What we can learn from Brazil and their Credit Bubble

Sunday's Salt Lake Tribune had an interesting associated press article by Bradley Brooks about Brazil's credit bubble. (See Here) Constantly we talk about the need to boost the economy with more spending.  Brazil took this to heart.  According to the article, credit cards were a hard thing to come by.  Only the rich and elite were allowed to have such items.  Brazil wanted to increase spending so they made credit more easily available to anyone who wants it. With a taste for North American quality of life and goods, spending has gone through the rough.  Good for the economy yeah?  Not quite! You see the average interest rate in Brazil is 238 percent.  That is like going to payday lender here in the U.S (well almost, we are much higher).   With the average Brazilian having $3,000 in credit card debt at 238 percent Brazil is headed for trouble.  Big Trouble!  Their so called "Good Economy" is teetering on bursting if this debt is not controlled.  Here some other interesting facts:

• 22 percent of Brazilians are already in default with their debt.  This is expected to increase to 28 percent by the end of 2011
• Inflation is now 6.71 percent above the 6.5 percent inflation ceiling.  Not good for the poorer people of Brazil.
• Spending is going down, now people can't afford anything.  The economy grew 7.5 percent last year but will slow to 4 percent this year.  

What does all this spell?  T-R-O-U-B-L-E

What can we learn from this?  Two things, borrowing to grow the economy is not the answer.  Making credit and loans easier for people to get is not the answer.  Granted Brazil does have insane interest rates; yet it is still the issue of people buying things they really don't have the money for. Again, debt is not the answer.

I welcome your comments, is more debt really the answer?  With the current economic questions in the United States about the debt ceiling and taking on more debt, we have to wonder are we headed the wrong direction?