Largest Bond Dealer Plans to Keep Betting on the Brazil Carry Trade

February 22, 2010 (LPAC)—Pacific Investment Management Co. (PIMCO), the world's biggest bond fund, which is run by the giant German insurance firm Allianz, announced that it plans to continue playing the Brazil carry trade, despite the fact that the country is facing presidential elections in October 2010. It is confident that the winner of the elections, whether President Lula's choice Dilma Rousseff or Sao Paulo Governor Jose Serra, will allow the speculative looting to continue. "We have every comfort that the policy in Brazil will remain sound," PIMCO's co-head for emerging markets, Michael Gomez, told Bloomberg on Feb. 17. "It doesn't really matter who the president is in the next election, as long as the policy is taken care of. We are fans of local debt markets in Brazil... Brazilian bonds are a great value."

PIMCO had joined London-run Santander Bank and Rothschild agent Mario Garnero in betting heavily on candidate Lula da Silva and Brazil during the 2002 presidential election—and won big.

As EIR reports in an article entitled "London's Brazil Carry Trade: Smoke, Mirrors—and Genocide," to be published in the upcoming issue of the magazine:

"In recent years, international banks, such as London-run Santander, have borrowed hundreds of billions of dollars from the European Central Bank at a 1% interest rate, or from the U.S. Federal Reserve at similarly low rates. They then 'carry' these funds to places like Brazil, where they are placed in government treasury bills denominated in reals (the local currency), yielding the highest interest rates in the world: an average of 16% per year, over the seven years that Luiz Inacio Lula da Silva has been President of Brazil (2003-present). As a result, the total interest paid out by Brazil during the decade since 2000, to foreign and domestic bondholders, was a staggering 1.564 trillion reals ($870 billion at today's exchange rate)—almost three times the original debt of 563 billion reals in 2000.

"How in the world did Brazil keep making these payments? In large part, by bringing in more capital to invest in more bonds, thus going further in debt—the classic Ponzi scheme. As a result, Brazil's public debt rose from 563 billion reals in 2000, to 1.345 trillion reals in 2009—782 billion reals in new debt. In effect, these new loans covered exactly half of the 1.564 trillion in interest payments made. The other half came out of the hides of Brazilians (population, 190 million), whose domestic consumption was drastically reduced in order to export goods to earn foreign exchange with which to pay the debt.

"How has Brazil continued to attract such volumes of foreign capital? In part, by offering exorbitant interest rates. But also by ensuring the appreciation, or revaluation, of the real vis-‡-vis the dollar, which ensures foreign speculators an additional margin on this account. In fact, the real has appreciated in value every single year of the Lula Presidency, with the exception of 2008, when the global financial meltdown struck the planet. As a result, the actual average return on the foreign carry trade under Lula, has been a breathtaking 24% per year. On his seven-year watch on behalf of London, the equivalent of 859 billion dollars (or some $123 billion per year) have been looted from the Brazilian economy and people.

"But as with all Ponzi schemes, the instant the escalating flows stop, the whole house of cards comes crashing down, and the magician's illusion is shown to be nothing but smoke and mirrors—and genocide."