ArmstrongEconomics: Brazil into 2025

Posted Dec 18, 2024
by Martin Armstrong
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QUESTION: Mr. Armstrong, Like so many others, I cannot express my gratitude for creating Socrates. You provide forecasting for the entire world. In Brazil, Socrates has been a light in the middle of darkness. Our central bank has had to intervene four times, desperately trying to prevent the collapse of our currency, as we see nothing but soaring budget deficits. We are witnessing the wholesale spread across assets. Our government dollar bonds are declining despite being denominated in the US dollar. Our hopeless president, who the West cheered, Luiz Inacio Lula da Silva, proposed new income tax breaks alongside a plan to cut over $11 billion in spending last month. Lula has no idea about the economy.

Could you please comment on Brazil as we go, so does South America? -- Enzo

ANSWER: It is so important to look at the entire world. We are all connected. However, looking at the array for South America it does not suggest that everyone will follow Brazil. Nevertheless, the US dollar should continue its advance into 2025. I would be concerned about the May/June time period next year. We are looking at the collapse of socialism. The election of Lula da Silva was an act of economic suicide for Brazil. Silva was elected in 2022 to be the president of Brazil. That was a stunning comeback following a very tight run-off race that was not without controversy. His victory heralded a political about-face for Latin America’s largest country. You can see the economic consequences ever since the US dollar reversed direction and was projecting going into 2025 for a major high. Bolsonaro is ahead of da Silva in the polls for the next 2026 election. It certainly appears that the US dollar will rally into 2025, impacting your 2026 election.

A year-end closing above 5.98, which the market is trading above currently, should confirm a new high for the dollar into 2025. Looking into next year, the overhead resistance will stand at 6.31, 6.79, and 7.27. Brazil is a founding member of the BRICS. The collapse of their currency flies in the face of propaganda about how the BRICS will kill the dollar. They lack the economy and certainly the financial capability. As you mentioned, they had to issue debt in dollars to raise money. As the dollar rallies, those emerging markets that issued dollar-denominated debt are being pushed closer and closer to default in 2025.