Brazil has technically entered a so-called recession. How then, can we explain the fact that Sao Paolo’s stock market (Bovespa) – which was at 30 thousand in December of 2008 – has not stopped rising, and has reached 50 thousand.

(Sao Paolo) THE BRAZILIAN GDP fell 3.6 percent in the final quarter of 2008. The preliminary calculations, still not officially confirmed, indicate that the Brazilian GDP will have shrunk approximately two to three percent during the first quarter of 2009, meaning that Brazil will have technically entered a so-called recession.

The industrial production numbers for the first quarter of 2009 show a 14.7 percent drop in relation to the same period last year, with it being especially significant that the production of capital goods – which indicates investment levels – has shrunk 23 percent in March in comparison with February.

THE IMPACT OF THE GLOBAL CRISIS

Industrial exports also did poorly, displaying a 22 percent drop from the same period last year. Regarding trade, the outcome is one of recovery, considering the drop in imports, which is offset by the increase in small exports thanks to China’s demand for basic products and commodities, like soy and iron.

Industrial employment fell five percent during the same period, which was only made up for by the demand for work in other sectors, such as services and trade.

“In the current macroeconomic context, it is worth asking what the miracle behind this disproportionate and irrational increase in the Brazilian stock market is”

Within this context, in which the current Brazilian economic indicators are demonstrating the seriousness and magnitude of the impact that the international crisis is having, Sao Paulo’s stock market (Bovespa) – which was at 30 thousand in December of 2008 – has not stopped rising, and has reached 50 thousand. In other words, the Brazilian stock market has jumped more than fifty percent during the first quarter of 2009, while the value of the real (the local currency) has dropped nearly 20 percent in relation to the American dollar.

In the current macroeconomic context – in which it is not possible to visualize a clear picture of the future -, and in view of the absence of reforms to the global financial system, restoration of confidence and the establishment of a secure framework for the future, and taking into account the macroeconomic figures mentioned above, it is worth asking what the miracle behind this disproportionate and irrational increase in the Brazilian stock market is.

ABSENCE OF CLEAR RULES

The disassociation between the real economy and its financial reflection, within the framework of excessive liquidity and a lack of clear rules of the game, is at the base of the current global crisis.

“Among all of the explanations being thrown around, what is actually behind the Brazilian stock market’s jump is the income coming from the flow of foreign capital, which is attracted to the difference in domestic and foreign interest rates”

Consequently, financial asset bubbles formed, and the effect of that wealth was the creation of the illusion of an infinite expansion of modern capitalism, which reality has shown to be a false premise. Among all of the explanations being thrown around, what is actually behind the Brazilian stock market’s jump is the income coming from the flow of foreign capital, which is attracted to the difference in domestic and foreign interest rates. This is the same scenario that fed the growth of stocks and other assets in Brazil prior to the current crisis. In other words, it looks like nothing has changed in the universe of the financial casino gamblers. As such, from the real economy’s perspective, production, investment and industrial employment are suffering a brutal drop, while from the financial perspective it looks like the speculative profit game is continuing unabatedly.

The successive crises in the history of capitalism have required the restoration – under new forms – of the system’s reproduction. The current crisis calls for the creation of new rules of the game, of a new institutional framework, and not simply the injection of an uncountable amount of money into the economy – into the banks, to be exact.

GAMBLING TABLE

The question is: what is being done so that the mistake does not repeat itself? What measures have been taken to keep the financial sector from becoming a mere gambling table where profits – completely unrelated to what the system actually produces – are what count. The financial system’s principal function is to finance the production of goods and services, as such facilitating economic growth, generating jobs and ensuring the well-being of society.

“The current situation demonstrates just how far away we are from our original objectives, which appear to have been forgotten. We are running the risk of not learning from the crisis”

The current situation demonstrates just how far away we are from our original objectives, which appear to have been forgotten.

We are running the risk of not learning from the crisis.