Time for a Tequila Crisis?

“If he can’t help us out, then there’s nobody else that can. The whole system will collapse.”
AMLO supporter at a rally

There is an election coming up on 1 July in Mexico which is looking likely to result in a landslide election of a socialist. Andres Manuel Lopez Obrador (AMLO), currently stands with 50.8% of the vote according to a Bloomberg indicator. He has stood twice before and lost due to election fraud. However, maybe things are coming to a head in Mexico as people are thoroughly sick and tired of the poverty, corruption, narco civil war and state sponsored violence. The country has been militarised and drenched in blood with over 150,000 killed in the last decade. Last year Mexico was second most violent country on the planet after Syria. People are desperate for an end to the ongoing daily violence.

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It is hard to believe now but in 1982 Mexico's economy was bigger than China's. Now I'm no expert on Mexico but I'm thinking that the big banks might have had a hand in Mexico's economic decline. Also the Langley Boys getting stuck in there with the old war on drugs ruse that came before the war on terror one. Not to mention the devastating impact of NAFTA upon Mexico's poor farmers.

AMLO's coalition group, Together We Will Make History, are running against a thoroughly discredited parliamentary opposition with their involvement in numerous financial scandals. The arrest in December of the ex-treasurer of Mexico's ruling party, PRI (Everyone For Mexico coalition in the election), led to a fall in the peso due to fears this would boost AMLO's election chances. However, recent charges of money laundering have been dropped against Ricardo Anaya representing For Mexico At The Front, and this may indicate who big business is backing.

Meanwhile, AMLO is proposing all sorts of popular policies like scholarships for young people, a raise in pensions and a superior healthcare provision. He has floated the idea of a basic income. He's also promised to investigate every living former president for corruption. Furthermore, he promises freedom from the tyranny of the IMF and an amnesty to drug dealers. Such policies are real vote winners but the test is in the delivery.

Obviously, we know there will be no way to pay for many of these plans. For starters any savings made by tackling corruption and reducing the entrenched bureaucracy in government and the economy (all well and good) will be swallowed up by higher debt repayments. The re-negotiation of NAFTA this summer is hardly likely to result in better terms for Mexico. Commodity prices are in a slump. It will put AMLO to the test alright.

Naturally, the American's are distinctly unhappy about the prospect of a socialist president as their neighbour. Trump doesn't even seem to like the Canadians, I can't see him shaking hands too warmly with AMLO. Some even blame Trump's stance towards Mexico as propelling voters left in both countries. AMLO has even been on a speaking tour of the US preaching about exploiting the humble and poor. A new would-be Chavez would be the US worst nightmare.

REUTERS/Jose Luis Gonzalez

Emerging markets, like Mexico, are already under strain from the Fed's Quantitative Tightening (QT), a second raise in interest rates this year make dollar-denominated debt much more expensive to pay back. Build in to this the inflationary pressures from rising oil prices which are a particular concern for Mexico where costs are a high percentage of an average workers wage. The cracks from the unwinding of QE, as per Argentina can be seen clearly in the increased borrowing costs which will lead to bankruptcies.

A win for ALMO may actually fuel a collapse of the Mexican peso. Markets notoriously spook at the prospect of a socialist candidate winning. It brings a degree of uncertainty to the table, especially fears of nationalisation and sate intervention. For this reason a weak peso may find itself under further pressure, leading to collapse and a further IMF bailout. AMLO will find himself unable to say no to the terms of the IMF, which always include brutal cuts to living conditions. Increased debt repayments will leave no money for the reforms he has promised. What then happens to "The country cannot go on being the personal property of four or five people".

If he gets elected at all, that is. Cheated out of two elections, the elite will certainly try again. However, despite such political manoeuvrings, if a candidate's share of the popular vote is enough, they will win regardless. I doubt the US media will be shouting about election fraud unless AMLO wins, then his victory will undoubtedly be attributed to Russian meddling. Whoever wins this election conditions have reached boiling point in Mexico and people feel radical change is required to rescue them from the raging civil war.

The landslide election of a Chavez-style populist leader - on the doorstep of an American Empire - being led by a contentious figure - with an America First agenda - is surely a recipe for antagonism and conflict. With the world in such a fragile state this could easily be the snowflake that starts an avalanche. A collapse of the peso could have numerous consequences throughout the global markets. Mexican election July 1st. History as it happens.

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Thanks for reading. Please upvote and resteem. Peace x