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Latin Leftists and U.S. Bond Markets

Posted By John Schroy On 27th January 2006 @ 22:08 In Treasuries, Open Market, Agencies, Mortgages, Corporate Bonds, Foreign Investors | Comments Disabled

Over the last quarter of a century, with loud praise from American liberals, ‘democracy’ has taken hold throughout Latin America, bringing socialists, Marxists, and leftist politicians of all stripes to power in country after country.

The January 2006 inauguration of Evo Morales as president of Bolivia is but a reminder of this trend.

Left-leaning Latin governments are good news for the U.S. bond market, although not necessarily for the people of the countries involved.

Since ‘Jimmy’ Carter’s stiffed America’s best Latin allies of World War II — the leaders that created the ‘Brazilian Economic Miracle’ of the 1970s — encouraging amnesty for exiled communists, leftist demagogues have been on the march throughout the hemisphere, capturing votes from the semi-literate masses with populist promises, seizing power with ballots and perpetuating low living standards for yet another generation.

(See the case study: “[1] Brazil 1971“)

As the polling victory of Hamas in Palestine suggests, ‘democracy’ does not necessarily elevate to power leaders who bring prosperity and stability.

Today there are leftist governments in Venezuela, Bolivia, Brazil, Chile, Argentina, Uruguay, and Cuba. Politicians with unfavorable views on capitalism are favored in upcoming elections in Peru, Mexico, and Nicaragua.

‘Jimmy’ Carter must hardly be able to contain himself with pleasure.

So what does this have to do with the price of bonds?

The Impact of Left-Wing Democracy

Latin America, as a whole, has a trade surplus with the United States. The region sells more to the U.S. than it buys, thereby accumulating dollars.

Most industrialists and exporters throughout the area are concerned about their wealth, especially when the president of their country, or a neighboring country, gives a ‘grande abraço’ to Fidel Castro or Hugo Chaves.

Now, when it comes to designate a currency to accept for their goods, the dollar is the obvious choice for Latin exporters. Furthermore, by finagling invoice prices, surreptitious dollars can be accumulated offshore, safe from leftist threats to property rights and soak-the-rich taxation.

Now, anything that increases dollars in the hand of foreigners appears to favor the U.S. bond market.

Therefore, fears of Latin exporters brought about by the rising leftist tide, is just one more thing that is good for U.S. bond prices.

(See: “[2] The Other Side of the Dollar: The Brazilian Real“)

Tags: [3] bond market, [4] brazil, [5] democracy, [6] latin america, [7] trade deficit
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URLs in this post:
[1] Brazil 1971: http://capital-flow-analysis.info/investment-tutorial/case_1.html
[2] The Other Side of the Dollar: The Brazilian Real: http://capital-flow-analysis.info/capital-flow-watch/archives/42
[3] bond market: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=bond-market
[4] brazil: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=brazil
[5] democracy: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=democracy
[6] latin america: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=latin-america
[7] trade deficit: http://capital-flow-analysis.com/capital-flow-watch/index.php?tag=trade-deficit
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