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Mexico: A Failed State?
In May, 2008, respected political analyst George Friedman compiled the case against Mexico suggesting it could become a failed state. On January 16, 2009 a Wall Street Journal story speculated the same thing and reported that the Pentagon has concluded that America’s two greatest threats are that either Pakistan with nuclear weapons or Mexico with a huge and porous border with the U.S. will become failed states. The Journal story detailed the vast and sophisticated military assets of the various drug lords that are based in Mexico and operate in over 150 American cities marketing their extremely profitable product. Last week the Associated Press reported that Mexico’s foreign remittances, its second largest legitimate source of foreign income after oil, had fallen for the first time in its history.
The Mexican peso has begun to fall recently after having stabilized following a 30% drop in September/October, 2008. I am short the peso, although I have no idea whether the peso is starting another significant drop or not. But recent weakness coincides with the first Mexican rate cut in recent history which follows weakness in the Mexican economy. As I wrote recently, Mexican oil export income is at risk from both lower prices and falling production. A virulent drug war and the possibility of the Federal government losing control of the streets in some locales can only add to Mexico’s problem.
I have a number of friends who own property in Mexico and enjoy vacationing there. I hope they will be okay both financially and physically. This is not a happy picture for Americans who venture into Mexico, nor increasingly for Americans who simply live near Mexico. Drug violence can spread like a virus. Let’s hope America gets the fence and the troops in place on our southern border before they are desperately needed. This could be a very serious problem.
Incidentally, what could we do to mitigate the Mexican drug problem, aside from defensive measures like a fence and more troops? My humble suggestion: make drugs legal - and tax them. If people were free to buy their cocaine and marijuana at a store for a fraction of the current price, the drug gangs would be out of business in five minutes. Our fiscal deficit would be reduced. The cost of drugs would go down. Our military expenditures on the never-ending and never-successful “war on drugs” would be reduced. It’s the only intelligent way to go. It’s also the way that many European countries have decided to go. People are trusted to make their own judgement on alcohol and cigarettes, both of which can kill. Why not cocaine and marijuana?
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16 responses so far ↓
1 Carl Shafer // Feb 3, 2009 at 7:31 pm
You failed to mention crime. There is a tremendous drive to aquire drugs by any means for addicts. America might be able to reduce public safety expenditures significantly. Here in California the county I live in reported that 63% of the countys budget is used for law enforcement and prosecution. Public employees can retire at 90% pay with cost of living and health care. California is Bankrupt.
2 Jim Kingsdale // Feb 3, 2009 at 9:26 pm
Good point, Carl. Lower crime and police costs would be a major benefit of legalizing some drugs.
3 Karol // Feb 4, 2009 at 4:53 am
Mexico…a dangerous place indeed!
I know first hand of a woman, the wife of a business man who spend 3 million dollars to retrieve his wife. He had a office in Mexico City and in San Diego. It took him almost four months to sell properties to get her back. When I last saw her she was packing a 9mm with no safety and jumping at the sound of a gate closing. She was a good looking woman with two kids and I’m glad that her husband didn’t have to have one of her fingers sent as proof of who they had. Everything was conducted hush-hush as demanded.
I still don’t approve of shorting the peso which is almost a sure bet.
Can’t you find a moral way to earn money on your capital?
4 Isaac // Feb 4, 2009 at 8:12 am
I agree with decriminalization for the same reasons, however I would concommitantly raise the penalty for buying and selling all but “retail” quantities. This shouldn’t be a big market for anyone.
5 Isaac // Feb 4, 2009 at 8:14 am
To Karol, if Jim shorts the peso, he isn’t causing it to fall. rather he is just riding a market trend. There is a difference.
6 Leon // Feb 4, 2009 at 7:10 pm
Jim, if you don’t mind, can you tell us how to short peso? FXM is not shortable.
7 Edward Kaye // Feb 4, 2009 at 8:38 pm
I have the same question as Leon–how exactly to short the peso? Are there any PESO ETF’s that have put contracts?
8 Jim Kingsdale // Feb 5, 2009 at 12:47 am
I trade the peso through a commodities account with a commodities brokerage firm.
9 Karol // Feb 5, 2009 at 4:00 am
For the fun of it:
The Home Depot has 50 some stores in Mexico and is trying to add many more.
Where is smart money?
10 robert essian // Feb 12, 2009 at 3:38 pm
Legalize the drugs and prostitution too. Then build a really good fence, electrify the heck out of it. Watch as the fence patrol pull illegal immigrants fried to a crisp in the tangled web. All while we sit around our televisions snorting coke, and smoke pot to take the edge off with the girl of our choice sitting real close. For what it matters I vote No. Hey man …puff puff….snort snort we are really in trouble…Peace
11 Jim Kingsdale // Feb 12, 2009 at 4:41 pm
Robert, I don’t really want a debate on social issues, but…yes I’d legalize prostitution too. Have you been to Holland? A wonderful advanced country, great social values on human rights and the work ethic. Not your vision in any way, and a place where some drugs and prostitution are legal.
12 Peter // Feb 12, 2009 at 11:34 pm
I like your thinking. However, I would be careful about cocaine. As an ED physician I have seen its effects on the body. As a social creature I’ve seen its effects on the mind. As a consumer of media I’ve seen its effects on crime. As a traveller I’ve seen its effects on Colombia. All of these are quite negative & powerful.
MJ, however, is benign on all fronts.
Put a bunch of people together doing coke (or crack) with a pistol, you’re likely to have a shoot out. Put those same people together with a firearm and some marijuana, they’ll use the firearm to fish some jalapeno poppers out of the oven.
Thanks for your insight overall! I love this site.
13 robert essian // Feb 13, 2009 at 3:44 am
Jim, I don’t want to debate this either, and have many times thought pot and prostitution should be legalized. No harm no foul. I vote no on cocain, heroine, etc…
My first thought (to keep this short) was our friends to the North the Canadians. If we legalize this stuff the drug border then moves to the Canadian borders and becomes their problem as it is ours on our Southern border.
Perhaps a new flat tax could capture the money from illegal underground activities and we must figure it out regarding our southern border.
Finally, Jim we have so many issues today that need our full attention just to survive, adding another ball to this juggling act might cause all of them to fall to the floor…As always you have my respect…Peace…Yes on Holland, Germany, and Okinawa, Japan…Navy (Sea Bee-honorably discharged)class of 1975
14 robert essian // Feb 13, 2009 at 3:54 am
If I may indulge one last point, I have two son’s in their 30’s now who have done no drugs. When I ask about having smoked weed their response is always “NO” because it was illegal, but if it were…!?!?
The adults can make up their own minds and I’m good with that. As for our son’s and daughters lets allow them to mature first.
15 robert essian // Feb 13, 2009 at 4:04 am
Number 1 high of choice for teenagers is anything Mom and Dad have in the house.ie-Liquor, Beer,Valium, Vicadin, Perk’s, Cocaine and Weed.
Number 1 desease, sexually transmitted.
Number 1 killer: All of the above…Peace
16 rbblum // Feb 14, 2009 at 11:34 pm
Jim, The title of your post (Mexico: A Failed State?) may just be spot on.
What is below the radar is:
(1) The current standing order for active US troops (when given liberty) is to stay out of Mexico . . . for concern for their safety.
(2) Presented on the Glenn Beck program (on FOX), it had recently been presented that Phoenix, Arizona was rated #2 in the world for the number of kidnappings (about 400) during 2008.
(3) Of interest, is Texas Governor Rick Perry is to be a guest next week on Glenn Beck’s program. The topic of discussion is Texas’ contingency plans for securing the Texas/Mexico border should there be an economic or political breakdown in Mexico that could result in an
exodus of the Mexican population into the US.
(4) Also of note is the high number of murders (about 19) in El Paso during the month of January 2009, which has the appearance of being caused or related to the undercurrents of the border Mexican city of Juarez.
National news accounts have been almost non-existant and very slow in presenting current conditions in Mexico.
But at least there is the appearance of making the first step of being aware and publicly acknowledging those conditions to the American people.
And, as usual, our US leaders remain deaf, dumb and blind; possibly, perhaps, maybe dealing with any national concerns of the issue (Mexico meltdown) after the fact in a political fashion that will not be focussed on America and its people first and foremost.
More importantly (I guess)
is to know the true environment in order to trade/invest accordingly.
Oh well.
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