How Bernanke Has Forced Brazil to Slap a Tax on Outside Investors

The continued fallout for our central banker's policy of making all our ills go away through a relentless push of US pesos out into the world continues to have far-reaching effects. When Ben Bernanke is not ruining Indian weddings, causing the Canadian central bank to consider a regime of quantitative easing to try to slow down their currency appreciation, he is busy causing consternation in Brazil. Much like Alan Greenspan, this guy is causing dislocations the world over.

For American readers this is hard to comprehend, but other countries have to fight off the tsunami of little cute paper dollars surging into the global economic system; otherwise they will be facing rampant inflation themselves. To foreign readers... your welcome! With the Brazilian real up 35% year to date, the country has begun counter measures.

Via Bloomberg

• Brazil will impose taxes on purchases by foreign investors of real-denominated, fixed-income securities and on purchases of stocks, Finance Minister Guido Mantega said.
• Foreign investor will pay a 2 percent tax when they enter the country to buy stocks or fixed-income securities.
• The measures are being taken “to avoid an excess speculation in the stock market and in capital markets,” Mantega told reporters in Sao Paulo.

Stop here. Can you imagine our central bank doing any measure that avoids the excess speculation in the stock or capital markets?

Hah. We do everything in support of excess speculation of these markets. Oh yes, but we're the measured, mature, thoughtful one in the world....

• The real has gained 35 percent since the beginning of the year, the best performer amid the 16 most traded currencies tracked by Bloomberg. The currency has gained 5.3 percent in the past month. The central bank started purchasing dollars on May 8 in a bid to temper the real gains.
• “Excess global liquidity could lead to an over-appreciation of the real,” Mantega said. That would threaten to hurt the country’s exporters and further fuel demand for imports.
• Mantega said the measures may not lead the real to weaken, but are designed to slow its appreciation and prevent the creation of bubbles in Brazilian markets. “These are to prevent excesses,” he said.

So very strange - I read words from the Australian central banker ... the Indian central banker... the Canadian central banker... the Brazilian central banker - they all sound alike. They lean against bubbles and try to stop asset inflation from wrecking havoc on their economies.

Meanwhile building bubbles is the top source of job formation outside of health care in the U.S. - funny that.

• Central banks need to “alert investors and markets of the risks of exaggeration in the formation of prices, which can lead to future corrections and create unnecessary volatility,” Meirelles said in the interview in New York.
• “We don’t want short-term speculation, we don’t want exaggerations,” Mantega said.

We do!

[Sep 18, 2009: US Dollar Replaces Japanese Yen as "Carry Trade" Currency]

Comments

[surfgeezer]

You can blame Bernake but he is not the culprit. Brazil has learned it's lessons well, and knows both sides of the horn when you allow speculators to run your country. They are imposing a tax on foreigners that are impeding their ability to export, wow THAT is what makes me glad I got in early. We have done everything to cater to wall street at the expense of main street and wall street is a fickle female dog.

2009 Oct 20 12:33 PM

[Brazilian177]

This my friend is proof of the fall of the American empire, Uncontrolled speculation over spending and currency collapse it looks bleek.

2009 Oct 20 01:04 PM

[predictorman1000]

How do you spell "banana republic?" U-S-A

2009 Oct 20 01:46 PM

[Dr. O]

Like Japan, Europe, and the U.K., the USA is a slow growth, highly indebted country with low interest rates and cheap money. Where we differ is in the scale of our national debt, and the confidence or lack thereof that we and the world has in our elected officials to run the country sensibly. And the fiscal problems were the same under Bush and Greenspan as under Obama and Bernanke. There's no change in the trend, although the scale of the debt has increased dramatically.

2009 Oct 20 05:17 PM

[Graham and Dodd Investor]

Imagine the US, needing lessons from BRAZIL on how to run its economy. Don't Cry For Us Argentina.

2009 Oct 20 06:32 PM

[John Galt]

I read the WSJ's version of this story and I knew Brazil was the world's leading exporter of iron Ore and Sugar, but I didn't realize they lead in Beef and Chicken as well.

Commodities, Agg and Livestock... Pretty nice lineup. Canada/Australia with meat.

2009 Oct 21 09:15 AM

[tripleblack]

Brazil is smart to capitalize on the sudden international craze for their equity markets. 2% may be just the first bite at that apple...

Imagine the consternation if the United States followed suit, taxing international investments in just the same manner.

2009 Oct 21 09:21 AM

[manya05]

tripleblack, maybe not in the form of direct taxation, but the US already does that. You invest in the US equity market, and that turns you into a US-person for IRS purposes, all your finances immediately become transparent to Uncle Sam. What the Brazilians are doing is pretty mild, they charge a ticket to get into the theater, but they do not want to see the underwear in your closet at home. Imagine the consternation.

2009 Oct 22 04:13 AM