The next day, Brazil's market plummeted another 10 percent. U.S. markets held up best under the latest onslaught of selling. However, our economy, banks and taxpayers will pay for the failures of Brazil's politicians since Brazil's devaluation increases the likelihood it will be unable to service its foreign dollar debt. If so, U.S. banks will take a heavy hit, and Brazil will have to draw on that IMF loan. America should not look to be paid back soon.
Devaluation also ensures a deepening recession in Brazil.
That downturn, plus a devalued currency, means U.S. exports to Brazil must fall, and our imports must rise. The U.S. merchandise trade deficit will be ratcheted up and U.S. manufacturing hammered again. We shall see. As Brazil is the Latin Goliath, its devaluation is likely to force countries across the continent to follow suit or risk losing markets to Brazil. Competitive devaluations across South America would put pressure on China and Hong Kong to do likewise or lose their huge U.S. markets.