Portfolio investment keeps pouring in...

Mexico's third quarter balance of payments statistics report that foreigners continued to pour money into Mexican financial instruments. Of the US$15.26 billion foreigners invested, almost all (US$14.04 billion) went into peso-denominated money market obligations; equities were the home of the remaining US$1.22 billion.

In the first nine months of this year, foreigners invested US$33.65 billion in money market obligations and US$4.01 billion in Mexican equities. To put the numbers in perspective, portfolio investment in the first nine months of 2012 was greater than foreign direct investment has ever been in any single year. Between January and September of this year, portfolio investment was 6.5% more than crude oil export revenues.

If there had been no portfolio investment this year, there wouldn't have been a capital account surplus. If that money were to flee abruptly....

US government debt & the fiscal cliff: some facts

Federal debt held by the public is now over 70% of US GDP. That's the highest percentage since 1950.

If the US goes over the fiscal cliff, the Congressional Budget Office (CBO) projects the annual deficit will drop from the $1.1 trillion registered in FY2012 to about $200 billion in FY2022. That would bring the deficit held by the public down to 58% of GDP.

Under the CBO's "alternative scenario", the Bush tax cuts would be extended, the alternative minimum tax and Medicare payments to physicians would be, respectively, adjusted and waived, and the automatic spending cuts mandated by the 2011 Budget Control Act wouldn't be made. In the "alternative scenario", the deficit is projected to average 5% of GDP a year over the decade. The debt to GDP ratio is projected to hit 90% of GDP in 2022 and to continue rising.

The FY2013 budget builds in the fiscal cliff. If it is approved as proposed, the CBO projects the deficit will fall to 4.0% of GDP this year (from 7.3% in FY2012) and 2.4% in FY2014. The downside is that GDP would contract 0.5% and unemployment rise to 9.1% in 2013.

Energy independence for the US by 2030...

The US will replace Saudi Arabia as the world's largest oil producer by 2017 and supplant Russia as the world's largest producer of natural gas in 2015, according to the International Energy Agency (IEA). By 2030, the IEA expects the US to be a net oil exporter.

New techniques for extracting oil and gas from shale like hydraulic fracturing and horizontal drilling have boosted US production. Increased production is part, but not all, of the story. The IEA's chief economist gives higher production 55% of the credit for the US move to self-sufficiency. Nearly half (45%) of the credit he attributes to improving energy efficiency. For more, see the following article:

http://www.nytimes.com/2012/11/13/business/energy-environment/report-sees-us-as-top-oil-producer-in-5-years.html?ref=business

A recession in the US next year?

Re-elected yesterday, President Obama now must work with Congress to steer the economy away from the fiscal cliff it's set to fall off of on January 1. The chair of the House Budget Committee will be a key player in the negotiations. Republican Vice-Presidential candidate Paul Ryan is expected to resume that position in the next Congress. The clash of visions will continue. Will there be a willingness to compromise? If not, the US will fall back into recession next year.

Cutting the US deficit...

Here's a link to an interactive calculator from the Washington Post that lets you see the impact of different changes to the tax code. The calculator is a fun, easy way to see where the savings might be found to offset the US$480 billion in lost revenue from the tax cuts Mr. Romney proposes.

Don't be put off by the title ("Make Mitt Romney's tax plan add up!"). We're promised a similar calculator for the Obama proposals tomorrow.

http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/10/31/interactive-make-mitt-romneys-tax-plan-add-up/?wpisrc=nl_pmpolitics

Mexican Reference Rate stays at 4.50%

but the odds have just increased that the next time the Board of Governors moves the rate, it will raise it. In the concluding paragraph of today's monetary policy communique, Banco de Mexico's Board explicitly stated that they will raise the rate, if necessary, to anchor inflationary expectations and stay on track to achieving 3% inflation.

The trigger for a rate increase: if "los choques a la inflacion" (like the ones we've experienced in recent months from agricultural prices) persist, even if they are temporary, and the downward trend in inflation isn't solid.

The Fed stands still and so will Mexico...

At the conclusion of its meeting today, the Fed kept policy where it was before the Open Market Committee sat down on Tuesday.

What does it mean for Mexico? Don't look for any change in interest rate policy soon. Banco de Mexico should keep the Mexican Reference Rate at 4.50% when it meets this Friday.

The Mexican Reference Rate made its debut on January 21, 2008. It's stood at 4.50% since July 17, 2009.