Brazzil
Economy
January 2003
On November 29, 2002 The New York Times reported that the current Brazilian government is about to spend $700 million on a fleet of jet fighters. "Five aircraft manufacturers are competing for the contract, part of a multibillion-dollar program to modernize the Brazilian military. In addition to the American-made F-16, both the Russian MIG-29 and SU-35 are being considered, along with the British-Swedish Gripen and a consortium made up of the manufacturers of the French Mirage and the Brazilian company Embraer."
I hope they don't decide to give this contract to the company that gives the largest bribe to Brazilian government officials. It will be more desirable in terms of Brazil, that these Brazilian officials use this opportunity to bring new technology to Brazil—not only for the production of state-of-the-art jet fighters, but also the technology to build nuclear weapons.
The Brazilian government officials should give the contract to the consortium of the French Mirage and the Brazilian company Embraer. Embraer has just announced an agreement to open a new factory to manufacture planes in mainland China. The Brazilian government should include as part of this new partnership with the French and Chinese, an agreement that they will transfer to Brazil and will help the Brazilian government with the know-how to build nuclear weapons.
Going Nuclear
Brazil needs to be self sufficient in terms of defense. Brazil can't count on other countries to come to its rescue if that case ever arises in the future. In the last few years, when I mentioned to other Brazilians that Brazil needs to develop an atomic weapons program, more than one person told me that Brazil does not need an atomic weapons program, because Brazil has a very advanced biological weapons program. They told me that the biological weapons were as destructive as the atomic weapons (in terms of people), but they were cheaper to research and to produce. But all of that does not mean much for most people.
We had the plague in the 1300's in Europe that caused the death of almost half of the European population. But that was a natural event, and not one caused deliberately by another state. In our modern world, up to now, no lab made virus/germ or biologic weapon have escaped, with the result of killing millions of people. When that happens then most people will be afraid of biological warfare as much as they are afraid of atomic weapons warfare. Today, most people understand much better the power of an atomic bomb, with its mushroom shape after the explosion, and the pictures showing the extent of destruction such as in Hiroshima and Nagasaki.
If you have ever seen a documentary about Hiroshima and Nagasaki, right after the atomic bomb was dropped, then you know how destructive an atomic weapon can be. The devastation to all material things was unbelievable. I don't have the words to describe the damage done to the human beings living in these two cities.
When I saw the pictures of mostly innocent people including children, women, and old folks with their bodies burned by the bomb, those images stayed with me. The American media usually describes such an event as being collateral damage. They give me the impression that—it is no big deal, when it happens to other people.
But the people who live in the New York Metropolitan area know better, since most of us know someone who lost a loved one on September 11, 2001, and we know how devastating that event was to so many families. I believe it is an insult to our intelligence, when innocent people die in an act of war, and the media describe the event as being just collateral damage.
I am aware of the devastating power of nuclear weapons. But, I still believe that Brazil needs nuclear weapons to protect its claim of absolute sovereignty over its territory and population. Today, the more a state has the capability to use violence at will, the greater is its contempt for sovereignty, that is, for the sovereignty of other states. We can see all over the world this contempt for sovereignty and international law.
Today, there are too many international treaties that are obsolete or worthless. As an example of worthless treaties, the United States and the Soviet Union signed treaties in the past decades in which they agreed to stop research and production of chemical and biological weapons. Neither country honored any of these treaties, and both countries continued in a clandestine way the development of new chemical and biological weapons.
Why it is O.K. for the United States and Russia to develop these weapons, but it is not O.K. for the other countries of the world to do it? Does the United States have some superior or special type of sovereignty status that all the other countries in the world don't have? If it does have a superior type of sovereignty, by whom was it given? Can we assume that the US does not want to lose this advantage, and wants to prevent other countries of acquiring these weapons?
By definition, any sovereign country (including Brazil) must have the right to produce nuclear, chemical and biological weapons if that country so desires for their national defense. If countries are not allowed to produce these modern weapons to protect themselves, then we can't consider these countries as having actual sovereignty. Then the only countries that have actual sovereignty are the countries that have atomic weapons. We should change the description of the remaining countries from country (which implies that you have sovereignty) to just satellite (which implies that they are inferior and have a master, and they had better follow orders from their masters or else).
Pre-emptive Attack
A pre-emptive attack is something that you do against your enemy to catch him by surprise. You don't announce to the world that it's your policy to do pre-emptive attacks against your enemies, because that works both ways. It is stupid and reckless to announce to the world that the US will launch pre-emptive attack against their enemies. My family and most of my friends live in the New York Metropolitan area, but now that the US has announced this pre-emptive attack policy, we are living in the number one target in the US for a pre-emptive attack by an enemy of the US.
This policy has increased many times the risk of living in the New York Metropolitan area. New York is already a major target for a terrorist attack because of its importance as the financial capital of the world. The people living in the New York Metropolitan area do not need this additional risk.
I don't know if people in the government gave much thought about the consequences of announcing a pre-emptive attack policy, but as a result of that policy they made a bad situation worse. We became sitting ducks here in the New York Metropolitan area waiting for the next terrorist attack.
New York City
About 10 years ago I helped a foreign firm to open a new office in Manhattan. The company specialized in international trade. But before they made the decision to open the office, they asked me to prepare a complete budget to show the cost of locating this new office in Manhattan, around 3rd Avenue and 56 St., compared with the alternative of opening the office across the river in Jersey City, New Jersey.
It was a small office with four office rooms, a conference room and reception area, and about eight people were going to work in this new location. I gave them a complete budget including the cost of health insurance, rent, taxes, telephone expenses, and so on. The two locations were comparable in size, and employee benefits were the same at both places; the only difference between the two budgets was the address. The result was that this company could have operated in New Jersey for three years, with the same amount of money that would take them to operate in Manhattan for only two years.
I suggested that they open the new office in Jersey City, but the management of the company decided that they preferred the Manhattan address. Three years later that company went out of business, and closed their Manhattan office. They learned the hard way that costs matter, and that higher costs can put you out of business.
The official unemployment rate in New York City is around 8 percent. The actual unemployment number should be much higher, in the range of 12 percent to 13 percent.
Time to Move Out
New York City's budget is in very bad shape for many years to come, and many more layoffs are possible not only for city employees, but also in companies located in Manhattan. Taxes are already very high in New York City, but because of the city budget problems, recently the mayor of New York had to increase property taxes even more; by another 18.5 percent.
I believe that many companies will move out of this area if they have any common sense left. Not only are the costs ridiculous in this area, but the US government has been warning us, over and over again, that a terrorist attack is imminent. Since we have been warned by the government so many times during the year 2002 that we will be attacked again by terrorists—when the next attack actually happen, do the employees of many companies located in Manhattan have the right to sue their employers for negligence?
Why didn't these companies relocate to a safer place after being warned so many times? Can the shareholders of these companies also sue the companies for negligence? Should the stock price of companies whose headquarters are located in Manhattan reflect the extra risk?
Today, many Brazilians own apartments in Manhattan. If they are smart, they should cash in on their investment as soon as possible, and sell their property before the next terrorist attack in Manhattan. The price of property should come down anyway because they are overpriced. With so many people losing their jobs, companies moving somewhere else, immigrants returning home or going to other areas (because it is too expensive to live in the New York Metropolitan area), there is only one way for property prices to go in the future—down.
If anyone believes that property prices will continue to increase in Manhattan, please give me the reason why. I just can come up with reasons why property prices in Manhattan should decline for many years to come.
The Coming Economic Depression
We are in the beginning of a deflationary cycle; that means that prices will decline. The economies of Japan and Germany are already suffering because of this deflationary spiral. Few years ago many economists claimed that they had tamed the economic cycle, and that deep recessions and depressions were things of the past. When I read articles about that, I thought they were completely wrong.
The truth is the world is overdue for a new economic depression. Historically we had a depression in the world once every 55 to 60 years. The last world depression was over 60 years ago. A Russian economist, Nikolai Kondratieff, published a study in 1926 showing that a very long term economic cycle existed. His major premise was that capitalist economies had a pattern of long wave cycles of boom and bust.
The bust cycle repeated itself approximately every 60 years. If you had read Kondratieff's paper in 1926, you would have known that an economic depression was around the corner.
Kondratieff identified four distinct phases the economy goes through during each cycle: 1) Inflationary growth, 2) Stagflation, 3) Deflationary growth, and finally 4) Depression—falling prices, falling stock prices, falling profits, debt collapse.
As the stock market is collapsing, a number of corporate scandals emerge such as Enron, WorldCom, Global Crossing, Adelphia Communications, Arthur Anderson and many others. As the debt load reaches new highs in the economy, the result is a record-breaking number of personal and corporate bankruptcies, as is the case in the US today.
There are many countries around the world whose economies are in a state of deep economic depression such as Argentina, Brazil, Bolivia, Colombia, Paraguay, Venezuela, Uruguay, and also most African countries. This is just a small list of countries in deep economic distress.
We can add to this list of economies in distress, not only the US economy with its $8 trillion dollars of cumulative government debt (and continuing to grow), but also the local economies of most states in the United States. The most important states in the US economy are California and New York, and their economies are in shambles. If California was an independent country, its economy would be collapsing today in the same manner as the Argentinean economy.
To put the states' mess in perspective, I quote from an article published by The New York Times on December 9, 2002, "Loss of Boom's Billions Sink California _ State With a France-Size Economy Now Has a Pacific-Size Deficit." The article said:
"State officials are proposing deep reductions in education, health services and other programs to deal with a budget shortfall that could total $25 billion in the next 18 months. "That's a hole so deep and so vast that even if we fired every single person on the state payroll—every park ranger, every college professor and every Highway Patrol officer—we would still be more than $ 6 billion short," said the Assembly speaker, Herb J. Wesson Jr., a Democrat."
In the past, a major war was the way out of a economic depression. Maybe that solution will be used by the US one more time to restart its economy—a major war contributes to ending the depression phase, and leads the economy to the first phase of the cycle once again. The big war has to be started somewhere—even in Iraq.
Economic War
It is very hard for any country to create good paying jobs for everyone, to build a solid middle class and in turn generate economic growth and prosperity. Each year that goes by, it becomes even harder to create new jobs in the economy.
In 1995, a book was published, "The End of Work" by Jeremy Rifkin, which described in detail the current and future trends in the job market. I recommend reading that book to anyone who wants to understand the current catastrophic job market.
I will quote the following from Jeremy Rifkin's mind-opening book. He wrote in the introduction: "Global unemployment has now reached its highest level since the great depression of the 1930's. More than 800 million human beings are now unemployed or underemployed in the world. That figure is likely to rise sharply between now and the turn of the century as millions of new entrants into the workforce find themselves without jobs, many victims of a technology revolution that is fast replacing human beings with machines in virtually every sector and industry of the global economy.
"...In the past, when new technologies have replaced workers in a given sector, new sectors have always emerged to absorb the displaced laborers. Today, all three of the traditional sectors of the economy—agriculture, manufacturing, and services—are experiencing technological displacement, forcing millions onto the unemployment rolls. The only new sector emerging is the knowledge sector, made up of a small elite of entrepreneurs, scientists, technicians, computer programmers, professional educators and consultants. While this sector is growing, it is not expected to absorb more than a fraction of the hundreds of millions who will be eliminated in the next several decades in the wake of revolutionary advances in the information and communications sciences.
"...Now, for the first time, human labor is being systematically eliminated from the production process. ...Substituting software for employees...To begin with, more than 75 percent of the labor force in most industrial nations engage in work that is little more than simple repetitive tasks. Automated machinery, robots, and increasingly sophisticated computers can perform many if not most of these jobs. In the United States alone, that means that in the years ahead more than 90 million jobs in the labor force of 124 million are potentially vulnerable to replacement by machines. With current surveys showing that less than 5 percent of companies around the world have even begun to make the transition to the new machine culture, massive unemployment of the kind never before experienced seems all but inevitable in the coming decades.
"...A study was published in 1989 by the International Metalworkers Federation in Geneva forecasting that within thirty years (by the year 2019), as little as 2 percent of the world's current labor force will be needed to produce all the goods necessary for total demand." I want to remind you that it is 2 percent of today's world labor force and not 2 percent of the world labor force in 2019, which could have many more millions of people.
The Current Job Market
As we can see, it will become even harder for countries to create jobs in the future for their population. A job, any type of job, it is worth saving to keep most of the members of the population employed. Keeping jobs in your country has become more important than ever before.
The Star-Ledger, the largest newspaper in New Jersey, had a front page article a few months ago saying that when people in New Jersey who were on welfare needed information about their welfare benefits, they called a number, and the people answering their questions were located in Bombay, India. To pay lower wages and save some money, New Jersey State exported many New Jersey government jobs to Bombay, India.
In November 2002, George Bush said that in the next two years he would privatize over 850,000 federal government jobs. That means that most of these jobs will be transferred to companies that pay lower wages with no benefits. I will not be surprised if most of these federal government jobs also are exported to India or mainland China as well.
I see first hand on a daily basis, when I go to the Labor Department, what is happening to unemployed workers in New Jersey. Two people were evicted from their homes recently. Another person was in the process of his car being repossessed. Three other people have filed for bankruptcy protection under chapter-7. And most of the other people who have used up their unemployment extensions, are now depleting any savings that they have left for their retirement. These people have no idea how they will be able to manage financially, when they get to retirement age, and all their savings are gone.
The situation is getting more and more scary by the day, since I see a drastic increase of people who are losing their jobs and coming to the Labor Department to ask for help. The quality of the people unemployed is mind boggling, since 50 percent of today's unemployed have at least a college degree. One of the people that I see at the labor department is a young man who graduated from Harvard University, and he also has an MBA from Wharton School of the University of Pennsylvania. He has been looking for a job for over a year.
For the first time in US history, 50 percent of the people who are unemployed are well educated people. Does it make any difference if the unemployed people are well educated or if they are blue color workers? You bet it does.
Well educated people can see that the people in Washington do not have a clue about economic policy. The economy is going to hell, and the only thing that the Bush administration can come up with is tax cuts. Tax cuts will not help the growing number of unemployed people in the US, because if your income is $ 0 for the year, your taxes also will be automatically $ 0. The Bush administration has a terrible record on job creation—since George Bush was elected president of the United States by the US Supreme Court two years ago, the private sector of the US economy has lost over 2.5 million jobs.
I believe that the Dow Jones will sink to the 5,000 to 6,000 level when the US corporations start expensing their real pension costs, plus the costs of stock options, and when they stop fudging their numbers. When many US corporations start reporting more realistic numbers to the public, their earnings will go down—and the stock prices will follow. It is well understood that when corporations such as General Motors, and Ford are in trouble at the same time—that means that the entire US economy is in trouble.
The Federal Reserve is running out of room. They can lower interest rates to 0 percent as in Japan, but they will not be able to restart the US economy. With so much over capacity in the US economy and around the world, which industry will be able to take advantage of low interest rates? Maybe the Bush administration might be expecting a new economic boom in the telecom industry or the airline industry.
The housing bubble is ready to burst.
So much hype for the American dream, but according to the Bureau of Labor Statistics out of 100 people that start working at age 25, by age 65—1 percent are wealthy, 4 percent have enough money to retire, 3 percent are still working (can't afford to quit), 63 percent depend on Social Security, friends or charity, 29 percent are dead.
The reality is 95 percent of all Americans retire in poverty after working for 45 years.
For the people who are unemployed, the economic depression is already here. For the people who still have jobs, they know that if they lose their jobs it will be almost impossible to find a new job. The difference between past recessions and the current job slump is that the people laid-off in the past, would be rehired when the economy recovered. This time around most people's jobs have gone forever.
We are in the beginning stages of a worldwide depression. The Bush administration recognizes the reality—the best days of the American economy are long gone, and today the system is running on borrowed money. The federal government, the states, the companies and the public are all surviving on credit. How far can this situation keep going on before the house of cards collapses?
Ricardo C. Amaral is author and economist and can be reached at amaral@alumni.fdu.edu