10CC had the right sentiments; you just need to swap the word cricket for QE. “I don’t like QE, oh no, I love it”, or so they might have sung. “I was walking down the street,” said the Brazilian Finance Minister, “I heard this dark voice behind me, and I looked around in a state of fright…” But when he turned around he did not see “four faces, one mad; a brother from the gutter”, instead he saw Ben Bernanke and Mervyn King: “They turned to each other.”

“They looked him up and down and”, alas, that is where the rhyme stops. “We need quantitative easing, man,” they said. And they then did, they made it, money from the gutter flowed across the world.

The Brazilian Finance Minister called foul; he called it a currency war.

It is not like that now. As the Fed hints that QE may be coming to an end, as good news on the US and UK economy erupts from the bellies of Purchasing Managers Indices, markets fear what will happen if the era of cheap money, or magic money created from the dust, comes to an end.

The FT quoted Marcelo Salomon, an economist at Barclays, who said, “The [Brazilian] government is getting concerned that global liquidity conditions are changing really fast and that this could push the real to a much weaker level.”

So what to do? First off, Brazil has cut its equivalent of a financial transactions tax, which is to say its tax on overseas investment and which is called IOF, from 6 per cent to zero.

Brazil’s Finance Minister, Guido Mantega said, “With the market normalising and the movement of the [US] Federal Reserve to reduce its expansionist policies, we were able to remove this barrier.” But the FT sees the move as more dramatic than that and said that the Brazilian government feared a weakening currency could spark off inflation.

Indeed,  US QE may have been good for Brazil because it kept Brazilian inflation in check.  For that matter, in as much as QE led to higher commodity prices, and Brazil exports commodities, QE may have been very good for Brazil.

Maybe it is time Brazil’s Finance Minister comes clean by admitting, “I don’t like QE, oh no, I love it.”

© Investment & Business News 2013

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