Default in sight: Why the relief from debt renegotiations has an expiration date

The persistence of delinquency in Brazil, even after multiple 'Desenrola' program renegotiation rounds, signals that structural household debt goes beyond palliative measures. With the Selic rate at 14.00% p.a. and no short-term signs of cooling, credit costs are becoming prohibitive, trapping consumers in a vicious cycle of debt rolling. The commercial Dollar at R$ 5.19, up 1.13% in 7 days, fuels inflation (IPCA at 4.44% in 12 months), eroding purchasing power. Applying Ray Dalio's credit cycle theory, the economy is in a contraction phase, where restrictive monetary policy forces a painful deleveraging. Banks are prioritizing balance sheet protection, and the expectation is for reduced personal credit supply in 90 days, leading to a forced slowdown in aggregate demand. Investors and consumers are advised to prioritize liquidity and exercise extreme caution with leverage.