Brazil: The more the government “gives”, the more industrial production falls

The chart shows the behavior of industrial production in the world as a whole, in emerging markets and in Brazil.


Although far below the performance of industrial production in emerging markets (note that the data begins when China began the “big pull”), at least it evolved according to the world average.

For the past six years, however, it “dismounted from the world horse”. Curiously and more important, instructively, that coincides with the moment the government thought it had to adopt an authoritarian industrial policy:

  • Increase in subsidies from state banks
  • Reduction of industrial costs (lower payroll taxes and lower energy prices)
  • Local preference in government purchases
  • Local content policy in the oil and gas sector
  • National champions policy spearheaded by the national development bank (BNDES)
  • Rise in import barriers

The “gun”, however, backfired!

The Fed will continue to tighten!

“The Fed’s decision was unanimous and Chairwoman Janet Yellen emphasized that the central bank would raise rates gradually.”

Great, the “when will the next rate rise be” game will continue to be played. As the charts show, tightening was already “baked in”, and will likely continue going forward. The markets weren´t at all surprised!

First, NGDP growth (Monthly NGDP from Macroeconomic Advisers)

Tightening continues_1

10-year inflation expectations

Tightening continues_2

The dollar against a broad basket of currencies

Tightening continues_3

Industrial production

Tightening continues_4

PS Likely outcome: Sooner, rather than later, the Fed will bring rates back down! At that point FOMCers will raise their hands and say “We give up!”

The IMF Tells the Bank Of Japan To Hit The Gas? What About The U.S. Federal Reserve?

A Benjamin Cole post

The International Monetary Fund on May 22 badgered the Bank of Japan to adopt a more-aggressive growth stance, even though the island nation posted Q1 real GDP growth of 2.4%, and an annual inflation rate of 2.3%—along with an unemployment rate of 3.4%.

Moreover, under the leadership of Governor Haruhiko Kuroda, the BoJ is buying about $83 billion in bonds a month, a quantitative easing program equal in size to that of the U.S. Federal Reserves’ Q3 at its peak—except that Japan has an economy one-half the size of the United States.

Nevertheless, the IMF warned the “BOJ needs to stand ready for further easing, provide stronger guidance to markets through enhanced communication, and put greater emphasis on achieving the 2% inflation target.”

Fair enough. Maybe the BoJ needs to really pour it on.

Um. What About the Fed?

So, the United States’ posted Q1 real GDP dead in the water, and many are forecasting Q2 not much better. The core PCE deflator is now running at 1.3% YOY, with headline deflation, and the Fed has not reached its 2% inflation target for seven years, except once, and that fleetingly. The U.S. producer price index has been in deflation for several months. The U.S. unemployment rate is 5.4%, and a squishy figure at that.

Yet Fed Chair Janet Yellen never misses a chance to rhapsodize about raising interest rates, and on May 21 warned that Fed cannot wait too long before tightening the monetary noose or it will “risk overheating the economy.”

BTW, also from the Fed: “Industrial production decreased 0.3% in April for its fifth consecutive monthly loss.” Capacity utilization is at 78.2%, below the long-term average.


Yellen has new definition of “overheat,” and that is any room temperature warm enough to melt ice cream. And the IMF…well, what can you say. They appear seriously confused.