Tag Archives: Mexico

Invading Mexico: More Brilliance from Washington, by Fred Reed

Fred Reed’s hypothetical US invasion of Mexico is a brilliant exposition of the pitfalls of waging offensive war, a subject SLL recently examined in Riptide. From Reed on a guest post at theburningplatform.com:

Time: “You have a bunch of bad hombres down there,” Trump told Peña Nieto, according to the excerpt given to AP. “You aren’t doing enough to stop them. I think your military is scared. Our military isn’t, so I just might send them down to take care of it.”

With Trump it is difficult to tell bluster and carney-barker showmanship from serious consideration or actual intention. While clearly a threat, the remark may have been intended only to intimidate, and the ascription of cowardice to the Mexican army only ill-bred. Trump’s military record leaves no doubt as to his own courage. Given his administration’s threats of military action–war–against China and Iran, the possibility that he will send troops southward may be worth pondering. Whether the President has the faintest idea of what would be involved in very much worth pondering.

If troops are sent, what will they face in Mexico? What would they do? How many would they be?

To begin with, the narcos look exactly like everybody else in Mexico. They do not carry ID cards saying “Narcotraficante.” They can easily blend into the general population. If GIs try to operate here, the inability to distinguish narcos from everybody else will quickly lead to intense frustration. Frustrated troops become angry. They begin to hate the locals as in all such wars they hated the dinks, gooks, slopes, zipperheads, sand niggers, and rag-heads. Mexicans will begin to seem treacherous to them, as always happens when US troops go to countries they do not understand. All Mexicans will come under suspicion.

To continue reading: Invading Mexico: More Brilliance from Washington


Donald Trump and the Foreign Policy of Abuse, by Ted Snider

A critic of Trump’s foreign policy says a lot of it is just bullying and Trump throwing his weight around. From Ted Snider at antiwar.com:

On the domestic front, Donald Trump’s bullying and abuse have unfolded on the nightly news like a soap opera. When acting attorney general Sally Yates did her job by telling Trump that his suspension of visas to seven Muslim nations was possibly unlawful, he fired her. When she told him that “At present, I am not convinced that the defense of the executive order is consistent with these responsibilities, nor am I convinced that the executive order is lawful,” she was slipped a note saying, “the president has removed you from the office of Deputy Attorney General of the United States.” As if firing her for doing her job by opposing him was not bullying enough, the White House continued the bullying with the public attack that she was “an Obama administration appointee who is weak on borders and very weak on illegal immigration.”

At about the same time, White House press secretary Sean Spicer pressed the bullying, saying that State Department officials “should either get with the program or they can go.” Government officials are not supposed to advise Trump, they are supposed to be bullied by him or be fired.

When Washington State federal judge James Robart issued a nationwide injunction on Trump’s visa ban, on the grounds that it was causing “immediate an irreparable injury” and that there was a “substantial likelihood of success in challenging the constitutionality of the travel ban,” Trump took to social media to bully him, calling him “this so-called judge.”

But perhaps more consequentially, Trump has also been conducting his foreign policy by bullying. At the end of January, U.S. tanks and armored vehicles that were part of a 3,500 troop contingent fired salvos into the skies of Poland. General Ben Hodges, the commander of the US Army in Europe, said, “this is not just a training exercise. It’s to demonstrate a strategic message that you cannot violate the sovereignty of members of NATO … Moscow will get the message – I’m confident of it.” You don’t need diplomacy when you can bully your enemy by a display of brute force.

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Renegotiating NAFTA Is A Good Idea – For Mexico, by Frances Cuppola

Notwithstanding President Trump’s rhetoric, NAFTA has not been that good a deal for Mexico. Frances Coppula asks some good questions. From Coppula at forbes.com:

President Trump is not happy with the North American Free Trade Association (NAFTA). During the Presidential campaign, he described it as the ‘worst trade agreement the U.S. ever signed’. He blames it for the loss of large numbers of manufacturing jobs across the border to Mexico, where wages are lower. According to the White House website’s new page on trade, ‘blue-collar towns and cities have watched their factories close and good-paying jobs move overseas, while Americans face a mounting trade deficit and a devastated manufacturing base.’

At the same time, President Trump complains about the flow of migrants across the border from Mexico to the US. They take American jobs and American money, apparently. So, he plans to build a wall to stem the flow, and make Mexico pay for it. Exactly how he plans to make Mexico pay for it is as yet unclear: suggestions range from a 20% tax on American imports from Mexico (which my colleague Tim Worstall was quick to point out would in practice be paid by American businesses and consumers), to a withholding tax on remittances from Mexicans working in the U.S.

I sympathise hugely with the Americans who feel that they are losing out. Well-paid manufacturing jobs have indeed declined in the last decade or two, partly replaced by poorer-paying service jobs. But something is not right here. If all the good jobs have gone across the border, how come so many Mexicans have come to the U.S. to work? We should not kid ourselves that this is an easy option. The Mexican border is already heavily policed, and just about the only open route is a long and dangerous desert crossing in which many migrants lose their lives. Why would so many people risk that crossing, if all they had to do was wait for the good jobs to come to them?

To continue reading: Renegotiating NAFTA Is A Good Idea – For Mexico

Mauled by Peso Crash and Inflation, Mexico to Cut its Dependence on US Food Producers, by Don Quijones

Mexican economic crises have had global spillover effects in the past, so SLL is watching the current problems besetting the Mexicans and their economy closely. From Don Quijones at wolfstreet.com:

It’s not all NAFTA’s fault, however.

The price of tortilla, a staple in Mexico that is consumed in myriad forms, flavors and colors, is on the rise. The country’s federal consumer association Profeco has already warned of price rises across the country, with the most pronounced increases in the states of Baja California, Colima, Quintana Roo, Guerrero, Yucatán, Nayarit, Ciudad de México, Tabasco and Oaxaca.

It’s the latest spike in an ongoing trend. In the last 10 years, average tortilla prices have soared by over 90%. Early last year prices reached as high as 16 pesos per kilo in some regions. Since then the Mexican peso has accentuated its slide against the U.S, dollar, slumping 17% in 2016 and close to 5% in the first two weeks of this year.

It was only a matter of time before the traditional bugbear of inflation began to rear its ugly head. Even before the government ushered in the new year with a brutal 20% hike in fuel prices, inflation had already accelerated from historic lows to a two-year high. In January it’s expected to surpass 1% on a monthly basis, its fasted increase since 2000. And there are already rumors of further gas price spikes in February.

As the FT warns, if the cost of mainstays of the Mexican diet such as tortillas, eggs, milk and chicken start to soar, an already unpopular government can expect snowballing protests in a country where nearly half the population lives in absolute poverty.

Profeco has already detected rising prices of other staple food, including frijoles (black beans), chicken and eggs, in some regions, although the “trend is not yet generalized.”

To continue reading: Mauled by Peso Crash & Inflation, Mexico to Cut its Dependence on US Food Producers


Hideous Constellation of Threats and Challenges Facing Mexico, by Don Quijones

Mexico is steadily moving up the list of candidates to initiate the next global economic and financial crisis, the snowball that starts the avalanche. From Don Quijones at wolfstreet.com:

Things are rapidly going from bad to worse in Mexico. Hundreds of people were arrested and a handful of people killed over the past week as peaceful protests against the government’s hike of gasoline prices (by as much as 20% in some states) descended into widespread looting and rioting. The mood on the street was hardly helped when Mexico’s deeply unpopular president, Enrique Peña Nieto, tried to defend his actions by asking the public, “What would you have done?”

For a lot of people, the answer’s clear: a lot of things, very differently. Right at the top of the list would be launching an all-out war against the endemic culture of corruption plaguing virtually all levels of government. But now, time is fast running out as Mexico now faces a hideous constellation of threats and challenges, all at the same time.

NAFTA Hangover

There are few bigger threats to Mexico right now than the President Elect Donald Trump, who last week announced the appointment of Robert Lighthizer as the United States’ new Trade Representative. Lighthizer, a trade lawyer and vocal supporter of protectionist policies, is expected to play a leading role in the renegotiation of NAFTA, which helped transform Mexico into a low-cost industrial powerhouse while also shackling its economic fate to its northern neighbor:

The U.S. accounts for 80% of Mexico’s exports, 49% of its imports, and 60% of all its foreign direct investment.

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Shrinking Oil Giant Pemex Starts 2017 on Wrong Foot, by Don Quijones

Here’s an interesting parlor game: try to figure out which debt crisis will morph into the global debt crisis. Extra points if you correctly guess the quarter in which it happens. Certainly China and Europe are strong contenders, but we cannot forget our neighbor to the south, and especially not its red-ink gushing oil company. From Don Quijones at wolfstreet.com:

Mexico’s ATM is stewing in a toxic mix.

Despite the partial recovery of oil prices, 2016 was not a kind year to Mexico’s fast-shrinking state-owned (but soon to be privatized) oil giant, Pemex. For over 70 years the company served as a huge funding asset, at times providing as much as one-third of total government revenues. But in 2016 it became a national liability, requiring a $4.2 billion bailout from the government. It’s unlikely to be the last.

During the first 11 months of 2016, the company registered average production of 2.16 million barrels per day, its lowest in more than three decades. Pemex forecasts that production will fall to around 1.94 million barrels a day by 2017, marking the first time that the figure has fallen below the 2 million barrel point since 1980. Given the gathering deterioration in the company’s accounts — including a total debt overhang of around $100 billion — daily production could fall by as much as $1.6 million per day by 2020, Morgan Stanley warns.

As goeth Pemex’s production, so goeth Mexico’s oil revenues, which have shrunk from 6% of GDP three years ago to 2.5% today. The export figures are just as ugly. In 2011, when the price of Brent crude averaged over $100 a barrel, Pemex’s export revenues hit a historic peak of $49 billion, a monthly average of $4.11 billion. In the first quarter of 2016 the monthly average was just $893 million. That’s a plunge of 78%.

To continue reading: Shrinking Oil Giant Pemex Starts 2017 on Wrong Foot


Financial “Hurricane” Trump Is Approaching Mexico, by Don Quijones

The Mexican peso has been clobbered since even before Trump got elected. That’s not good for companies with debt denominated in dollars who receive most of their revenues in pesos. From Don Quijones at wolfstreet.com:

Peso crisis could trigger next dollar-debt crisis in Mexico.

Within hours of Trump’s electoral triumph, the Mexican peso, which has become the number-one hedge against a Trump victory, had slumped a staggering 13% to its lowest point in history and its steepest intraday dive since 1994-5, when the Tequila Crisis came within a hair’s breadth of bringing down Mexico’s financial system, and with it some of the biggest names on Wall Street, including Citi and Goldman, before the Federal Reserve, US treasury, IMF, and Bank of International Settlements hastily intervened.

By the end of Wednesday’s trading, it recovered a little to close at 19.84 pesos to the dollar, down 8% for the day. Today, the peso fell another 4%, ending the day at 20.67 to the dollar. A hurricane — as Mexicans are fond of calling Donald Trump — is approaching. Thanks primarily (but not only) to Trump’s march on the White House, the peso has lost 18% of its value against the dollar this year, more than any other major currency except for the pound sterling. But the peso’s current woes began long before Trump announced his intention to run for president.

At the beginning of 2014, it took just over 13 pesos to buy a dollar. Now it takes more than 20. According to some analysts it could soon be 25.

Since Tuesday, Mexico’s monetary authorities have been on red alert but as yet have done nothing to staunch the peso’s decline, largely because there’s embarrassingly little they can actually do, as Mexican Secretary of Finance José Antonio Meade Kuribreña all but conceded just days before the election.

Last year, the Bank of Mexico (endearing known in Mexico as Banxico) tried to slow the stampede out of pesos by selling a small but growing fraction of its dollar reserves in open auctions, but to little avail. Even as the amount under auction rose from $50 million to $200 million, then to $400 million, the peso continued to crumble, until the central bank finally gave up on the costly but futile exercise.

Earlier this year Banxico upped the ante, raising interest rates, twice. But yet again the exchange-rate effects were short lived. That won’t stop the central bank from hiking rates further. If things get really bad, it may even begin auctioning interest-rate swaps, as it did in the wake of the global financial crisis. In the bank’s own words, such an operation is aimed at bolstering credit institutions “by reducing the duration of [their] assets” so they can “operate in a market with higher volatility and rising interest rates.” In layman terms, it’s more free money for the banks.

In 2008, Banxico carried out interest rate swaps with credit institutions for up to 50 billion pesos ($2.5 billion). Back then the swaps may have been enough to avert disaster, but they also coincided with the release of an unprecedented tsunami of newly created money from the Fed.

Conditions are now markedly different. Rather than being starved of cheap credit, the world is drowning in it. Corporate borrowing costs in dollars, euros, and yen have become farcically cheap in recent years, thanks to the rampant interventions of central banks. But as emerging market firms are discovering, it can be a lethal trap. As the peso swoons against the dollar, the dollar-denominated debt held by Mexican corporations with peso-denominated operating income becomes increasingly difficult to service.

To continue reading: Financial “Hurricane” Trump Is Approaching Mexico