It’s the economy, stupid!

Stock market sound-byte analysts cannot be faulted. Theirs is not exactly the deepest bag of marbles.

The most quoted in broadsheets that cater to the general public rather than investors are those analysts with the catchier sound bytes and those with an analysis short and simple enough for beat reporters to both under­stand and quickly rewrite. And for general-circulation desk editors and publishers, those that sell more papers. In order to spice up both and address these concerns, a healthy dash of politics sprinkled on top of stoic business news often does the trick. It’s all market­ing. Substance surrenders to sheen. Selling general-circula­tion information is like selling laundry soap.

In divining the recent de­valuation of the peso against the dollar, it is pretty much the same kind of menial and minimal mentality applied by sound-byte stock market an­alysts and, in our highly elec­trified political milieu, back­stopped by even more menial congressmen who view the world through a politician’s eyes lit from behind by a low wattage garbanzo-sized brain.

Two leading legisla­tors, both ranking officials of the former ruling party now turned opposition, have quick­ly donned what thinking caps they had and upon analysis of the macroeconomy, global trade and the serial expansions factored into the econometric modeling between the com­plex chemistry of coefficients and components that con­struct currency values, have concluded that the devalua­tion of the peso was a direct result of cuss words.

Itching and eager to cat­alyze a premature administra­tion downfall so that an insidi­ous Plan B might be set in play and, in their view, salvage the economy from an impend­ing crash from the weight of curses and cusses, these con­gressmen have taken a leap of intelligence and blamed the current levels of the peso on invectives.

Such brilliance. Effec­tively, they’ve concluded that the peso has fallen against the dollar as a direct result of insults. Especially coming from traditional politicians who’ve carved their reputa­tions on an indoor climbing wall upon which they’ve clam­bered, eventually crowing at the summit where such mac­roeconomic declarations find credibility enough to be the stuff of headlines.

Let us quickly rappel down and plant both feet on firmer ground. Discern the macroeconomics of currency valuation by first cleansing the debate of the sound-byte anal­ysis of stockbrokers hoping for margin trades, and then, scrubbing it of a brazenly partisan and political agenda leaching from political opera­tors.

In no particular order, al­low us to analyze the true cat­alysts of currency devaluation. As we are talking about the rise of the dollar against the fall of the peso we should be analyz­ing two economies as well. In currency valuation there are always two currencies. In most cases the dollar is the bench­mark where an economy has the United States as a major trading partner.

First, consider what in­ternational currency investors have been engaged in in the last two months. Essentially, they’ve been betting on the dollar. This impacts on its rel­ative value against the peso. In a global digital world, faster than any commodity can trav­el, currencies are transported by debit and credit keys on a keyboard and land in econ­omies where they are needed and can earn the most. Note the bloodletting in most mar­kets as dollars return stateside where there is a relative surge in productivity.

Now look back at the last quarter of 2015. Since then, the US Federal Reserve has been preparing to increase in­terest rates that would push dollar values even higher. It’s been over a year and that pros­pect now looms imminent, likely and more real. In antic­ipation, bets are being placed dovetailing the funds that have been making a beeline back to the US economy.

The third factor has to do with what is going on in the US economy this very min­ute. The frenetic and adren­alin-driven presidential elec­tions tend to push domestic productivity north. More productivity not only serves as a magnet for mopping up free and loose dollars around the planet but to sustain the GDP spikes should these end up fueling the American man­ufacturing machine to sustain even more productivity. Such convergence sustains the higher dollar versus the lower peso values.

Now let us focus on the domestic economy and see where domestic money-sup­ply management affects peso values.

Policy rates fell to 3 per­cent and the reverse repur­chase facility available to banks remains low at 3.0 percent. Overnight call loans are like­wise low at 3.5 percent while deposit ceilings are 2.5 per­cent. The monetary authori­ties say that these low rates will stay thus, revealing that mon­ey supply will remain high for some time. A high-liquidity regime tends to depress peso values. As money stays in cir­culation it is unlikely to earn inside banks and vaults on an after tax basis.

Do the math. Derogatory remarks have little to do with the peso devaluation. The re­cent devaluation was the result of global and domestic eco­nomics, stupid.