Brazil Enters Hyperinflationary Blow-Out Phase

May 6, 2010 (LPAC)—"The disintegration is centered in Europe, and also Brazil," Lyndon LaRouche advised participants in a private gathering of diplomats in Washington.

In fact, as the Eurozone meltdown spreads across the region, the situation in Brazil — which is the carry trade destination so essential to the Inter-Alpha's group's international speculative bubble — has now entered a phase of hyperinflationary blow-out.

After Brazil's central bank raised interest rates by 0.75% last week, market traders are betting that they will be jacked up by another 1.0% next month, and even further beyond that — purportedly because inflation is raging out of control. "The front end of the curve has just blown out," a Citigroup analyst stated. "The momentum is so strong that it's hard to step in front of it."

The huge speculative carry trade into Brazil has led to credit growing inside the country by 47% per annum. So, rising interest rates are needed to continue to attract the carry trade flows, to try to keep the bubble from bursting. As the London Financial Times editorially warned Brazil, "complacency" is dangerous: "the worst falls often come just when you are strutting your stuff." They point to the fact that Brazil is awash in liquidity, and that housing prices in Rio de Janeiro are rising by around 50% per year, "just two early warnings of a post-boom headache to come."

A major component of the financial bubble inside the country, through which the population is being savagely looted, are payroll deductible loans. This is one of Banco Santander's big "growth" areas in Brazil, and represents over half of all consumer credit in the country. Average interest rates are 2.5% per month, and regulations were recently altered to allow for people to take out such credits for up to 30% of their monthly income. Pensioners are particular targets for these predatory practices, with 89% of pensioners sucked into the operation, often because it is the only way they can purchase food and other vital items. The total amount owed by pensioners as of March 2010, was 111% more than what they owed one year earlier.