Today, we woke up to a government shutdown and without resources. United States law establishes a maximum debt limit that only Congress can increase. The Republicans’ budget proposal was rejected by the Democrats, who demanded a series of concessions in order to vote in favor of temporarily raising the debt ceiling. These concessions included not cutting subsidies for Obamacare, health insurance for the lower classes, support for illegal immigrants, replenishment of subsidies for public radio and television channels, Democratic strongholds, and many other things that totaled $1.5 trillion. To pass the debt increase, 60 votes were required, and although some Democrats supported the bill, the necessary number was not reached.
This event has not occurred in seven years, and curiously, Biden has never had to face it. Therefore, the impact of not paying federal employees’ wages and salaries, as well as failing to meet other monetary obligations, remains unknown, as it is unclear how long the shutdown will last. It is worth remembering that a similar case a few years ago caused the United States to lose its highly valuable AAA credit rating. One of the problems with the government shutdown is that we will not have last month’s employment report, which means the Fed will be missing one of the two most important factors, along with price increases, in deciding whether to lower interest rates.
The US economy continues on the same path as it has all year, with modest growth and stable inflation at 2.9%, a figure they can live with, but above the 2% target set by the Fed. The central bank cut interest rates by 0.25%. Still, it is caught between a rock and a hard place, as lowering rates too much could exacerbate the inflationary impact, which Trump aims to prevent by preventing unemployment from rising. If it does not move on rates, unemployment is likely to rise above the current 4.3%, especially since private sector hiring was negative in September, marking the first time this has happened since the pandemic.
In September, we had the sad event of the death of Charles Kirk, a 31-year-old man, a great speaker, defender of family values and freedom of expression, who was murdered by a disturbed young man with strong progressive views.
The U.S. economy continues to show mixed signals with reports such as that from the University of Michigan, where respondents reported a decline in optimism as they see slightly higher inflation and economic growth of 2.3% for this year and 2% for 2026. On the other hand, retail sales reported a 5% increase, and wages grew by 3.4% on an annualized basis. President Trump announced that there are already investment commitments from both foreign and domestic companies totaling $17 trillion for the next three years, a figure that far exceeds any similar period in the past and which, according to him, is a direct result of his tariff policy.
Speaking of tariffs, $34 billion has already been collected, and once all programs are implemented, the annual figure is projected to be around $350 billion. Every day, new taxable items emerge, such as this week’s announcement that all films produced outside the country will be subject to a 100% tax. The drop in the discount rate will take time to produce significant changes because, while it helps those who owe money at variable rates, it hurts the millions of savers who will receive less for their savings. It is estimated that a 1% drop in Fed rates reduces the income of those who earn interest on their savings by $140 billion.
A proposal by President Trump to charge $100,000 per year for foreign technicians in the country on H-1B visas was met with a very poor reception by large technology companies. Most of these visas are for bringing people from abroad to perform jobs for which there are not enough Americans who can or want to do them. The annual cost of that visa is currently $5,000 per year, and the intention is to increase it by a factor of 20. Another incident that created friction with Korea, a country considered a friend, was the raid and deportation of more than 400 technicians who were in the country on visas related to a specific short-term role and were already in more permanent positions. This is because temporary visas are relatively easy to obtain, while longer-term visas are subject to a lottery and are more scarce. Soybean producers, one of the leading U.S. exports to China, are facing a challenging time, as China has reduced its purchases while negotiating the tariffs it will pay on its products.
Some facts that I found interesting are that the electricity required by data centers that process artificial intelligence is equivalent to the consumption of 8 million homes; that the wealthiest 10% of the population makes 49.2% of all credit card charges; that the average household income in 2024 was $84,000 per year; and that 47 million American adults (18% of the total) suffer from depression that requires medical attention. Regarding the financial markets, the seven companies known as “the magnificent seven” reached a stock market value of $20 trillion. Foreign investment stands at $18 trillion, equivalent to 20% of the total value of the global stock markets, and it holds $8.5 trillion in US government bonds. This month, for the first time in 20 years, a bond from a private company, MICROSOFT, yielded less than a Treasury bond with the same maturity. In other words, investors considered the government bond to be less secure than the private company bond, despite the government’s ability to print more money to meet its obligations (if the debt ceiling allows it!).
The situation in Mexico remains highly complex, with a notable dichotomy between politics and economics. In general, companies are doing well, except in the construction industry, where the only thing selling is mid- and low-end homes. Few people want to buy expensive property. Industrial warehouses, which were doing very well, have come to a standstill due to the uncertainty surrounding the future of the USMCA, which expires next May, and it is unclear how much the Americans will want to renegotiate.
On the other hand, corruption in the government remains rampant, with the cases of Adán Augusto López and Andy López Obrador making the front pages of newspapers. It is a very discouraging situation, with two senior Navy officials accused of being part of the huachicol (fuel theft) ring, when that ministry had the image of being the only reliable one in the government and the one the executive turned to for operations where transparency and loyalty were impeccable.
The impact of tariffs on Mexican exports remains unclear. Trump’s kind words about Claudia Sheinbaum do not seem to lead to preferential treatment for Mexico, with the threat of military intervention to combat the cartels for fentanyl trafficking still pending. I am very concerned that if organized crime loses its fentanyl income, it will divert its people to other criminal activities in Mexico that will make insecurity even worse and affect the lives of Mexicans. Americans want to stop drug trafficking and do not care about the collateral damage this causes in Mexico.
As I do every month, I divide the positive and negative news from Mexico
Positive.
President Sheinbaum announced an investment of $8 billion in electrical infrastructure that will expand the network by 12.6%.
Money remittances grew significantly, mainly due to migrants’ fear of deportation.
Reserves reached an all-time high of $246.882 billion.
Government revenues increased by 6.5% despite a 15.8% decline in oil revenues.
Volaris reached 150 aircraft in its fleet.
Carlos Slim has made a strong entry into the oil industry in Mexico.
Inflation remains around 3.7%, although the underlying rate is 4%.
The IMF raises its 2025 GDP growth forecast from 0.2% to 1%.
Savings in Mexico reach 31% of GDP, compared to 18.45% in the United States.
Mexico finds appetite for its debt in Europe, placing €5 billion.
The Secretary of Finance forecasts that PEMEX’s debt will decrease from $98 billion to $60 billion by mid-next year.
Rating agencies are considering an improvement in PEMEX’s credit outlook, as its cost of capital has fallen by 2%.
Negatives.
The trade deficit increased by $2 billion despite a rise in exports.
The granting of an Amparo injunction to Lopez Obrador’s children.
Brunswick’s withdrawal from Mexico after 50 years of manufacturing in the country.
PEMEX takes $1 of every 2 pesos invested by the government in priority projects.
New taxes on soft drinks, etc.
The manufacturing sector has fallen 1.2% in the first half of the year.
The deterioration of relations with China and threats to Mexico have arisen due to the announcement of new tariffs, including a 50% tax on automobiles.
Sovereign debt reached $237.5 billion and will grow by another $33.5 billion this year.
The IGAI estimates that next year, GDP may fall by 0.6%.
Mexican debt held by foreigners fell to its lowest level in a decade.
Insecurity remains very high, with more than 60% of people nationwide saying they are afraid to go out at night.
The U.S. government canceled the agreement between Delta and Aeromexico for violations of air cargo agreements between the two countries.
In Israel, the situation in Gaza reached a turning point with Trump’s peace proposal, endorsed by most Arab countries, to end the war. The relevant points are the return of the 48 hostages, some alive and others dead, and the removal of Hamas from the government of the Strip. Israel has spent 90 billion shekels on the war and only 1 billion on media, definitely losing the media war and appearing as the villain when in reality it is the victim of a treacherous offensive that provoked an unnecessary war.
The central government decided not to adjust interest rates due to the deficit caused by the war in Gaza and the call-up of an additional 60,000 reservists. The good news is that in the first nine months of the year, Israeli technology companies raised $11.9 billion from investors. In the last 12 months, inflation fell slightly to 2.9%, still above the central bank’s target. The forecast is that it will end the year at 3% and then drop to 2.2% in 2026. The central bank expects GDP to grow 2.5% this year and 4.6% in 2026, with better numbers if peace is achieved in Gaza.
In other news from around the world, China is experiencing a challenging period, with production and consumption growth below 5% and a GDP forecast of between 4.5% and 5%, which is considered poor for the country. They have just announced subsidies of $70 billion for manufacturing, and their debt is expected to rise from 18% to 28% of GDP over the next 18 months. China’s steel exports to Latin America are creating a severe crisis and prompting local producers to ask their governments to impose tariffs, following the model set by the Trump administration. It is interesting that, despite all their internal problems, the Chinese are investing more than $1 billion to buy EFTA, one of Chile’s strongest electricity companies.
India, the world’s most populous country, had a trade deficit of $27 billion, and its transition from an international service provider to a goods producer has not yielded the positive results it expected. Saudi Arabia announced that its deficit will rise from 2.3% of GDP to 5.3% due to the sharp drop in oil prices.
Argentina, which was performing very well under Milei, reported inflation of 33.6% and maintained its interest rates at 59%, resulting in unemployment rising from 5.9% to 7.5%. The country faces a serious problem due to the government’s loss in regional elections, primarily resulting from the corruption scandal involving the president’s sister. On the other hand, the United States is supporting Milei by offering to buy $20 billion of Argentine debt to alleviate its economic crisis.
Finally, Brazil established a program of subsidies and credit support for companies affected by U.S. tariffs, aiming to halt the decline in GDP, which had fallen for the third consecutive month. The country also began to establish free trade agreements with European countries and some Asian nations.
Financial markets had a good month in September, with US stock markets reaching historic highs and those in the rest of the world still below their highs, but having a better month than their US counterparts, bonds rising 1% between their coupon and price increase, gold reaching its highest point in history at $3,896.50/oz, and foreign currencies gaining strength against the dollar, especially the peso, which has risen 14% so far this year. It is essential to note that when U.S. dollar interest rates decline, the currency becomes less attractive for investment, resulting in fewer buyers, which in turn causes the parity to fall. Bitcoin experienced significant fluctuations between $122,000 and $107,000, ultimately closing the month at around $115,000.
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