Another BRIC in the Wall
This is the start of something pointless
The overriding question about the expansion of BRICS is how will it affect the price of those pointless boxes from Amazon that show up on door three time a week. Are the market’s looking at a crippling spike in teen throw-away fashion? To hear them tell it, at 26% of global GDP and better than half the production of oil, the club is a now viable counterweight to the G7. The smart money says that we are looking at absolutely… nothing.
It was always required closing one eye to take BRICS seriously. It has no charter, mandate or defined purpose. It didn’t even know it was a thing until after a trader at Goldman Sachs – who was long on emerging economy bonds – came up with the anacronym for Brazil, Russia, India and China. Like a kid embracing the nickname “booger”, the countries leaned into the name and invited “S” for South Africa to create a trade organization for countries who don’t trade with each other. Except China, but they trade will anyone. Since then, only India, hasn’t stalled, cratered or imploded. This was less a club of like-minded countries that it was a list of names in the global phone book. At their occasional summits, the only thing that they did agree on is that the US dominated West, well, bites. The US led West, for the record, politely ignored the carrying on.
The irony is that the BRICS expansion this week will make the gang louder, and even more pointless. The group has created a mini- IMF, Contingent Reserve Arrangement (CRA) – with some 90% of funds coming from China – and still grumble about and alternate reserve currency to the dollar that will not survive contact with reality. China wants the members to do business in yuan, but since 2007, Beijing has increased the money supply by 800% and capital outflows from China to a dollar denominated network are now hovering a $1trl annually. Neither is a trust builder.
Who knows, perhaps together they can make things work. Granted the Indians hate, and the Russian’s resent, the Chinese. The Brazilians and the South Africans don’t have much of an opinion, but they really don’t have much by way of economies either.
The new members aren’t much better; Iran, Saudi Arabia, UAE, Argentina. Egypt and Ethiopia. First, the low-hanging fruit: Any organization with Saudi Arabia and Iran as members will never have a consensus on anything. Tehran is led by a doomsday cult with the sole purpose of driving the Great Satan from the neighborhood, so it wants a way to get closer to Russia and China. Saudi Arabia and UAE, on the other hand, are really only in it to make the US jealous enough to not withdraw from the region. Cairo may not like it, but it’s being propped up by Washington and it’s pretty sick of Iran as well. And Ethiopia was a wasteland before its ongoing civil war started. No Westerner will buy Argentine bonds anymore, so they’re in it for the Chinese cash. For its part, China wants to enlarge the group to get Washington to let up on trade sanctions. And there is simply no way to fit all of that onto a bumper sticker.
A generation ago, a lot of these countries were part of the non-aligned movement, and therein lies another fatal contradiction – China wants them tightly aligned in a China bloc as a counterweight to the US led order. The practical flaw is even more glaring: Even if these other countries were to fall in line (a tall order) most of these economies are export driven, with populations are too poor to buy a lot of imported goods. Without the West they have no one to soak up their surplus, and they become like a downtrodden village where everyone one is taking in someone else’s laundry. And even that assumes that they can even plug into the global market is mostly provided by the US security umbrella provided the sea-lanes.
So, to reiterate, nothing to see here. Carry on.