Monday, November 9, 2009

The Debts of the Lenders: Lula da Silva on the Promise of a Better Tomorrow

The Financial Times recently sat down to an interview w/Mr. Lula da Silva, President of Brazil, and one of the key leaders in the BRIC (Brazil, Russia, India, China) emerging market bloc. Mr. da Silva is cautiously optimistic about the future. Here are a few key comments:

“Not long ago I used to dream of accumulating $100bn in foreign reserves,” he says, still smiling broadly. “Soon we will have $300bn (€202bn, £180bn).”

“I am against the state being the manager of the economy. The state has to be strong – but as a catalyst of development. And we have run sound fiscal and monetary policies. That is why the banking sector did not break down during the crisis.”“I was reacting to comments by people who put the blame for the crisis on migrants,” he says.

“That’s how we will build a strong alliance among the Brics. At our first meeting I suggested we should begin trading in our own currencies. We don’t need the dollar. It’s just cultural and it can change.”

Perhaps there are a few lessons here that the more advanced economies in the West can learn from. Please note that Brazil has benefitted from a rush of hot money via the dollar carry trade, particularly in commodity price levels. Oil futures contracts have remained in contango for quite some time (where future exceeds spot). Now prices for longer dated contracts are pushing $100/barrel and renewing fears of inflation. In such an environment, demand for dollar denominated assets such as commodities will continue to rise or at least keep level.

But in the interest of fairness, here is another opposing perspective from noted economist Nouriel Roubini.

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