Publications on International finance
Working Paper No. 634 | November 2010
The post-1945 mode of global integration has outlived its early promise. It has become exploitative rather than supportive of capital investment, public infrastructure, and living standards.
In the sphere of trade, countries need to rebuild their self-sufficiency in food grains and other basic needs. In the financial sphere, the ability of banks to create credit (loans) at almost no cost, with only a few strokes on their computer keyboards, has led North America and Europe to become debt ridden—a contagion that now threatens to move into Brazil and other BRIC countries as banks seek to finance buyouts and lend against these countries' natural resources, real estate, basic infrastructure, and industry. Speculators, arbitrageurs, and financial institutions using "free money" see these economies as easy pickings. But by obliging countries to defend themselves financially, they and their predatory credit creation are helping to bring the era of free capital movements to an end.
Does Brazil really need inflows of foreign credit for domestic spending when it can create this at home? Foreign lending ends up in its central bank, which invests its reserves in US Treasury and euro bonds that yield low returns, and whose international value is likely to decline against the BRIC currencies. Accepting credit and buyout "capital inflows" from the North thus provides a "free lunch" for key-currency issuers of dollars and euros, but it does not significantly help local economies.Download:Associated Program:Author(s):