Currency Wars Chaos

Inflation in Brazil is on a tear rising 1.8% to 6.8%.

Brazil is famous for openly (usually declarations are implied but not stated) declaring a currency war back in March 2012 citing the typical narrative :

When the real appreciates, it reduces our competitiveness. Exports are more expensive, imports are cheaper and it creates unfair competition for businesses in Brazil,” said Mantega (Source Financial Times)

In our Currency War 101 blog posted in February we stated:

I believe this [currency devaluation]logic is short sided (see this article) and dangerous however that is a discussion for another day.

The current protests in Brazil illustrate our point!

From the New York Times:

More than a million protesters marched in the streets late Thursday, according to Brazilian news reports, in the biggest demonstrations yet, and President Dilma Rousseff on Friday called an emergency meeting of her top Cabinet members.

 

The mass protests thundering across Brazil have swept up an impassioned array of grievances — costly stadiums, corrupt politicians, high taxes and shoddy schools — and spread to more than 100 cities on Thursday night, the most to date, with increasing ferocity.

When negative effects of currency devaluation finally rise to the surface, the underlying social issues can can boil to the top of the respective countries national stage. Such instability resulting from inflation clearly makes a economy WEAKER not STRONGER thereby debunking the “tried but not true” narrative that a weaker currency is good for the economy.

A fifth grader could figure this out! Why can’t policy makers?