Thursday, January 12, 2012

Nice graph showing how much in US dollars flows to Mexico. This HAS to be bad for "Americans", right???

This chart shows  the changes in "Remittances to Mexico" since the mid-90's.  A remittance is the sending of money from one place to another.  In this case, it would be citizens of Mexico working in the US and sending dollars back home.  You can look at it as "exporting dollars".  Is this a bad thing?

Source: Calculated Risk
Let me put a positive twist on this.  Sure, initially those dollars are leaving the US--The US economy is denied the current consumption of goods and/or services of those dollars.  But do those dollars simply disappear?

No. Eventually those dollars (or most of them) MUST make it back to the US, regardless of the journey they go on to get here and purchase (1) US goods (2) US services (3) Both of these or (4) US Assets--physical and/or financial. There is a fancy name for this category of trade---EXPORTS!

Look at the dollar change in US exports to Mexico during this time period. The two graphs are VERY similar in magintude/amlitude, wouldn't you say?

FRED Graph

I DO understand that the elephant in the room largely responsible for setting the stage for the increase in exports is the NAFTA Trade agreement and our import of oil from Mexico.  Point taken.  However, the free flow of dollars from sources like labor performed in the US certainly factors into the equation.

While dollars earned in the US were not used immediately to consume US goods/services/assets, they eventually did so.  US jobs were supported/created either way.  How come we usually view this as a zero-sum game where one side wins and the other loses?

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