<html>
<head>
<meta content="text/html; charset=windows-1252"
http-equiv="Content-Type">
</head>
<body bgcolor="#FFFFFF" text="#000000">
<div id="branding" class="branding-elements clearfix">
<div id="logo"> <a href="http://greenshadowcabinet.us/"
title="Home page"><img class="site-logo image-style-none"
typeof="foaf:Image"
src="cid:part1.05060009.08070508@comcast.net" alt="Green
Shadow Cabinet"></a> </div>
<hgroup class="element-invisible" id="name-and-slogan">
<h1 class="element-invisible" id="site-name"><br>
</h1>
</hgroup>
</div>
<br>
<header id="main-content-header" class="clearfix">
<h1 id="page-title"> Latin America’s ‘Made in USA’ 2014 Recession
</h1>
</header>
<div class="node-content">
<div class="field field-name-field-date field-type-datetime
field-label-hidden view-mode-full">
<div class="field-items">
<div class="field-item even"><big><big><big><span
class="date-display-single" property="dc:date"
datatype="xsd:dateTime"
content="2014-10-07T00:00:00-05:00">October 7, 2014</span></big></big></big></div>
</div>
</div>
<div class="field field-name-field-statement-source
field-type-link-field field-label-hidden view-mode-full">
<div class="field-items">
<div class="field-item even"><big><big><big><a
href="http://greenshadowcabinet.us/member-profile/7569">Jack
Rasmus, Federal Reserve Chair, Green Party Shadow
Cabinet<br>
</a></big></big></big></div>
</div>
</div>
<div class="field field-name-body field-type-text-with-summary
field-label-hidden view-mode-full">
<div class="field-items">
<div class="field-item even" property="content:encoded">
<p><big><big><big><em>teleSUR English</em></big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big> <br>
<strong><em>The USA is taking advantage of the
emerging recessions in Latin America to put
additional economic pressure on two of the
region’s most important economies: Argentina and
Venezuela.</em></strong></big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>Three major economies of Latin
America—Brazil, Argentina, and Venezuela—entered
recession in 2014. And in all three cases their
recessions may be subtitled, ‘Made in the USA’.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>After growing at 5% to 9% in annual GDP
rates between 2010-2012, in 2013 all of the ‘big
three’ economies of South America began to slow
significantly. Both Brazil and Venezuela GDP grew at
only around 1%-2% in 2013, while Argentina’s economy
slowed from 9% in 2010 to 4%. Economic growth in
Latin America’s other major economy, Mexico, slowed
similarly—from 5.5% in 2010 to only 1% last year.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>After slowing to a crawl in 2013, the
bottom then dropped out in 2014. Both Argentina and
Venezuela economies are projected to decline -2% to
-3% this year. And with negative economic growth
both quarters this past January to June, Brazil’s
economy is on track to decline -0.5% to -1.0% in
2014. Elsewhere, Mexico this year continues to
stagnant barely above recession levels, while other
Caribbean and South American economies, like Peru,
also now hover around zero growth.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>So what’s behind the new recession in
Latin America—in particular what’s driving the big 3
economies of Brazil, Argentina and Venezuela into
recession? What happened to reverse their 5% to 9%
GDP growth rates of 2010-2012 so dramatically by
2013? And will the forces behind that reversal
continue and perhaps accelerate in 2015, driving
these Latin American economies further and deeper
into recession? </big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>To answer these key questions it is
necessary to step back a few years to the period
immediately following the global economic crash and
crisis of 2008-09.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big><strong>Global Force #1: The $20 Trillion
Global Liquidity Injection</strong></big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>The immediate response to the global crash
by the advanced economies (AEs)—especially the USA,
UK, and to a lesser extent the Eurozone—was a
massive bailout of their banking systems. The USA
central bank, the Federal Reserve (Fed)—with the
United Kingdom’s central bank, the Bank of England
(BoE) in close tow—have provided a massive,
multi-trillion dollar injection of money capital
(liquidity) to prevent the near total collapse of
the global capitalist banking system.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>This bailout and money injection has
assumed two forms: zero interest rates (ZIRP) to
the private banking system and a policy called
‘quantitative easing’ (QE), whereby the central
banks essentially printed money and directly
purchased trillions of dollars of toxic, virtually
worthless bad assets held in the wake of the crash
by private banks, shadow banks, and wealthy ‘ultra
high net worth’ investors.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>In the USA, this money injection by the US
Fed alone would amount to more than $15 trillion. In
the United Kingdom, another equivalent $2-$3
trillion. And in the Eurozone and Japan by 2014 an
additional minimum $2 trillion more.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>Monetary policy (QE, ZIRP) became the
primary economic recovery policy in the AEs.
Fiscal policy in the form of government spending and
investment played, at best, only a token role (in
USA, UK), a negative role (Europe), or virtually no
role at all (Japan).</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>The USA economy introduced a token 5% of
GDP fiscal stimulus in 2009-10, most of which were
tax cuts for businesses and temporary subsidies to
the US States for one year. The Obama
administration’s approximate $800 billion fiscal
stimulus in 2009-10 was then retracted in 2011 by a
$1 trillion government spending cut. More cuts
followed. A similar process occurred in the UK.
The Eurozone’s followed ‘austerity’ fiscal policies,
with not even a token fiscal stimulus, and deep
reductions in government spending.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big><strong>Global Force #2: China’s 15%
Fiscal Stimulus</strong></big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>In contrast to the AE capitalist
economies’ almost total reliance on monetary
injections, China responded to the 2008-09 crash
with a massive fiscal spending and direct government
investment program amounting to approximately 15% of
its GDP at the time—i.e. three times the size of the
USA’s initial fiscal stimulus. The composition of
China’s stimulus also differed. It was mostly direct
government investment, whereas the USA’s was mostly
business tax cuts and subsidies to States—neither of
which generated much in terms of jobs and working
class wage growth.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>China’s economy recovered quickly and
strongly in the wake of 2008-09, growing in the
10%-14% range. In contrast, with an opposite
emphasis putting their banks and investors first in
line for bailout, the capitalist AEs recovered only
slowly, at half the normal historical growth rates
following recession, or not at all—as in the case of
the Eurozone and Japan which experienced ‘double
dip’ and ‘triple dip’ recessions, respectively,
after 2010.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>This dichotomy in economic recovery
policies—i.e. China focusing on fiscal solutions and
direct government investment vs. the AEs focusing on
massive money injections and token or negative
government investment—is crucial to understanding
the trajectory of the Latin American economies after
2010 and their current descent into recession today.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big><strong>2010-12: Converging Forces
Benefit Latin America</strong></big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>With weak or no recovery in their ‘real’
economies, the AE central banks’ massive money
injections resulted in much of that money capital
‘flowing out’ of the AE economies and into China and
the emerging market economies (EMEs)—including Latin
America. </big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>Some of the money capital inflows to Latin
America went into financial market speculation in
the stock, bonds, derivatives, real estate, currency
markets in Latin America. But as China growth
accelerated in 2010 and after, it required more
natural resources, more commodities, and more
semi-finished goods. Latin America could, and did,
provide those to China. So money capital also flowed
into real investment in Latin America—in expanding
commodities and resources production to meet China
demand, into semi-finished goods to be exported to
China, and into further developing Latin American
infrastructure. This real output growth in turn
further boosted financial asset prices and
speculation in Latin American financial asset
markets.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>So two global forces converged in 2010 to
the benefit of Latin America: surging China demand
and simultaneous AE central banks’ massive money
injections that mostly ‘flowed out’ of the AE
economies into the EMEs, including Latin America,
that funded real investment to increase production
to satisfy that China demand. </big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>With their own AE real economies
languishing, stagnating, and slipping in and out of
recessions, AE private bankers borrowed the
trillions of dollars of ‘free money’ from their
central banks and invested that money capital
directly offshore themselves to exploit the
potential for higher rates of return in China, the
EME’s and Latin America; alternatively, they loaned
the free money from their AE central banks in turn
to shadow banks, high net worth investors, and US
multinational corporations that did the same.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>As the Bank of International Settlements
(BIS)—i.e. the bank of central banks—in Geneva noted
in its most recent 2014 annual report, that hundreds
of billions of dollars annually flowed into Latin
America between 2010-2013—between $500 billion to
perhaps $1 trillion—providing credit for expansion.
Much of that massive money capital inflow now exists
as debt on the balance sheets of Latin American
business borrowers, debt that will have to be repaid
in coming years even as the region’s economies now
sink into recession. So the credit inflows and
corresponding debt build-up in Latin America is
primarily private business sector debt—not consumer
or even government debt.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>The money inflows expanded Latin American
economic infrastructure, agriculture output and
manufacturing production needed to satisfy the China
demand. But as other EMEs grew along with China
(BRICS, G-12, Australia, etc.) it generated another
layer of global demand for Latin American goods and
services. Latin American stock and other financial
markets boomed even more along with rising
production output, providing still more financial
asset speculation. Shadow bankers—i.e. hedge funds,
private equity firms, insurance and investment
bankers—circled and swooped into the region. The
massive money inflows also drove up the currency and
real estate values in Latin American countries,
offering yet another lucrative financial asset
speculation opportunity. </big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big><strong>2013-14: Forces Diverge &
Latin American Recessions</strong></big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>In early 2013 the above converging forces
began to shift and reverse, setting in motion the
weakening of Latin American economies today, in
2014. China’s rapid economic growth began to
significantly slow by late 2012, while
simultaneously, in early 2013, the USA Fed central
bank announced plans to reduce its massive money
capital injections by discontinuing QE and
thereafter by raising interest rates.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>It is important to note, however, that the
common source behind both China’s slowing and the
Fed’s shift to discontinue QE and raise rates is the
destabilizing behavior of the global finance capital
elite—at the forefront of which have been the ultra
high net worth financial speculators and their
shadow banks, together sometimes referred to as the
‘vultures’, if one prefers.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>Here’s the connection in brief:</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>The massive money injections by AE central
bankers since 2009 have resulted in creating global
financial asset bubbles in stocks, junk bonds,
foreign exchange, Euro periphery government bonds,
and divers other forms of financial asset
speculation. By 2013, with bankers and investors
more than bailed out by means of the, prior $20
trillion AE central banks’ money injections, AE
central bankers in the USA-UK announced a shift in
policy in the spring of 2013—i.e. to discontinue QE
and then to raise interest rates to ‘recall’ some of
the prior massive trillions of dollars of liquidity
injection—in order to cool down some of the
financial bubbles emerging.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>In early 2013, the US Federal Reserve
initially announced it would start reducing QE. The
immediate result was a crisis in EME financial
markets, including Latin America’s. In expectation
of no QE and higher rates (and in turn a rising US
dollar), money began flowing out of Latin America
back to the USA and other AEs—into USA stock and
junk bond markets, into the UK generating a London
area construction sector bubble, and into Southern
Eurozone sovereign bonds.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>That prospect of accelerating money
capital outflow precipitated Latin American currency
declines, an initial round of capital flight from
the region, a potential slowing of foreign direct
investment (FDI) to the region, and rising inflation
as the cost of imports accelerated due to the
currency declines. Stock markets swooned in turn in
response to all this. A number of Latin American
governments responded in turn by raising their own
domestic interest rates, in an effort to stem their
currencies’ fall, re-attract the foreign money
capital, and halt the stock market collapses. Their
rise in rates only served to slow their economies
further.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>In recognition of the growing crisis in
the region, the USA Federal Reserve quickly reversed
itself and declared QE taper was not on its
immediate agenda. But that declared phony ‘halt’ was
only temporary. The Fed postponed action only until
the USA resolved its October 2013 government
shutdown confrontation between parties in Congress.
Once over, the Fed again began reducing QE and has
done so every month, ending altogether by December
2014. However, of greater potential impact for Latin
America is the growing drift of the US Fed toward
raising US interest rates.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>With no QE to fund money capital inflows
to Latin America, and the prospect of higher US
interest rates that would recall even more money
capital back to the USA and AEs, problems of capital
flight, declining currencies, rising import
inflation, slowing FDI, as well as rising rates in
Latin American economies returned even stronger by
year end 2013. By 2014 the problems were of
sufficient severity to push the region’s main
economies into recession.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>Simultaneous with the money capital
reversal engineered by the US Fed and AE central
banks, China also began slowing its economy in the
spring of 2013 in an attempt also to ‘tame’ its own
shadow bankers and financial speculators—aka
‘vulture’ hedge funds, private equity, etc.—who were
creating destabilizing bubbles in its own currency,
in regional construction, and in local government
investment markets. </big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>In May-June 2013 China reduced spending
and its money supply growth to cool off its economy
and check the speculative bubbles. But the policies
slowed its real economy more than tamed the
speculators. So it initially backed off, like the
Fed had, in the summer of 2013. It introduced a
mini-stimulus thereafter to restore growth. This
stimulus—along with the Fed’s temporary reversal of
QE in the summer of 2013—had the effect of
temporarily cushioning Latin America’s drift toward
recession in mid-2013. But China’s mini-stimulus in
summer 2013 was not enough, and the China economy
subsequently slowed further again. Once growing
10%-14% in 2010-12, China’s economy is now growing
by less than 7% by most independent estimates. That
slowing has in turn significantly reduced China
demand for Latin American resources, commodities and
semi-finished goods. </big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>The combination of China demand slowing
and AE money in-flows about to reverse precipitated
once again by late 2013 a slowing of Latin American
economic growth, and exacerbated related trends of
declining currency values, declining stock values,
capital flight, slowing FDI into the region, and
rising import costs from the currency declines that
are generating inflation as well.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>Latin America’s recession today is thus
largely the consequence of USA monetary policy
shifts and slowing China growth and demand. But
beneath that surface, the even more fundamental
force behind both these apparent trends is the
growing desperate efforts of global governments, in
both the AEs and China, to somehow check the
destabilizing behavior of global finance capitalists
and their speculative investing in financial asset
markets globally that threatens yet another global
financial market implosion in the near future.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big><strong>A Fundamental Contradiction</strong></big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>The essential point of both the China and
USA Federal Reserve policy reversals of
2013-14—policy reversals that are now driving Latin
America into recession—is that both policy shifts
have their fundamental origins in the financial
destabilization behavior of the global finance
capital elite. The folks that gave us the 2008-09
financial crash and are in the process of creating
yet another. The shift by the US Fed is clearly a
response to try to head off further financial asset
bubbles that have been building. Not as obvious is
that China’s economic slowdown is also being driven,
in significant part, by its efforts to reduce the
influence of global financial speculators that have
been destabilizing its foreign currency and local
real estate markets where bubbles have been growing
as well. </big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>Indirectly then, the vulture finance
capitalists, the global finance capital elite, the
shadow banks and their ‘ultra high net worth’
mega-wealthy investors, are responsible for the
slowing of Latin American economies in 2014. </big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>A key contradiction in the global
economy today is that, as AE central banks reduce
money injections to slow financial bubbles, and thus
avoid another financial crash that would drive the
global economy into another depression, by raising
interest rates in a global economy already slowing
everywhere AE central bankers may in fact
prematurely precipitate just the same outcome.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big><strong>A Political Postscript</strong></big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big>It should also be noted that certain
recent USA government policies have also been
exacerbating Latin America’s emerging recession.
The USA is taking advantage of the emerging
recessions in Latin America to put additional
economic pressure on two of the region’s most
important economies: Argentina and Venezuela. This
further destabilization suggests that the USA may be
‘turning’ again toward a focus on Latin America in
an effort to reassert its hegemony in the region and
to roll back the progressive developments and
governments there that have arisen in recent years.
But how the USA is now attacking both Argentina and
Venezuela—i.e. by defending the vulture capitalist
hedge fund billionaires in the case of Argentina
debt payments and by working with US multinational
corporations to artificially create a dollar
shortage and runaway inflation in the case of
Venezuela in a USA effort to still further
destabilize the slowing economies of both
countries—is the subject of a subsequent essay and
analysis.</big></big></big></p>
<big><big><big>
</big></big></big>
<p><big><big><big><em>~ </em><a
href="http://greenshadowcabinet.us/member-profile/7569"><em>Dr.
Jack Rasmus</em></a><em> serves as Chair of the
Federal Reserve on the Economy Branch of the Green
Shadow Cabinet.</em></big></big></big></p>
</div>
</div>
</div>
</div>
</body>
</html>