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December 23, 2014


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Many thanks for all of the blog posts you *do* post up, then.

I'm inclined to be pessimistic for two reasons...

1) Low oil prices reduce the spoils for which the political system can discreetly redistribute for stability. As we've seen, shady building contracts are quite a bit more transparent than any of the activities surrounding the state oil company. I think that fewer mouths stuffed with gold means more aggressive politics that are even harder to untangle. This will make for a poorer (in real terms, not confidence fairy terms) business climate.

2) Very broadly speaking, I think that the oil price war is simply stored deflationary momentum, which had been dammed to some extent by worldwide monetary policies and acceptance of high unemployment, beginning to seep through to affect more politically protected segments of the world population. It seems to me, that historically, due to Mexico's highly conservative (all things told) fiscal policies, Mexico's petrodollar recycling is poorly absorbed locally, because it tends to be centered into grand command projects by gov't or gov't allied large enterprises at the expense of a more diffuse recycling into private channels. As a result, I think that Mexico has a recurrent exceptional susceptibility towards currency shocks as disruptive ripples hits the financial instruments (debt and financial capital-wise) that would otherwise be used to handle import needs.

In this sense, I think some of the reporting/warnings about Mexico's issues with corruption that I've seen in Bloomberg and FT have underlying state-state messaging to it--the corruption blocks much of Mexico's domestic potential for resilience.

Doing the reading it took to make this probably incompetent evaluation now has made me pretty leery of the Chinese situation. China *should* be able to manage its currency perfectly fine, but I'm beginning to think that a currency account accident is pretty possible to happen there.

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