Monday, November 24, 2008

Economist's Notebook: From the Southern Hemisphere

Greetings from Sao Paulo. Two interesting snippets from yesterdays O Estado do Sao Paulo (one of the Sao Paulo daily newspapers).

First this for my students of international economics and money and banking:

Luckily for me, the US Dollar has appreciated against the Real considerably - making my stay here much cheaper. Each of my dollars buys more stuff here than it did a few months ago. For example the 50 Reais meal I had yesterday would have cost me $31 at the beginning of September and now costs me about $21. Here is the Dollar-Real exchange rate history for the last three months:

This appreciation of the Dollar is bad for US exporters to Brazil, because now the same goods are more expensive to a Brazilian. It should be good for Brazilian exporters for the opposite reason. But much of Brazil's trade is in primary products (65% of the total value of Brazil's exports according to the article below) and while the Real has been depreciating, the worldwide economic crisis has caused commodities prices to plummet. So Brazil is hurting, here is the banner headline from the Sunday paper:

Crise em países ricos e queda de preços abalam exportação
Valor de matérias-primas, que lideram venda externa, caiu 42% desde julho

By the way, currency depreciations for developing countries are usually bad news if they have dollar denominated debt (which many do), but defending currencies is usually an expensive and risky game.  This, however, is a topic for another time.  

A couple of side notes. I was amused that the newspaper headline called the economic crisis a "crisis in rich countries," this is true, the banking crisis did originate in the US and Western Europe, but, as is noted by this article, the crisis will affect everyone. It is also amusing that they would use the term rich countries as we are so careful to use euphemisms like "developing countries" instead of "poor countries."

Second, as a soccer fan I was very interested to see an article on the latest hot youth bands in Sao Paulo include pictures of two very hip new and hot bands wherein one member of each band was wearing a soccer jersey from the US's Major League Soccer. For those that wonder what non-pecuniary benefits an MLS team might have for Portland, here it is - worldwide exposure. And, by the way, this is why I think MLS is a good long term investment for the Mssrs. Paulson - entering into a global sports marketplace in a way that even the NBA does not have a prayer to match has got to be a good bet.

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