Brazil Is the New Greece
And 90% of government spending cannot be cut by law
At 70% of GDP, public debt is worryingly large for a middle-income country and rising fast. Because of high interest rates, the cost of servicing it is a crushing 7% of GDP. The Central Bank cannot easily use monetary policy to fight inflation, currently 10.5%, as higher rates risk destabilising the public finances even more by adding to the interest bill. Brazil therefore has little choice but to raise taxes and cut spending.
Too often, at the popular level, there is a confusion between “austerity is bad” and “the consequences of running out of money are bad.”
Sophisticated analysts of fiscal policy do not make this mistake.
By the...
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