 Welcome back to Misa's weekends. I'm Jeff Deist and our guest this weekend is someone we've spoken to before L.U. Beltral from Misa's Institute Brazil and he's a very important guy not only in Brazilian libertarian circles been in the worldwide Austrian movement now if you've been following what's happening in Brazil You know that the country is in a meltdown. They've had a stock market crash They've had huge currency devaluation and inflation and lately the Brazilians have taken to the streets to protest for the removal of President Rousseff and some of those protesters have been carrying signs and banners that say less marks more Mises and this is something we sure like to see in street protests in the US to put it mildly L.U. and his compatriots at Misa's Institute Brazil are behind these signs and behind much of the libertarian sentiment that is now starting to gather Momentum in Brazil. So if you'd like to hear more about what's happening in Brazil stay tuned for a great interview with our friend L.U. Beltral So great to talk to you and welcome back to Misa's weekends. Thank you very much, Jeff Well, there's so much going on in Brazil so much to talk about but before we talk about the country Tell us a little bit about what's happening with Misa's Brazil about two evenings ago You just had a big celebration and an announcement. So 500 people were there So we want to know what's happening with our sister organization. Yeah, it was a great event Jeff We wanted to gather our supporters and let them know what are the ideas for the next few years And we basically announced that we are revamping the site. It should go online within two months It's a brand new design and brand new facility. So I think it's this is a very good development and we announced the Misa's summer school that we intend to run beginning of next year during four days in a Secluded place in which you can then have all the team all the professors scholars of the Mises Brazil team together with about 30 students And that's that's a new thing. We haven't had that and finally we announced the First post grad course in Austrian economics. We don't have that in Brazil. That's a brand new development It will be a certified Lato sensor specialization To in we are in partners with a university in Sao Paulo and of course, we'll also have a solution for online Teaching as well a separate course for that. That's that should come in the second semester of next year So all of these are brand new things that we are very excited about We are we want to come more and more closer to teaching more people and taking over a little bit of the place that we lost in the academia from several decades before and of course, you know that the Brazilian academia is is a hegemonic in Marxism. It's not even Neoclassical can easily name a can easily is a member of its Marxism So we want to get in and take over some of the the terrain that we've lost over the last few decades and also we had during that evening Jeff we had an announcement of the first four people that we are honoring with a distinguished Membership of Mises Brazil. We have had that in the bylaws for a long time But would never use that so we announced the four people that are receiving that honor and the first one is Lou Rockwell We are as you know great admirers of everything that Lou has done for libertarianism for the social sciences and it's a great privilege to Give this honor to Lou as well as to the three main scholars of fostering economics in Brazil The first one is a bit of time you audio, which is our vice academic vice president also Fabio by Vietti, which is the editor of our For our academic journal and also professor Anthony Miller that you know Well because he's a scholar at the Mises Institute and these are the four first distinguished members of Mises Brazil. Well, I have to say for people who aren't as familiar Mises Brazil has a huge influence I mean obviously Brazil is a big country 200 million people, but yet when we see some of these recent street protests against Rousseff You know, we see the signs that say Less marks more Mises and whenever we see this we always figure that you have a hand in this. Yeah, it's true There are some some figures that may show a little bit of the influence. We've been heading First one is that We are in terms of online presence of social networks multimedia the number one think tank outside of the US in the world And that's compiled by the Atlas Network that Among about 500 think tanks worldwide So that's one thing and the other thing I we are used to talking about is that if you run Google trends That shows the interest in key words and you compare Ludwig von Mises against John Maynard Keynes We have overtaken Mises Ludwig von Mises have has overtaken Keynes since 2013 in an interest in Brazil and that's the only country I've run all the options all the countries that Google trends allow me to do and Brazil's the only country in which Ludwig von Mises has more interest than John Maynard Keynes Well, that's quite an accomplishment. Congratulations on that Now I brought up Rousseff How did this this most weekend this most recent weekend protests go is is there actually a Possibility of her being recalled Well, I would say there is a possibility. Yes. It's an increasing probability I place the odds that Around 30 to 40 percent that she might be impeached by Congress Of course, you you know that Many members of her party many politicians from different parties part of the coalition and government are being implicated and arrested regarding corruption related to the Previously the largest corporation in Brazil not anymore, which is Petro Bras a state owned a state controlled oil company and Rousseff it's up to this point She has not been formally implicated by any of the witnesses of this of this Trial this process that resembles by the way very much the Italian process back in the 90s the Clean hands operation in Italy that resembles a lot because a lot of people are are under arrest So it's because the president was the chairman of the board of Petro Bras during most of this time in which the corruption happened and and because also Apparently we have we're gonna have a final decision by the relevant authorities the relevant fiscal authorities but apparently her government has Cooked the books in terms of fiscal accounts last year to comply with the fiscal responsibility law which by the way puts in prison every year about a hundred mayors Because they don't comply with the fiscal responsibility law. They cannot run a deficit apparently The president and the finance minister have cooked the books last year and this is under process So because of these two Issues There is an increasing probability that Congress may act on the president But of course as you know the impeachment and it's very similar to the US is a political process run by Congress And as you might recall Jeff a few years ago We had another scandal called the men's salon which is basically a month monthly stipend scandal in which it was revealed that The executive branch was paying All the members of the coalition in the House of Representatives to support the government So it's a complicated process because you know, of course The two branches of government in Brazil usually are in bed. So you cannot you cannot know but because of the protests and because of all the public outcry we Suspect that there might be developments there, but it's hard to hard to say exactly if it's gonna happen Well, as far as the economy goes like America, Brazil's got some problems right now There's actually a CNN money article that lists three particular problems with the Brazilian economy I'd like to get an Austrian take from you on this first and foremost is is a ongoing recession and what you know with your trading partner in China the Petrobras scandal which you mentioned and also the possibility of the US Fed raising interest rates, which at least in theory would cause some money to flow out of So-called emerging markets like Brazil, you know What's the feeling that does the man on the street have a really a bad sense of what's happening? And is this going to make the average Brazilian more Marxist or less? Yes, I think the men in the street is feeling a lot because inflation has picked up dramatically because Let me just do a quick review of what happened in Brazil over the last 20 years or so in 94 We stabilized the country in terms of public finances and inflation before that we had crazy insane fiscal management and in hyperinflation and that was based on three arrows, which were Non intervention in in the exchange rate fiscal surplus at least fiscal surplus before paying interest So we had about three percent to four percent Primary surplus before paying interest and then we had about six percent of interest And I'm telling about that percentage of the GDP, right? So we had you had about six percent of GDP in interest so you would run a nominal deficit of around two percent because the country was growing a little bit more than that you had a Decreasing debt scenario, which was very good for a long time and the third and the third arrow of that policy of stabilization was Inflation targeting which actually helped a lot to control inflation over the last four years during the Dilma Rousseff Government she basically tried to dilute all of the three arrows and then she started intervening in the exchange rate. She started Tweaking with the inflation Calculations and basically decreasing taxes on the products that were part of the basket of the inflation So she was and and of course controlling the what we called managed prices Which are basically the utilities in general in which the government controls a lot of those prices of the tariffs so Using those tricks. She was controlling in the inflation Numbers the inflation index but not the real inflation as we know And of course she was spending a lot because the idea of Her government was that we had the 2008 when 2008 happened Brazil was pretty resilient at the time but the government decided to implement Counter-cyclical measures and increase spending increase credit So she basically diluted the three arrows and because of that we now have inflation of 10% a Nominal deficit of 7% of GDP, which is crazy. The trajectory of the debt is is Exploding badly And an intervention in the exchange rate up to about a few months ago now the real Which was worth around two point three reals to the dollar It's now at three point five within a few months So we had a huge devaluation and of course part of that is explained by the the dollar which has Become stronger since the Fed has announced the intention to raise interest rates But all of this is a dynamite for the the man in the street. He's Unemployed increasingly he's suffered from inflation and of course, he's very dissatisfied the the dilemma is That you know, usually the average Brazilian the guy in the street is a schizophrenic because at the same time He understands Jeff that you know taxes are really high He wants less government less taxes less intrusion But at the same time he says that he wants the government to guarantee education health and some other things and What's the the new development in Brazil is that there is a growing section of the population which are influenced by Libertarian and good conservative ideas and and and of course as you mentioned The leader in the movements in Brazil is a is a hundred percent Libertarian So because of this we are having an agenda which has been changed They're focusing now on the impeachment process But the good news is that behind the impeachment agenda There is a good Libertarian agenda that's ready to strike in as soon as the moment arises Oh you most Americans and most Westerners in general do not have a sense of what it's like to live With 10 or 15 percent price inflation at the store, for example What do Brazilians do to protect themselves from this? Well? It's very complicated in Brazil. We because of the memory of inflation and because of the past of inflation You if you have savings liquid savings you you can get protected because If you're sitting down right now, it's better because the interbank interest rates in Brazil are above 14% So this is crazy, right? You can make money Just having the the money is sitting still in the bank and in the US I guess is the opposite because you make zero right now in short-term Investments and you still have an inflation of around 2% So in Brazil we have at least real interest rates and the central bank is now trying to restore Inflation back to the target Let's see if that will happen But at least they are raising interest rates and they are now starting to try to control a little bit of the credit so But getting back to your question the man in the street doesn't have any liquid savings He suffers the full blow of inflation in rising prices, but people that have a little bit of liquid investments Yes, they can put in the US We mainly hear about Brazil in relation to the so-called brick countries And we hear a lot about Brazilian fiscal policy, but we don't hear much about the Brazilian central bank Can you just tell us a little bit about how the central bank in Brazil operates? The central bank of Brazil is completely state-owned. You don't have any participation of regional Banks like like you have in the US. You have the controlling the stake of the central government in the US when you nominate most of the members of the of the FOMC in Brazil everything a hundred percent of our FOMC is Government nominated so it's fully central But it works in similar ways as the Fed does The the different thing is the inflation targeting. We don't have we don't have a dual mandate here. They have to Set a target and work within a two percent band up or down The problem is in the last four years since the government started this counter cyclical measures that they called They call it a new macroeconomic matrix. That's a very status name Since they started that they were not targeting the center of the band the inflation band any longer They were targeting the top of the band which was six and a half percent and now they In the last two years they disregarded even the top of the band So the inflation is running above nine percent very close to ten percent But in terms of actually Actually how the Fed works in Brazil the central bank. It's very similar to the US Well, do wealthy people in Brazil fear hyperinflation and do they keep a lot of their money outside of the country? Or more importantly, do they fear capital controls on getting their money out of the country? They we are not fearing any longer the capital controls because of the large International reserves that we currently hold around 370 billion dollars all into in treasuries Most of it at least you US you mean US US treasuries yes So because of that people are not fearing capital controls What they are really fearing and suffering is the massive devaluation of the real because of the inflation and At least the central banks stopped the intervention. They were they sold around a hundred billion dollars of Dollars to try to control the exchange rate and swaps as well over the last 18 months or so They stopped doing that a few months ago, and that's why the currency hit up to to track whatever the market Is but since we still have this huge International reserves people don't fear the capital controls no well We're almost out of time, but I'd like to leave this conversation with one last question What was the overall experience with the 2014 FIFA World Cup? And you've got the upcoming 2016 Olympics this seems like this is tailor-made for cronyism and corruption. Yes true You know, we have a few stadiums that are no longer used and that were of course Very expensive much higher prices than you would expect in the international market So of course we have a lot of cronyism Related to the World Cup and that's a disappointment and people Back in 2013 when the process protest began they were they were talking a lot about that and and this year Now the protests are a little less about that and more towards less government in general and Impeachment of the president because of corruption charges But of course the Olympics, I guess you have the same thing I don't follow much of the Olympics cronyism But of course you have it and I prefer not to read about it otherwise I'll be depressed Elio, thanks so much for spending some time with us today. Ladies and gentlemen, if you're not familiar with Mises Brazil You should absolutely check them out It's an organization that punches way above its weight and now you just keep us informed as to what you're doing And we look forward to seeing you in the very near future here in Auburn. Thank you very much Jeff It was great talking to you