Shadowing the Shadow Economy

Brazil, the biggest country in South America has become the world’s biggest exporter of raw materials and is flourishing like none other.

China and India have stuttered to a halt and in America home and banking woes have taken up most of their attention. In the shadow of this Brazil has quietly boomed. In the opinion of this author the former Portuguese colony can now be viewed as the new China and I suggest that investors ignore this global economic powerhouse at their peril.

In 2008 bond rating agencies took notice of Brazil for the first time and upgraded the Brazilian sovereign debt to investment grade. Key stocks were pushed up as much as 5% in a single day by euphoric domestic investors.

This year, most of us will keep our jobs for fear of quitting them and losing the small income that we manage to make to see us through the coming months. This fear and the self-doubt it creates robs us of ever attempting to achieve our dreams. Now, think back to that time when you were little and the world lay at your feet and your parents told you that you could do anything! Be anything! All that potential. All that promise. Where did it go? Over the years, it’s been eroded by fear, doubt and the Canadian economy; the one that demands that we feed it money we all too often, do not have. We suffer from two kinds of poverty; a poverty of spirit and a real poverty, a lack of funds to cover our most basic of needs.

Social norms dictate our dreams now and what do we consider normal. A society that requires both adults to work full time taking precious time away from each other and their families. We struggle daily in the pursuit of money and seldom do we have anything left for ourselves. We need that 9 to 5 job that pays a low but guaranteed hourly wage. We need it to make enough money to pay our monthly bills, our rent or mortgage, buy our food, put gas in our vehicles and maybe, have a little bit left for saving or investing. Pocket money is getting harder to come by, especially if you have children. So, what really did happen to our dreams, our ambitions? Did we lose faith in them or did we just put them on the back burner and leave them there, while what we accept as ‘normal’ living took over each of our lives.

What was your ambition? Once, long ago, mine was to become a writer. I know this because the love of words has been a part of my being since I learned to print my name. My school years were filled with journals of short stories and poetry, most of them unfinished. High school and college followed, where my teachers took an interest in my writing because they saw the potential I did not and throughout my work-a-day life of going from one to the other service or menial job, writing has ever been by my side; my constant companion. I have written legions of articles and short stories – all in my head, never having had the time or the belief in my talent to put them on paper. Shadowed always by the fear of losing whatever 9 to 5 I held at any given time. Important commodity: time. Employers want it and eat it up as fast as you give it to them. My question was always: Where is the time for me? and What happened to my weekends? How did I get lost in this daily, monthly, yearly struggle for job and money.

As with most of the world economies, China is dealing with a growing debt problem, but the continuing use of shadow banking is causing more harm than good. Over the past few years the number of unregulated loans, investments, and financial products, has doubled. The value of this so called shadow banking industry is expanding and currently sits around 70 percent of China’s total GDP; upwards of 35 trillion yuan. There are several risks that this form of banking carries and the question that most economists and analysts are wonder is, how much of this capital must be covered by the national government. As the economy slows and businesses and local governments still have debt obligations many of them turn to shadow banking, with sometime exorbitant interest rates, to service their prior debt payments.

The official debt numbers of the various government departments sits around 30 percent of total GDP, but many analysts estimate that the true debt rate of governments, consumer, and corporations exceeds 200 percent of GDP. With no plan of action to remedy this problem, it is likely to get worse before it gets any better.

The shadow banking industry is involved in all aspects of corporate, consumer, and government, from prestigious securities firms to individuals at pawn shops. The shadow banking establishments are designed to offer borrowing and investment funds to people or organizations that want to circumvent the debt quotas or interest rate caps, because they are in dire need for the funds. The development and reliance on trusts has created organizations that are able to lend money out at rates of interest that exceed reasonable and official rates so that corporations can survive a little while longer. While the trusts usually make great returns for their investors, this profiteering is leading to a destabilization of the local economies.