Replies to post #10682 on The Rising Influence of Rising Affluence

[flatlander_60048]

Tried looking into Deere's red tape difficulties but the Iowa L. Gov was the only link I could come up with discussing bureaucratic problems.

http://www.thegazette.com/subject/news/iowa-lieutenant-governor-reports-on-brazilian-trade-mission-20150501

Iowa public officials are probably not the best source since in 2013 Deere decided to move the 8R tractor plant to Brazil from Waterloo Iowa. Depending on where in Brazil the plant is located I don't doubt that there were hurdles to jump. There is considerable difference between the States, as well. Sao Paulo backed Neves in the election and many of the most vocal protests against Dilma are comming from this area.

Unfortunately for the US, some of the problems encountered by Brazil are more easily addressed than some of the problems in the US. For example:

Brazil demographics are better They have the youngest population of any G7 nation. Accordingly they have many more workers for every pensioner. On the negative side, Dilma largely won the election by offering pension benefits to workers as young as 55. This is part of the reforms that Levy wants to address that she does not want to go back on.

Brazil's current BACEN interest rate is 14.25%. At some point (probably next year they will be in rate cutting mode and this will be a tailwind that will likely last for years. The US will have the opposite side of the coin increasing or stagnant rates for a generation;

Brazil's debt to GDP is 59% compared to 103% for the US. With a much younger population they should have capacity to institute reforms without dire implications (i.e., huge tax increases etc). It is unclear how the US can avoid this scenario.

I don't have rose colored glasses on. I realize they need to find a solution to the trade imbalance since China is unlikely to lift them out of the rut. However, the magnitude of their currency devaluation may already be sowing the seeds for them to be more competitive. In the US the dollar has strengthened against most currencies in the world. Weakening the currency could require more QE (an unpopular scenario).

Unfortunately (for my Kids), the demographic tailwind looks to be at Brazil's (and most other young emerging market countries) back. They largely need to get the politicians out of the way. The US has been borrowing from its future, and in order to prevail in the future we will have to do it based on education, better business practices, spirit and innovation.

I haven't seen evidence that our politicians are up to the task.

Regards
FL