When the ancient Aztecs looked over a lake, they saw a vision of a eagle with a snake in it's mouth. They believed this to be a sign of prosperity, so they built a city over the lake. Now, hundreds of years later, the foundations they built are starting to dissolve. This combined with the amount being pumped, has really affected the city.
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Mexico City was built on the marshy islands of Lake Texcoco by the Aztecs in 1325. After the Aztecs were conquered in 1521 by Hernan Cortes, the Spanish conquerors started to drain the Lake, and this has happened for the last 500 years. Right now most of the Mexico City valley is dry, but the continuous depletion of water tables has contributed to the sinking of the city.
Mexico (City) is actually sinking a couple of inches a year, due to water table depletion. The country of Mexico is not sinking at all (unless you count the sea rising due to global warming).
It doesn't sink by 10 inches (25.4 cm) a year. There are some areas where the city sinks to a maximum of 2 inches (5.08 cm) per year, though. This happens because Mexico City has been built over the dry bed of lake Texcoco, and due to the large population of Mexico City, all natural aquifers are being over-exploited, resulting on the sinking of such floor bed.
Some areas sink at a rate of a dozen inches per year. This however, does not mean that the whole city is sinking.