Monday, March 28, 2005

Abajo Mexico Camino

Paul Krugman, Dean Baker, and Brad DeLong, might want to rethink their point VI in the Social Security paper they're circulating, which claims that it is unlikely that United States' citizens will be able find sufficient investment opportunities abroad (as the British did over a century ago) to maintain the long run historic rate of return on investment.

In light of developments sur de la frontera which point to a country of over 100 million highly industrious people readying themselves for the 21st century economy:

Heartened by sweeping reforms in the country's judicial and foreign-investment systems over the past decade or so and heightened interest from investors, many Americans have watched the values of their south-of-the-border properties head north in surprisingly short order.

"The market has just become prolific in Mexico, with about 1.5 million Americans now owning property there," says Mitch Creekmore, vice president of the Stewart Title Guaranty de Mexico office in Houston and one of America's foremost experts on Mexican real-estate acquisition.

"Values in some markets have tripled in five years — far exceeding the rates of return you find in the United States."

....several U.S. institutions are gearing up their own lending programs to cater to the growing niche. A handful of banks, including Marshall & Ilsley, Sonada Financial Group and Collateral Mortgage, now provide mortgages to American entities buying Mexican real estate.

....Previously, American banks were reluctant to lend money for Mexican real estate because of unreliable foreclosure laws and the potential for corruption, says Jeronimo Gomez del Campo, partner in the Phoenix office of Bryan Cave, who specializes in the representation of U.S. companies and financial institutions investing in Mexico.

"But it is next to impossible now for corrupt officials or other individuals to mess with the chain of title or encumber properties for no legitimate reason," says Gomez del Campo. "Under NAFTA and other reforms, the Mexican government can't discriminate against foreigners in terms of property ownership."

....Property taxes are only about a half of 1 percent in the Los Cabos region of Baja California, says Ted Downward, co-owner of Century 21 Paradise in Los Cabos. The cost of living in the area, which encompasses Cabos San Lucas and San Jose del Cabo, is also low and seems to be dropping as Mexican merchants adjust their prices to compete with new-to-the-market American retailers such as Costco, he said.

Downward recalls when he first came to Los Cabos 21 years ago.

"There were just a handful of gringos who lived here," he said. "Now, there are tens of thousands."

And, it isn't just Norteamericanos. Many Mexican citizens working in the United States are taking portions of their earnings here, and investing in their home country. Many with the intention of one day returning to Mexico and operating their own restaurants, hotels, golf courses, farms and factories to meet the needs of aging Americans, Europeans, and Japanese.

The learned professors, perhaps need to take into account what the rest of the world is actually doing in the face of the brave new world we are about to enter, rather than fall back on academic boilerplate:

...the assumption that America could cope with slowing
economic growth and maintain domestic asset returns at high
historical average levels by diverting capital overseas rests, to
some degree, on the belief that the United States is a small open
economy: that U.S. investments abroad induced by a domestic
growth slowdown will raise the rate of return here while not
lowering rates of return there. But the U.S. is not a small open
economy. It is a large open economy. Blanchard, Giavazzi, and
Sa’s (2005) estimates are that U.S. financial assets are currently
half of the world total. This share will fall over time. But fast
enough to make the assumption that the U.S. is a small open
economy a reasonable approximation?

Not to mention that the above seems to deny that competition will equalize global returns, without any real explanation (we discount, as irrelevant, the 'small open economy, not' point) why.

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