Economy & Business - January 2008 (ISSN 1741-7430)

What happens in the US, both politically (in the primary and then presidential and congressional elections) and economically, will determine how the Mexican economy performs in 2008. Our view a month ago was that the worst of the subprime mortgage crisis in the US may well be over. The US Federal Reserve Board's panicky 0.75 of a percentage point cut in rates shows that the world's top economic policymakers believe that things will get worse before they get better. Their big fear appears to be that at least one of the monocline insurers (who branched out from insuring low risk US municipal bonds to insuring complicated bonds conjured up by US investment banks) will go bust. If that happens the bonds the insurers had guaranteed will lose their top credit rating, forcing pension funds and other conservative investors to sell them and book a loss.

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