This graph from the World Bank illustrates why Brazil is having such a problem with capital inflows. Capital will always seek out the highest risk-adjusted return.
During times of excess liquidity and low interest rates, however, markets ignore or jettison risk concerns altogether and instead seek the highest stated returns, such as what happened during the pre-crisis bubble. This doesn’t fit the “efficient markets hypothesis” of the academics and probably explains why the current Fed Chairman and others didn’t see it coming. And probably why PK believed the markets have no problem financing a $1 trillion plus U.S. budget deficit at 2.50 percent with 10-year money.
Global Macro Monitor 