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Brazil’s economic crisis, prolonged by COVID-19, poses an enormous challenge to the Amazon

Because Brazil’s economic prosperity in the last two decades is increasingly linked to the Amazon’s good health, restoring the country’s economy is a critical first step toward ending deforestation.

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A deforested piece of land in the Amazon rainforest near Porto Velho, in the state of Rondonia, in northern Brazil, on Aug. 23, 2019. Carl De SouzaA/FP via Getty Images

Brazilian President Jair Bolsonaro confirmed his country’s participation in a virtual climate summit convened by the U.S. for April 22 and 23, vowing in a recent letter to U.S. President Joe Biden to end illegal deforestation in Brazil by 2030 – a striking about-face from a longtime adversary to the country’s environmental policies.

But Bolsonaro warned that Brazil will need “massive resources”, including considerable financial help, to protect the Amazon. Brazil is currently in the midst of a deadly wave of the COVID-19 pandemic, and its economy shrunk by a record 5.8% last year. The Biden administration, meanwhile, is considering paying Brazil to protect its environment.

But not so long ago, both Brazil’s economy and its Amazon were prospering.

In 2014, Brazil was closing out nearly a decade of continuous economic growth. Per capita GDP – the total value of the economy divided among the population – had grown by 400% in just 10 years and economic inequality was falling to record lows in a country that long had the world’s largest gap between rich and poor. Between 2004 and 2014, some 35 million Brazilians joined the ranks of the middle class.

As Brazil’s economy thrived, deforestation in the Amazon slowed. Deforestation levels in 2012 were one-sixth of what they were in 2004. Back then, falling deforestation rates were hailed as a testament to the country’s prowess in environmental policymaking.

But after nearly a decade of researching and writing about Amazon forest loss, I’ve become convinced that Brazil’s successes in reducing deforestation a decade earlier likely had just as much to do with basic economics as environmental policy.

Rise and fall of deforestation

Forest loss in the Amazon has long reflected Brazil’s economic health.

For much of the late 20th century, when Brazil’s economy boomed, the federal government redirected public investment to the Amazon. Many of these investments – the massive land distribution programs of the 1980s, road projects and the enormous public subsidies for farming and ranching – were closely associated with forest loss.

So, in the 20th century, when Brazil’s economy boomed, deforestation often followed.

Today, however, forest loss in Brazil’s Amazon tends to be more closely associated with international demand for commodities like soybeans, beef and gold than with government investments. And for farmers, prices for these commodities don’t just rise and fall with global demand. They also rise and fall inversely to Brazil’s economic health.

The underlying economic reasons for this connection are complicated. But in short, it has to do with how the value of Brazil’s currency, the real, affects farmers who grow animals or crops for export.

Of currencies and commodities

That’s because, historically, when Brazil’s economy struggles, its currency loses value against the U.S. dollar – the currency of international markets.

About 20% of Brazil’s beef and more than 80% of its soybeans are exported. For Brazilian farmers and ranchers who contribute to these export markets – including many who live or operate in the Amazon region – a struggling domestic economy and weak currency is actually a plus. It means that when foreign buyers purchase Brazilian exports in dollars, Brazilian farmers are being paid more in their local currency.

This gives them more money – money that can potentially be used for purchasing and clearing forested land. A lucrative export market is also a compelling reason to start purchasing and clearing new land.

Conversely, when the economy is strong, so is the Brazilian real. For Amazonian farmers in Brazil, that means less money earned, less to invest in clearing forests and less incentive to clear new land.

A decade ago, when Brazil’s economy was working well and the real was particularly strong, economic growth, nationally, was putting a brake on deforestation by suppressing farmers’ and ranchers’ profits.

Economic crises are environmental crises

The economic brakes that once guarded against Amazon deforestation have come off.

In 2015 Brazil entered a severe recession. Now in its sixth consecutive year of slow or even negative economic growth, the Brazilian economy remains beset by lower global commodity prices and a rising deficit. Poverty is rising. Per capita GDP today is now about US$1,000 less per person than it was a decade ago.

Meanwhile, Brazil is one of the countries worst hit by COVID-19, with 4,000 people dying on its worst days. The pandemic is prolonged and exacerbating the country’s economic crisis.

Residents receive meals at a soup kitchen in Sao Paulo.
Residents receive meals at a soup kitchen in the Paraisopolis favela, in Sao Paulo, Brazil, on Jan. 28, 2021. Nelson Almeida/AFP via Getty Images

Today, valued at about 18 U.S. cents, the real sits at a record low. The last time the real was this low was in 2003 – another year, not coincidentally, that deforestation in the Amazon surged.

The weak Brazilian currency has pushed prices for soybeans, beef and gold to heights which, 10 years ago, would have astounded. Soybean prices are five times higher than they were 15 years ago. Beef and gold prices are more than triple. For the farmers, ranchers and prospectors who work in the Amazon or at its periphery, these are very profitable times.

Last year, deforestation in the Amazon reached its highest level in over a decade. Unless something changes, I expect more land-clearing forest fires this July and August, when the Amazon’s dry season reaches its apex.

To end deforestation, fix Brazil’s economy

In today’s globalized economic system, the fates of Brazil’s economy and the Amazon forest are linked.

Brazil’s current economic crisis rewards the Amazon’s ranchers, gold prospectors and farmers with higher profits, creating serious financial incentives to clear more land. By some estimates, such fires in Brazil account for 70% of the country’s total greenhouse gas emissions.

[Over 100,000 readers rely on The Conversation’s newsletter to understand the world. Sign up today.]

The global debate about how to best protect the Amazon has largely focused on concerns over the state of Brazilian environmental policy under President Bolsonaro. My research suggests the need to strengthen Brazil’s economy should be a critical part of these discussions.

When Brazil’s economy struggles, its farmers and ranchers will reap – and the Amazon will suffer.

Peter Richards has previously received funding for his work from the National Science Foundation and the National Geographic Society. Currently, he also serves as a Senior Economist with the U.S. Agency for International Development (USAID). The views and opinions expressed in this article are his and do not necessarily represent USAID.

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Economics

Baltimore City Responds After Dozens Of Businesses Threaten Not To Pay Taxes

Baltimore City Responds After Dozens Of Businesses Threaten Not To Pay Taxes

This weekend, the Baltimore Police Department (BPD) closed down multiple city streets around the Inner Harbor, in a stretch called "Fells Point," after dozens…

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Baltimore City Responds After Dozens Of Businesses Threaten Not To Pay Taxes

This weekend, the Baltimore Police Department (BPD) closed down multiple city streets around the Inner Harbor, in a stretch called "Fells Point," after dozens of local businesses threatened the new city government, run by Mayor Brandon Scott, to not pay taxes because they're "fed up and frustrated" with the outburst of violence. 

Last week, 37 restaurants and small businesses sent a letter to the mayor's office titled "Letter to City Leaders From Fells Point Business Leaders." They threatened to stop paying city taxes and other fees until "basic and essential municipal services are restored." This comes as Madam State's Attorney Marilyn Mosby halted petty crimes during the pandemic and made such a measure permanent - the idea was to decrease violent crime, but that seems to have severely backfired.

What's happened in the historic bar strict is absolute mayhem at night, transformed into a dangerous area where violent and rowdy crowds have ruined the once pleasant atmosphere along with multiple shootings. 

So this weekend, BPD closed down streets around Fells Point, which includes parts of Aliceanna, Thames, and Bond streets.

In addition, Maryland State Police will conduct sobriety checkpoints in Fells Point. 

Local news WJZ13's Mike Hellgren tweets a couple of images of the increased police presence across Fells Point.

One of the 37 concerned business owners on the list is Bill Packo, who owns Barley's Backyard and has been operating in Fells Point for three decades. He spoke with WJZ13 about the out of control violence and public drunkenness:

"It's a shame. What they're letting happen to Fells Point is what they let happen in the Inner Harbor, and now it has made its way here," Packo said. "There's alcohol being sold by individuals out there, drugs, and clearly we all know about the shootings that took place last weekend. But there needs to be some control out there. There is none whatsoever."

BPD's mobile police command was spotted outside another shop in the bar district. It looks very dystopic. 

Meanwhile, Scott, who was newly elected, skipped out on the virtual community town hall meeting on Thursday at 7 p.m that was to address the issues in Fells Point. 

Packo called out Scott for not attending the meeting: 

"It's an embarrassment to the city. It's an embarrassment to the mayor no matter what the schedule was," he said.

Again, as we've said before, the chaos in Fells Point comes as the city descends into what could be the most violent period ever. Mosby has halted police officers going after petty crimes that have inadvertently backfired. Another liberal-run town with good intentions in policies not exactly panning out as they thought. 

Local news WMAR2's Eddie Kadhim interviewed a man who summed up the city's response in Fells Point: 

Another man said the violent crime in low-income neighborhoods is just spilling over into the downtown area. 

Tyler Durden Sat, 06/12/2021 - 15:00

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Economics

Visualizing The History Of US Inflation Over 100 Years

Visualizing The History Of US Inflation Over 100 Years

Is inflation rising?

The consumer price index (CPI), an index used as a proxy for inflation in consumer prices, offers some answers. In 2020, inflation dropped to 1.4%, the lowest rate..

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Visualizing The History Of US Inflation Over 100 Years

Is inflation rising?

The consumer price index (CPI), an index used as a proxy for inflation in consumer prices, offers some answers. In 2020, inflation dropped to 1.4%, the lowest rate since 2015. By comparison, inflation sits around 5.0% as of June 2021.

Given how the economic shock of COVID-19 depressed prices, rising price levels make sense. However, as Visual Capitalist's Dorothy Neufeld notes, other variables, such as a growing money supply and rising raw materials costs, could factor into rising inflation.

To show current price levels in context, this Markets in a Minute chart from New York Life Investments shows the history of inflation over 100 years.

U.S. Inflation: Early History

Between the founding of the U.S. in 1776 to the year 1914, one thing was for sure - wartime periods were met with high inflation.

At the time, the U.S. operated under a classical Gold Standard regime, with the dollar’s value tied to gold. During the Civil War and World War I, the U.S. went off the Gold Standard in order to print money and finance the war. When this occurred, it triggered inflationary episodes, with prices rising upwards of 20% in 1918.

However, when the government returned to a modified Gold Standard, deflationary periods followed, leading prices to effectively stabilize, on average, leading up to World War II.

The Move to Bretton Woods

Like post-World War I, the Great Depression of the 1930s coincided with deflationary pressures on prices. Due to the rigidity of the monetary system at the time, countries had difficulty increasing money supply to help boost their economy. Many countries exited the Gold Standard during this time, and by 1933 the U.S. abandoned it completely.

A decade later, with the Bretton Woods Agreement in 1944, global currency exchange values pegged to the dollar, while the dollar was pegged to gold. The U.S. held the majority of gold reserves, and the global reserve currency transitioned from the sterling pound to the dollar.

1970’s Regime Change

By 1971, the ability for gold to cover the supply of U.S. dollars in circulation became an increasing concern.

Leading up to this point, a surplus of money supply was created due to military expenses, foreign aid, and others. In response, President Richard Nixon abandoned the Bretton Woods Agreement in 1971 for a floating exchange, known as the “Nixon shock”. Under a floating exchange regime, rates fluctuate based on supply and demand relative to other currencies.

A few years later, oil shocks of 1973 and 1974 led inflation to soar past 12%. By 1979, inflation surged in excess of 13%.

The Volcker Era

In 1979, Federal Reserve Chair Paul Volcker was sworn in, and he introduced stark changes to combat inflation that differed from previous regimes.

Instead of managing inflation through interest rates, which the Federal Reserve had done previously, inflation would be managed through controlling the money supply. If the money supply was limited, this would cause interest rates to increase.

While interest rates jumped to 20% in 1980, by 1983 inflation dropped below 4% as the economy recovered from the recession of 1982, and oil prices rose more moderately. Over the last four decades, inflation levels have remained relatively stable since the measures of the Volcker era were put in place.

Fluctuating Prices Over History

Throughout U.S. history. there have been periods of high inflation.

As the chart below illustrates, at least four distinct periods of high inflation have emerged between 1800 and 2010. The GDP deflator measurement shown accounts for the price change of all of an economy’s goods and services, as opposed to the CPI index which is a fixed basket of goods.

It is measured as GDP Price Deflator = (Nominal GDP ÷ Real GDP) × 100.

According to this measure, inflation hit its highest levels in the 1910s, averaging nearly 8% annually over the decade. Between 1914 and 1918 money supply doubled to finance war efforts, compared to a 25% increase in GDP during this period.

U.S. Inflation: Present Day

As the U.S. economy reopens, consumer demand has strengthened.

Meanwhile, supply bottlenecks, from semiconductor chips to lumber, are causing strains on automotive and tech industries. While this points towards increasing inflation, some suggest that it may be temporary, as prices were depressed in 2020.

At the same time, the Federal Reserve is following an “average inflation targeting” regime, which means that if a previous inflation shortfall occurred in the previous year, it would allow for higher inflationary periods to make up for them. As the last decade has been characterized by low inflation and low interest rates, any prolonged period of inflation will likely have pronounced effects on investors and financial markets.

Tyler Durden Sat, 06/12/2021 - 19:00

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Visualizing The Biggest Companies In The World In 2021

Visualizing The Biggest Companies In The World In 2021

Since the COVID-19 crash, global equity markets have seen a strong recovery. The 100 biggest companies in the world were worth a record-breaking $31.7 trillion as of March 31 2021,…

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Visualizing The Biggest Companies In The World In 2021

Since the COVID-19 crash, global equity markets have seen a strong recovery. The 100 biggest companies in the world were worth a record-breaking $31.7 trillion as of March 31 2021, up 48% year-over-year. As a point of comparison, the combined GDP of the U.S. and China was $35.7 trillion in 2020.

In today’s graphic, Visual Capitalist's Jenna Ross uses PwC data to show the world’s biggest businesses by market capitalization, as well as the countries and sectors they are from.

The Top 100, Ranked

PwC ranked the largest publicly-traded companies by their market capitalization in U.S. dollars. It’s also worth noting that sector classification is based on the FTSE Russell Industry Classification Benchmark, and a company’s location is based on where its headquarters are located.

Within the ranking, there was a wide disparity in value. Apple was worth over $2 trillion, more than 16 times that of Anheuser-Busch (AB InBev), which took the 100th spot at $128 billion.

In total, 59 companies were headquartered in the United States, making up 65% of the top 100’s total market capitalization. China and its regions was the second most common location for company headquarters, with 14 companies on the list.

Risers and Fallers

What are some of the notable changes to the biggest companies in the world compared to last year’s ranking?

Tesla’s market capitalization surged by an eye-watering 565%, temporarily making Elon Musk the richest person in the world. Food delivery platform Meituan and PayPal benefited from growing e-commerce popularity with their market capitalizations growing by 221% and 151% respectively.

Tech companies TSMC and ASML Holdings were also among the top 10 risers, thanks to a shortage of semiconductor chips and growing demand.

On the other end of the scale, Swiss companies Nestlé, Novartis, and Roche Holding were all among the bottom 10 companies by market capitalization growth. China Mobile was the only company to decline with a -12% change. The company was delisted from the New York Stock Exchange as a result of an executive order issued by former president Donald Trump, and recently announced its intention to list on the Shanghai Stock Exchange.

A Sector View

Across the 100 biggest companies in the world, some sectors had higher weightings.

Technology had the highest market capitalization and was also the most common sector, with Big Tech dominating the top 10. Companies in the consumer discretionary, financials, and health care sectors also had a strong representation in the ranking.

Despite having only five companies on the list, the energy sector amounted to almost 10% of the top 100’s market capitalization, mostly due to Saudi Aramco’s whopping valuation.

An Uncertain Recovery

From near market lows on March 31, 2020, all sectors saw increases in their market capitalization. However, top 100 companies in some sectors outperformed their respective industry index, while others did not.

Basic materials and industrials, both cyclical sectors, were high performers in the top 100 and outperformed their respective industry indexes. Technology companies also outperformed, and accounted for $255 billion or 31% of all shareholder distributions by the top 100, far more than any other sector. Apple alone spent $73 billion on share buybacks and $14 billion in dividends in the 2020 calendar year.

On the other hand, the worst-performing sectors in the top 100 were health care, utilities, and energy. While the index performance for health care and utilities was also relatively poor, the wider energy sector performed fairly well.

It’s perhaps not surprising that all sectors saw positive returns since their low levels in March 2020, buoyed by fiscal stimulus and central bank policies. As countries begin to reopen, will the value of the biggest companies in the world continue to climb?

Tyler Durden Sat, 06/12/2021 - 23:00

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