The Global World Hits a Snag

The impeachment of Brazilian president Dilmah Roussef is an example of what happens when a political ecosystem collapses.  Just a few years ago, Brazil was hailed as the wonder model of the developing world. "It was called the 'Brazil model', or simply 'the Lula model', back when this country's economy was roaring and its president, Luiz Inácio Lula da Silva, was a superstar of the developing world. By balancing support for big business with big social-welfare programs, the union boss turned statesman presided over an era of growth that lifted tens of millions of Brazilians out of poverty. Lula's presidency cut a new template for a Latin American left that had long insisted class struggle and revolution were the only road to fairness."

Then the wonder model ran out of money for reasons that are easy in retrospect to understand.  Brazil's boom years attracted corruption on a massive scale.  Soon the leeches were sucking more blood out of the host than its body could replace.  Once the economy collapsed and the middle class had been beggared an angry public went looking for a scapegoat and found one in current president Dilma Roussef.

The same catastrophe maybe happening on a global scale.  The music has stopped and the petrostates who have long bankrolled Western politicians have run out of money. "The petrostates assembling in Doha to discuss a potential output freeze two days from now aren’t coming together in a show of solidarity or out of some sense of duty towards one another, but rather as an act of desperation. Bloomberg ran the numbers, and found that the oil price collapse has collectively cost the 18 countries involved in this meeting nearly one third of a trillion dollars."

The Washington Post says OPEC "has lost control of the oil market." Caught between the desire to cut production to raise prices and pump to earn ready cash, the oil producers are unable to cut production for long term gain with some members, like socialist Venezuela, forced to keep pumping at all costs to barely keep afloat. What's different about the present situation -- and why it represents a political ecosystem collapse -- is that Saudi Arabia and Russia are essentially in the same boat with Venezuela.

Saudi Arabia has reached out to Russia, primarily to discuss the war in Syria but also to discuss oil. Russia is also producing oil at near-record levels, but top officials said earlier this week that Moscow is not contemplating cuts.

“Clearly Saudi Arabia needs the money and so does Russia,” said Kenneth Rogoff, an economic professor at Harvard University. “Russia is really hurting. The standard of living has plummeted and if it lasts that will eventually undermine [Russian President Vladimir] Putin’s poplarity no matter how effective his propaganda.

“But Saudi Arabia has its failed war in Yemen, gigantic population growth and all kinds of internal political problems. So neither place is in a fantastic position to cut back.”