U.S. Dollar continues to pound MX Peso

But Enrique Peña Nieto has a "secret stimulus plan" . . .

When there's trouble in Europe -- and there's plenty of it these days -- or in times of general economic uncertainty, investors worldwide park their money in American greenbacks until things improve, thereby bolstering its international value. The U.S. dollar has been steadily gaining ground against the Mexican peso for the last eight weeks or so, a delight to those who spend American currency in this country.

In the short term Greece is responsible. Viewed more broadly it's the very questionable European decision to embrace a single money over a decade ago. But holders of U.S. dollars will continue to reap the profit while economic tremors shake a nervous Continent.

This week the dollar is selling for well over 14 pesos in most locations throughout Mexico, and today it hit an average of about 14.25 nationwide (14.31 in some Mérida banks). Put another way, if you're holding pesos and want to buy U.S. currency, that's how many you'll have to hand over for each dollar purchased.

If you're going the other way -- exchanging U.S. dollars for Mexican pesos -- you'll get back less of the mondeda nacional. The difference is the spread or profit margin which goes to the bank or financial institution. U.S. tourists here in Mérida who make the mistake of arriving with lots of cash in hand might get no more than 12.5 pesos for each dollar they swap these days, especially if they deal with small money traders in high traffic commercial areas who cater to gringos. A much smarter way is to arrive with nothing more than pocket change and a debit card. I draw pesos regularly from my Banamex ATM, and for the past week I've been getting about 13.75 of them for each dollar. I've got no complaint with that.

(In the above transactions note that I'm talking about U.S. funds which are deposited in American bank accounts. All Banamex does is spit out my money in pesos -- and my U.S. account reimburses me in full for their 29 peso service charge. The exchange rate is so favorable of late that I go to the bank two or three times a week, while the dollar soars.)

If -- I mean WHEN -- the Greek economy (in its likely doomed euro-based form) collapses, the dollar is bound to surge even higher. That will happen later this year. Following closely on the heels of Athens' nightmare-that-won't-end is the mess in Madrid (unemployment in Spain is at least 25%). France's new government also has a plate full of economic worries.

Figures don't lie but liars often figure

Mexico can't do much of anything about decades of Greek financial irresponsibility, or the sputtering world economy in general. That's why Mexico's central bank (Banxico) warned months ago that the nation's economy will steam slower this year than last. Banxico has predicted growth of around 3.5% in 2012 GDP (it's called Producto Interno Bruto, or PIB, in this country) (Risk of a "catastrophic event" in 2012 has increased, says Mexico's central bank: http://mexicogulfreporter.blogspot.mx/2011/12/risk-of-catastrophic-event-in-2012-has.html). But a man named Enrique Peña Nieto claims he'll increase that growth to five or six percent annually (Fanciful and shifting economic promises, a staple in Mexican campaign: http://mexicogulfreporter.blogspot.mx/2012/04/fanciful-and-shifting-economic-promises.html). The PRI presidential nominee hasn't explained just how just he'd pull off that minor miracle, especialy at a time when the U.S. economy -- many times larger than Mexico's -- is struggling to maintain a paltry 2.5% growth. Maybe EPN has a secret plan.

Some Mexican businessmen predict that if the European economic situation continues to deteriorate, Banxico will have to take aggressive steps to defend the peso and prevent its further slide against the U.S. dollar. Just what those steps might be is unclear at this point. It could be messy, particularly since the government will change hands (probably) Dec. 1.

May 31 - Enrique Peña Nieto falling; Dollar soaring: http://mexicogulfreporter.blogspot.mx/2012/05/enrique-pena-nieto-falling-dollar.html.

"Con dinero, baila el perro"
Though America's aggregate national debt to GDP (gross domestic product) ratio is now over 100%, people still trust the dollar, because it's backed by the "full faith and credit" of the U.S. government. But can/will that confidence last forever? U.S. stands at the brink: http://mexicogulfreporter-supplement.blogspot.com/2011/11/at-edge-of-precipice.html.

Euro zone on the brink: http://www.washingtonpost.com/opinions/euro-zone-on-the-brink/2012/06/04/gJQAiUOVDV_story.html?hpid=z1.
Europe’s grim choices: http://www.washingtonpost.com/opinions/europes-grim-choices/2012/06/03/gJQA17q7BV_story.html.
Spain’s problems put pressure on Europe to accelerate crisis response: http://www.washingtonpost.com/business/economy/spains-problems-add-pressure-on-europes-leaders-to-accelerate-crisis-response/2012/05/29/gJQAP8r4zU_story.html.

Latest budget ceiling increase will push U.S. over 100% debt to GDP ratio: http://mexicogulfreporter.blogspot.mx/2011/12/if-approved-latest-budget-ceiling.html.
Increasing poverty, rising state debt result in poor economic report for Mexico: http://mexicogulfreporter.blogspot.com/2012/02/increase-in-state-indebtedness-poverty.html.
Yucatán's growing public debt: http://mexicogulfreporter-supplement.blogspot.com/2011/11/yucatans-public-debt-mortgaging-future.html.
What impoverished country is this?: http://mexicogulfreporter.blogspot.com/2011/09/what-impoverished-country-is-this.html.
Crushed by poverty, Yucatán style: http://mexicogulfreporter.blogspot.com/2011/10/crushed-by-poverty-yucatan-style-crime.html.

Note: Cancún, with its own problems to worry about, is hoping that the dollar's enhanced purchasing power will prove a magnet for tourists: Al turismo favorece el peso barato http://www.poresto.net/ver_nota.php?zona=qroo&idSeccion=1&idTitulo=168688.
Cancún, no longer an oasis for most: http://mexicogulfreporter.blogspot.mx/2012/05/cancun-no-longer-oasis-for-most.html.