Monday, December 12, 2011

The BRICs collapse

10 years ago the BRICs was an innovative idea by Jim O'Neill of Goldman Sachs. The idea that emerging grouping of India, Russia, Brazil and China would form a third well driving the global economy. That this would add a new economic engine to the global economy along with the United States and European Community. For the better part of a decade the concept has been the favorite of trendy talk on the developing world. But now with India and Brazil's economies entering hard recessions and Russia on the verge of chaos the entire BRIC idea just looks like another derivative sold by Goldman Sachs: utter trash.

Lets come out and say it right way.  Goldman Sachs bundled 4 utterly isolated economies in India, China, Brazil and Russia to sell emerging market stocks to consumers.  This was no different than how bankers bundled mortgage mixing good mortgages with subprime make Mortgage Backed Securities that would have been better called Mortgage Infected Insecurities.  Then bankers started loaning to EU nations seeing sovereign debt as a good investment, but again they mixed solid debts like Holland, Germany, France and the United Kingdom with higher interest subprime countries like Greece and Italy.

The pattern of bankers combining things that are unrelated, mixing trash with gold to try and make a commodity to push to other investors is well established.

Well I am going to say it here, the entire concept of the BRICs was just another case of this.  The member nations of the BRICs had NOTHING truly in common.  Their economies were all very different, facing different risks and advantages, and didn't really form a singular whole or reinforce each other in any way.  It was just another Goldman Sachs scheme to think people were buying in to something they were not.

China has had an impressive economic run for the past few decades and it makes sense that many investors would like to get in to China.  But bankers were not happy just selling China, they had stocks in India, Brazil and Russia (all growing and large as well) that they wanted to pass off to suckers, I mean investors.

Problem was while China had a solid record people had reasons to wonder about India and Brazil, and would have been crazy to want to invest in Russia.  So what was a firm like Goldman Sachs to do?  Honestly sell the stocks people wanted to the people who wanted them.  Okay seriously, Goldman Sachs simply stacked  the four together, mixing basket case societies like Russia and Brazil with China in order to create a new kind of investment instrument.

Well the BRICs are pretty much falling about.  Just check the news.

India is in an economic collapse right now.  India's production and mining sector has fallen over 5% from October 2010 to October 2011. For a developing country that still has as many poor people as all of Africa to lose 5% in industry is very weak.  The EU may have caught a cold, but India seems to have cancer.

Brazil, the most isolated of the BRICs is not doing much better.  In the last quarter of 2011 Brazil, which was growing at 7.5% in 2010 came to a complete standstill.  Again for a developing nation with major poverty that needs development just to crawl out of a hole a sudden period of 0% growth is a catastrophe.

But these nations seems golden compared to Russia, where core survival of civil society is in danger.  Brazil and Russia have had peaceful transitions of power and fair elections, Russia does not even have a civil society as the presence of over 50,000 protests to a rigid election shows that the system is more Soviet than anything else.

Even China is endangered to some extent by the collapse in Europe, but her economy is doing much better than the other 'BRICs'

So what can we conclude:

  • The BRICs is a meaningless useless concept for economics, joining unrelated and unlinked economies in to something trying to sound like NAFTA or EU.
  • The BRICs is an effort by banking community to sell equities is less stable nations like Brazil and Russia by someone making them seem linked to China.
  • The nations of India, Brazil and China are still heavily dependent on US and EU economies and are not some kind of third engine.  There recent growth has come at the cost of jobs lost in the west.
  • A new spirit of protectionism, which is certainly coming, will wash much of the recent growth away.
  • Russia is a fiasco, Brazil is a narco-democracy, India isn't even a nation at all, and China as a Fascist Uber Corporatist State that all reason says must be headed for a bubble burst.

But to sum up: One has to be an idiot to believe anything Goldman Sachs ever said. 

1 comment:

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