A liberal democracy can survive for a while on institutional strength and widespread agreement. As long as most people are generally satisfied with how things are going (or have made peace with the status quo), it is easy to imagine that something like a social contract will keep things on track. Hamish MacAuley makes a persuasive case that many Canadians came of age politically between the collapse of the Berlin Wall and the 2008 financial crisis, when consensus was widespread and politics seemed optional, thus many chose to stay out. We abandoned democratic governing habits during prosperous times. Instead, we played politics. In response, McGill's Jacob T. Levy advocates for political action that rejects the status quo while also refusing to burn it all down or take our ball and go home. We should participate in politics, even if it is unsatisfying. When the foundations of our democratic structure or the rights of vulnerable people are jeopardized, it makes sense to delegate aut
The basic tea for why a country be borrowing so much from outside is cuz when they don't have enough cash saved up at home, they gotta run deficits in their current account to keep the economy growing, ya know? The so-called real resources gap is like, totally the same thing as the current account deficits, ya know? The bigger the country's resource gap, the more this country gotta rely on external savings to close that gap, ya know? The country is totally flexing beyond its resources, fam. But, like, when we check out the Brazilian current account stats during the "miracle" era, there's like no solid evidence backing up the usual story.
OMG, like no cap, Brazil's external debt was totally because of financial stuff, not some real transfer gap, ya know?
Figure 10 below really flexes on this point, like, visually. It's put together like this. Real transfers be like, they gotta have that trade balance and nofr fr service (like, transportation, for real). Capital costs, like, include making bank, paying interest, and getting rid of debts. The reserves are like the cash money held by BACEN and capital inflows (like foreign investments and loans) are what they usually mean. In the figure, real transfers, capital costs and reserves changes were like totally scaled by net capital inflows, ya know? When cap costs and real transfers are negative they be like "gimme that cash." When the reserves changes are like, hella negative, they're straight up financing current account deficits, fam. OMG, like the financial reforms totally flopped at setting up a private financial system for long-term cash flow. So, the investment money for the Brazilian economy relied on loans from public financial institutions (BNDES, Banco do Brasil, BNH, and BACEN). These institutions got a bunch of public funds with super cheap interest rates. OMG, like, the three main financial peeps were totally relied on to finance the economy's comeback. Their loans made up, like, 90% of the total investment financing during the "economic miracle." Furthermore, like, the more investment like, grew, the more important the public institutions became as the main source of finance, ya know? OMG, check out Figure 8 below! In 1966, public financial institutions only made up 18% of the total investment. But by 1972, they were already slaying with over 50% of it! One should bear in mind, though, that these numbers might be underestimated as many private sector operations actually constituted only of intermediation of funds and programmes from public institutions, like the BNDES or the BACEN, to their clients. Even like, ignoring these transfers, public banks' loans for investment like, totally skyrocketed compared to the capital formation during the economic boom, so that public banks' loans as a proportion of capital formation like, grew from 20 per cent in 1966 to 60 per cent in 1972.
Yo, peep this: the cash flow for industrial investment was mostly thanks to the funding of the construction sector.
Just sayin'. OMG, like, the BNH's loans to the construction sector went cray cray and increased elevenfold in just six years. They were, like, 31% of total investment in 1972. Lit AF! The loans to the manufacturing sector were like, mostly given by the BNDES and the Banco do Brasil (which is also, like, the main provider of rural credit in Brazil). And, like, these loans only increased by, like, smaller rates, making up, like, 22 per cent of the total investment in 1972.
One major flex in the priorities of the public financial institutions was their straight-up dedication to private sector projects. In the 1950s, the Banco do Brasil and the BNDES were all about flexing their cash on public investments, ya know? Between 1957 and 1961, like, the Banco do Brasil loans to the public sector were, like, 58% of all Banco do Brasil’s loans and a whopping 82% of the BNDES’ loans. In 1970, the Banco do Brasil's loans to the public sector had like totally dropped to 5%, and the BNDES loans to public sector had been like majorly reduced to 21% in 1972 (Baer and Villela 1980).56 In short, the whole vibe of the financial reforms during the military regime was to set up a private financial sector that could like, coordinate the whole saving-investment thing instead of relying on public institutions. Pivotal AF to this reform was the intro of monetary correction to financial assets and several fiscal subsidies to guarantee lit real interest rates to private financial sector. The financial release resulting from these measures should def contribute to flex on dem savings. The result showed that the real world is way more complicated than what the theory of financial repression predicted, tbh.
The housing boom, but make it lit AF and the construction sector was like totally dependent on the SFH, ya know?
Like, basically, the gov still had mad control over where the money went for investments and hooked it up with hella subsidies.
The Poli Econ of Foreign Capital and External Debt. The reforms of 1964-1966 were all like, "Yo, foreign capital is gonna get some special treatment, you know? 'Cause it's all about that technical progress and the dope factor of domestic savings it's gonna bring, fam." Just after the reforms were done and the economy started booming, mad amounts of cash started flowing in like whoa. Between 1967 and 1973, capital inflows were like, totally lit and increased by over 80 times, ya know? And if you peep Figure 9 below, you'll see that external sources were like, about one-third of the investment rate in 1972. So wild, right? OMG, like the private financial system loans were def important in boosting the economic growth, but they were all about financing consumption instead of investment. So, yeah. OMG, like the private banking system was all about that short-term finance vibe for the economy, while the stock exchange markets never really took off and were hella speculative, you know? On the flip side, the loans for long-term investment were like, totally reliant on Banco do Brasil and the BNDES and the public funds of special programs run by these institutions.
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