Brazil...

Brazil’s case is clearly an example of fiscal splurging which has made the both, domestic and export sector, uncompetitive by increasing the prices internally, although it has increased depreciation, but higher interest rates have also worked against depreciation by increasing the borrowing cost, even though it has cut down on real-wages by inflation. Its policies are contradicting themselves, they lack a definite direction. Depreciation through inflation would have worked if interest rate was kept steady. Higher interest or cost of borrowing is restraining the competitiveness from depreciation that has resulted in low exports and domestic investment. The difference in fiscal-policy and monetary-policy is that the latter increases supply and demand, both, whereas that former only increases demand and infrastructure, and not goods and services which have made inflation out of control. The fiscal-doles and freebies by the government instead of improving the supply-side by the private sector has indeed crowd-out the private investment by increasing the interest-rates. Too much government spending has not only increased the borrowing cost for the private-sector which has a greater role in supply of goods, moreover it has also made the exports dearer by increasing the capital-cost. The economy’s inflation and high interest have kept demand/supply low for the internal and the external sector. To curb inflation the economy must increase the supply by lowering interest rate, but this time fiscal spending might be saved for the time when the private sector is reluctant to invest, which would also provide the government an opportunity to lower its fiscal burden. Budget pruning that lowers employment is not recommended because it is already above the natural rate and the growth rate is going down. The interest-rate cut would help reduce unemployment and improve the supply-side to reduce inflation against the argument that rate cut would aggravate inflation, but new government spending may be avoided because that would crowd-out private invest as it has done before. The inflation we are seeing in the economy could be attributed to too much government spending. Sensible economics says that the selic must be brought down to increase private investment and control fiscal slippage.