter-term debt set to mature early next year, officials have been planning a wide variety of stop-gap measures just to hope they can kick the can even further down the road, far enough that maybe, possibly all this mess just randomly cleans itself up.

Despite all the happy economic talk, including a 7.7% quarterly gain in GDP in Q3, the best ever, the truth is Brazil never recovered from 2015-16 (Euro$ #3) and the costs of this severe, ongoing depression continue to, in this case, literally pile up.



Among the measures being considered next year is for Banco to sell even more of the country’s foreign reserves than it has (or swapped) trying (and failing) to stabilize the currency against the latest global dollar shortage (Euro$ #4), this time, however, using the proceeds to pay back some significant amount of federal borrowing rather than supply dollars Brazilian banks might need but might not be able to reasonably acquire.

Nothing is definite, just how bad is the situation if this is seriously being considered? We all know what the risks are when any country, let alone Brazil, uses even a modest amount of their forex stockpile. Painting a dollar target on themselves.



While it may be harder to see in places like the US or Europe, these double “L’s” are just killer. Brazil makes it easier to visualize and appreciate simply because theirs have been unbelievably enormous. They are hardly alone, just among the most severely afflicted; we are all in the same boat if, at times, at different ends of it.

The problem, as you can see plainly in the timing of all the Brazilian economy’s ups and downs, has less to do with Brazil than it does eurodollar. Another example of what used to be a thriving economic miracle attempting, and really struggling, to live in what is the eurodollar’s world. With one deep scar, a massive “L” just four years ago, what happens if a second?

Kicking the can only works if there’s a recovery sometime in between. We don’t have to wonder what happens if there isn’t one; there’s already one “L” on the Brazilian books. The second needn’t be that enormous, either.

Maybe what Paulo Geudes said was only true because so much economy had been destroyed back then; the job losses were relatively mild in 2020 perhaps due to the fact there hadn’t been many jobs gained back since Brazil never, ever recovered. It sounds like an achievement when in fact it points to the rather precarious shape of theirs, and everyone else’s, current situation.

 

 



The issue is dollar and how it always thwarts recovery. Escaping 2020 and thinking that was as bad as it gets assumes the same mistake as in and after Euro$ #3; the worst case isn’t the downturn or its size, it’s being stuck down and never really coming back up. The numbers might be positive again; the situation is anything else. 

Thanks, OECD, for at least the inspiring words while in the real world, and the real’s part of the eurodollar world, real people have to scramble for all-too-real consequences. Not COVID aftermath, dollar aftermath. Maybe that’s why the organization described COVID hope on their most recent publication’s cover, because they’ve finally figured out there isn’t (yet) dollar hope?

Misdirection all the same.