Time to Buy Pesos? $2 Trillion of New Money Printed by Geitner & Treasury

April 27, 2011
Last week, we reported how Obama’s & Congress’s new “$40 billion in Budget Cuts” actually cut only $380 million of spending out of $2 trillion annual US deficit & $14 trillion of debt, which is like reducing $1,000 of growing credit card debt by 19 cents a year. MXN Peso vs. US Dollar or “Saving 19 Cents on a $1000 Debt”

Yep, we’re cutting back our $1,000 debt, by spending 19 cents less on cheap toilet paper, every year.” . . .

Should this give us Ex-pats confidence in future US Dollar investments & assets vs. Mexican Peso Assets?

In further deficit fighting actions: the US Treasury just sold $66 billion in new treasury notes. New Treasury Supply Helps Market Get a Grip

What other additional tasty tidbits have been thrown into the flotsam and jetsam of things un-reported by the US mainstream big media? While US media talks about various European and US central bank positions on their future plans, strangely, they often leave-out news on the Yuan & the Chinese Government’s short and long positions on US treasury bonds & bills.

Reports out of Great Britain’s media describe how the Chinese Govt. had sold off roughly $65 billion of US treasury securities that were maturing between Dec. 2010 and the present ($34 billion in Dec as the biggest chunk and another reported $24 billion in Jan 2011). This sell-off was reported by some analysts as troubling news for the future of the USD, but US and Govt. pundits waived this aside, noting that the Chinese govt still holds $750- $850 billion of US govt debt (depending upon whom you believe), and has over a reported $1 – $1.25 trillion in total US holdings (including US companies). By comparison, Beijing holds $770 billion of Japanese govt. debt – and to complete the big picture: Beijing is reported as holding roughly $2.5 trillion total in foreign securities and foreign investments. http://www.guardian.co.uk/business/2010/feb/17/china-sells-us-treasury-bonds and
http://www.baltimoresun.com/business/sns-rt-business-us-china-utre73o0g5-20110425,0,3963191.story

Why should reports and news from outside the US Media matter?
Last week, China’s Central Bank head, Zhou, had said that China had
“too much in reserves”
aka an understatement of their intention to dump more US dollars? Nor have they mentioned the respected Dagong’s actions lowering USD/US Treasury ratings, followed by S&P’s “me-too” lower US Govt Treasury future ratings?

In a related little-reported quote this past weekend, a key member of the monetary policy at the Beijing’s central bank, Mr. Bin, seems to clarify their earlier hints about “too much in reserves” by saying:
“$1 trillion dollars in reserve would be sufficient” …

Continuing: “Zhang Jianhua, a head of research at the People’s Bank of China, said worries that:
the heavily indebted U.S. government may not repay its debt could drive Treasury yields higher and cause U.S. debt prices to fluctuate.”
http://www.baltimoresun.com/business/sns-rt-business-us-china-utre73o0g5-20110425,0,3963191.story

Why is it that many US financial reporters ignore Chinese perp-spectives, specifically ignoring the latest seemingly significant Chinese govt. investment plans and US Dollar weakening warnings announcements? And why do people on Mexico-related forums also seem to ignore the Chinese role in Mexican Peso/US Dollar exchange rates?

Is it also worth noting that, Gold has popped over $1,500 USD per troy ounce…?

Canadian Perspectives on the Future of the CAD Dollar vs. the MXN Peso?: Canadians on various ex-pat forums continue to project a healthy future for the CAD dollar, but they do not seem to factor in the Canadian Government’s stated monetary policy plans to keep the CAD values consistent with USD values. Past Canadian Govt. pronouncements have clearly indicated that they plan to keep the CAD on a par with the USD, which means keeping the CAD weak versus other world currencies as the USD weakens, because they want to continue to attract US tourist $$ and to keep the cost of Canadian export goods low.

The value of generic ex-pat economic web postings and projections? A survey of the last 2 years of US expat comments on various websites that touted the future strength of the USD vs. the Peso might be instructive. In our experience ex-pats tend to aggressively defend the strength of their home economies and currencies. Does this make one question the reliability of past and current comments and assessments on the future of Peso and Mexican investments by various Y-Y-Y-Yucatecan expat websites and forums?

Summarizing this another way:
During a multi-horse race, when one horse trips another, it doesn’t mean that the “trip-er” will win the race.
If Chinese monetary policy causes the US horse to stumble, and the Mexican horse avoids the tie-up, then the Mexican horse may cross the finish line before either the US or Chinese entries.

Reality seems to be saying that US Ex-pats who expected to live on US dollar-based “fixed incomes”, are actually looking at living on declining incomes for the next few years. And Mexican investments seem to e consistently outperforming their US counterparts, for now and in the future?

What’s your perspective?

* * * *
Feel free to copy while giving proper attribution: YucaLandia/Surviving Yucatan.
© Steven M. Fry

Read on, MacDuff.

4 Responses to Time to Buy Pesos? $2 Trillion of New Money Printed by Geitner & Treasury

  1. Pingback: Time to Buy Pesos? $2 Trillion of New Money Printed by Geitner & Treasury | Surviving Yucatan

  2. emerson says:

    ive lived in mexico for 35 years the peso follows the dollar, it has and always will

    • yucalandia says:

      Hi Emerson,
      If the peso actually “follows the dollar”, then how do you account for the 100:1 and 1000:1 devaluations of the peso, while you lived here in 1982 and in 1994. I personally got whacked with the peso devaluing 30% between 2007 – 2012. I personally consider 30% devaluations, 99% devaluations, 99.9% devaluations to show that the Mexican peso does not follow the dollar.

      Since 2012, Mexican peso values have swung between $11.6 up to $13.8 – which is still significant at 26% loss of value of Mexican pesos.

      We get our income in Mexican pesos, and our money is in pesos in Mexican banks, so 26% losses are painful.

      How many readers would happily consent to having 26% of their net worth wiped out, due to the peso losing value to the US dollar?

      I’ll gladly pay anyone 74 cents on a dollar, who wants to make that trade, *grin*
      steve

  3. Limon says:

    Do you date your stories?

    Luca Pacioli said there is a saying that one should date one’s correspondence other wise some one might say it was written at night from an other world.

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