Are the BRICS a threat to the U.S.?

The summit of the so-called BRICS (Brazil, Russia, India, China, and South Africa) has closed with an invitation to join the group extended to the Emirates, Egypt, Iran, Saudi Arabia, Argentina, and Ethiopia.

The summit has generated a lot of headlines about the impact of this widespread group of nations, including speculation about the end of the U.S. dollar as a global reserve currency if this group is perceived as a threat to the United States or even the International Monetary Fund.

Several things need to be clarified.

Argentina’s problem is not Milei.

The Central Bank of Argentina does not have to devalue the peso due to the victory of Javier Milei in the primaries. The Central Bank of Argentina and the Peronist government have been devaluing the peso and sinking the currency for years. It must devalue because the central bank has run out of reserves.

Argentina is not facing an “anti-system” or “far-right” threat. They already have a far-left and anti-system government. The extractive and confiscatory monetary and fiscal policies of the XXI Century Socialism championed by Peronist Fernandez de Kirchner. The so-called “Inclusive” monetary policy, as Axel Kicilloff, Cristina Fernandez de Kirchner’s ex economy minister, denominated it.

 European natural gas prices soared almost 40 percent on the risk of a global liquefied natural gas shortage. European wholesale power prices remain below the record highs of the energy crisis but have steadily climbed as the volatility in the international commodity spectrum underscores the fragility of the European energy system.

Unfortunately, the European Union bureaucrats declared the end of the energy crisis as if it were the result of decisive policy action, but the reality is that the energy problem in the EU was only diminished by purely external factors: a very mild winter and the decline in global commodity prices due to the central bank rate hikes. Thus, the energy crisis remains, and the problems of security of supply and affordability of the system persist.

Markets are pricing a rapid decline in inflation and the end of central bank policy normalization. However, there are two challenges ahead that we must consider.

The most important is that inflation is cumulative, and the year-on-year change between January and July was supported by the base effect. When the inflation rate used for the year-on-year change is high, even a persistent increase in prices looks like a “decline” in inflation. If I gain ten pounds one year and four the next, my inflation rate will fall, but I am not slimming. And prices continue to bite, hurting the economy and consumers.