Egypt Running out of Cash and Gas?
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  • Kenny

    Arab countries can’t grow economically in this modern world. Neither their people nor their religion is up to the task.

    Loans to Egypt will never be repaid — at best they’ll just be rolled over by the next handout.

  • Eurydice

    In a way, asking for $4.8B of IMF assistance without doing anything about the subsidy is “approach(ing) the U.S. or other Western countries for official assistance on the gas subsidy.” But wasn’t this a sticking point in the IMF negotiations last year? And now that they’ve requested a higher amount of aid, it doesn’t seem likely the IMF would back down from demanding restructuring.

    Just out of curiosity – is there a reason you included this phrase, “No doubt there is a lot of Egyptian speculation about how “the Jews” or other dark forces are withholding loans as part of a dark plot…”? It doesn’t seem to have anything to do with the rest of the article.

  • Walter Sobchak

    Doomed.

    Spengler has been all over this.

  • The suggested policy shift from general subsidies to targeted subsidies would do almost zero good (either in terms of either import capability or real GNP) in a country where 99% of the population cannot afford fuel.

  • Rand Millar

    It seems reasonable that the fine intellect which is diligent in identifying manifold manifestations of “blue model” shipwreck should also identify parallel dynamics in Israel’s neighborhood. The Egyptian economy of today was put into place early in Gamal Abdel Nasser’s time, with his Arab Socialist Union to supervise its political and practical development. The ASU’s statist ideology derived from Fabian socialism was the same followed in Nehru’s India and by the political powers-that-be in many other starry-eyed newly independent countries some two generations ago. Perhaps the most consequential feature of the USA-brokered peace agreements between Egypt and Israel in 1979 was the beginning of the annual American foreign-aid gravy train visiting Egypt. These billions provided much of the wherewithal for the structure of subsidies to keep quiet Egypt’s enormous underclass and to allow these feckless folk to burgeon further. Had the agreements not occurred, the Egyptians would have faced the day of reckoning for their blue model economy decades ago. (The Indian one began to go in 1994.)

    As things appear at present, the Chinese have about run out of both the means and the will to continue buying American debt. The Americans will in due course find their continued funding of the Egyptian subsidy regime unfeasible. When “Mustafa” and his innumerable brothers and cousins find that the price of bread, cooking oil, and gasoline have apparently gone stratospheric, they will be easy prey for demagoguery from various quarters. Israel and “the Jews” will be prime targets for the great welling up of the social hydrochloric acid of hate, with the shrinking Coptic community (embodying talent and enterprise in Egypt far in excess of their demographic weight) a secondary target not too far behind. How can this not come to have a major effect on Egyptian foreign policy?

    In the international collapse of the blue model, it may be that Israel finds it necessary to base its security much less on having the USA at its back and much more on being able to balance mutually antagonistic combinations of Near- and Middle-Eastern neighbors. Washington and New York politics will be lose their centrality in the calculations of Jerusalem, and the ability to gauge balances closer to home as well as Richelieu or Bismarck might have, will be key.

  • Tom Gates

    To Rand Millar: Bravissimo!

  • WigWag

    “As things appear at present, the Chinese have about run out of both the means and the will to continue buying American debt.” (Rand Miller #5)

    Really?

    I wonder what you think the Chinese are going to do with all those dollars they accumulate selling stuff to the United States. I guess they could use the dollars as matress stuffing or convert them into shekels or Euros. If neither of those options are appealing they could use them to buy more stuff from the United States or invest in American companies or even corporate securities. Other than that exactly what choice do they have other than investing in U.S. Government debt?

  • Mick The Reactionary

    @Rand Millar:

    “These billions (ed: The USA aid to Egypt) provided much of the wherewithal for the structure of subsidies to keep quiet Egypt’s enormous underclass ”

    Your assertion is mathematically impossible. US aid to Egypt averages about $2B/year.

    For population of 80M+, it is $25/capita. Egypt GDP/capita is about $7000 (www.cia.gov/library/publications/the-world-factbook/geos/eg.html).
    Not much but $25/person cannot be important one way or another for the Egyptian society.

  • Mick The Reactionary

    @WigWag:

    ““As things appear at present, the Chinese have about run out of both the means and the will to continue buying American debt.” (Rand Miller #5)

    Really?

    I wonder what you think the Chinese are going to do with all those dollars they accumulate selling stuff to the United States. I guess they could use the dollars as matress stuffing or convert them into shekels or Euros. If neither of those options are appealing they could use them to buy more stuff from the United States or invest in American companies or even corporate securities. Other than that exactly what choice do they have other than investing in U.S. Government debt?”

    Didn’t you just answer your own question?

    Yes, the alternative to buying US Gov debt is buying US hard assets and corporate financial instruments. As you pointed out.

    It is not binary proposition. It will take 10-20% reduction in chinese purchases to seriously disturb US Gov debt market.

  • Rand Millar

    Per the expectation, above, that mainland China has no choice but to continue to buy U.S. government paper, I note that the previous sentence supplied part of the answer: U.S. goods, services, and the enterprises that produce them are on the whole less risky ways to recycle the dollars from sales in the USA. China is spending in a very major way to buy and or develop sources of supply around the world in energy and other mineral wealth so as to assure the basis for its industry and economy. Trying to replace the U.S. Dollar with a basket of currencies may not be feasible, but the mainland China authorities appear to be starting the process of making the RMB as a currency suitable for international trade settlement. That cannot come overnight, and involves changes in mentality that the mainland China authorities begrudge. But they will do it before they add much further to their risk of holding untold amounts of rapidly depreciating U.S. government paper. In early 2009 Secretary Clinton made her first trip abroad, to China, primarily to assure the authorities there that buying American debt was still safe. That she felt compelled to do so back then should say something. What since have those same authorities learned to ease their minds?

  • Rand Millar

    Concerning Mick the Reactionary’s valid simple arithmetic, above, I observe that (1) indeed often enough the importance of the U.S. contribution in many matters abroad is overstated, and (2) frequently the U.S. aid commitment such as it may be becomes the indispensable basis for commitments by other entities which greatly enhance the per-capita effect.

  • WigWag

    ” But they will do it before they add much further to their risk of holding untold amounts of rapidly depreciating U.S. government paper.” (Rand Millar #10)

    Really?

    Is “U.S. government paper” rapidly depreciating? Against exactly which currencies is the dollar depreciating against? The Euro? The Yen? The Zloty? The Loonie?

    Sure, the dollar continuously fluctuates against virtually every currency. Measured over a period of years the dollar is up somewhat versus some currencies (the Euro for example) and is down somewhat versus others (the Yen for example). But is there any evidence at all to support Rand Millar’s assertion that the dollar or “U.S. government paper” is rapidly depreciating.

    It seems to me that the evidence points in the opposite direction; demand for the dollar and for the debt issuance of the American Government is stronger than ever. Even compared to gold the dollar has been appreciating recently. In fact, gold is down about 13 percent from it’s 52 week high.

    Of course the Chinese could convert their dollars into Euros; do you think they want to do that? What about Yen; do you think the market for Yen is large enough to absorb Chinese surpluses? Do you think the Chinese are enthusiastic about strengthening the currency of their main Asian competitor with whom they are currently in an escalating war of words about disputed islands? What about the Canadian Dollar, the Australian Dollar, the British Pound, the Swiss Franc, the Israeli Shekel or the Polish Zloty? Which of those currencies trade in a large or robust enough market to absorb Chinese surpluses? Somehow I have a sneaking suspicion that the Saudi Riyal, the Iranian Rial and the Egyptian Pound don’t sound to attractive to the Chinese either.

    Of course the Chinese could aspire to make their own currency a reserve currency but to do that they would have to let it float and be freely exchangeable against all other world currencies. How much do you think, Rand Millar, the Renmini would appreciate if the Chinese did that and what do you think it would mean for an already weakening Chinese economy?

    I understand how infuriating it is for the right wing set see the markets that they revere make fools of them. They worship a cruel God who isn’t in the least bit hesitant to make them look foolish and even delusional.

    It’s hard not to feel sympathy for these poor, afflicted right wing types. They are just so sure that massive government debt and monetary expansion must surely lead to ruin. Yet despite their dire predictions, U.S. Interest rates are at historic lows. Despite the deficits and the fact that U.S. Government bonds are yielding next to nothing, the Chinese are still falling all over themselves to buy Treasuries; in fact so is everyone else which is the major reason yields are so low across the yield curve. The markets are announcing loudly and clearly to our right wing friends that they don’t know what they are talking about.

    Superimpose on this the fact that despite the fact that the Federal debt has escalated rapidly in recent years but yet the cost to the Government of servicing that debt is approaching all time lows.

    Why? Because interest rates are so low.

    Of course the last refuge of the right wing nudniks (look it up) is the claim that disaster is looming and we just don’t see it yet. Of course this is precisely the claim they’ve been making since the days when Franklin Roosevelt started to use the principles of John Maynard Keynes to fix capitalism. Despite the cry of the right wing chicken littles that the sky would surely fall any moment now Roosevelt’s policies morphed into what Professor Mead calls the “blue model.”

    That model has made the U.S. economy the richest in human history.

    Poor right wingers, your God, the Market, really is a vengeful God. No wonder you’re all so sour so much of the time.

  • Kris

    “Egypt Running out of Cash and Gas?” Well then, the obvious solution is rationing. That’ll work! And it will have the fortuitous side-effect of strengthening the power of the pious.

    [email protected],

    “The LORD is slow to anger, abounding in love and forgiving sin and rebellion. Yet he does not leave the guilty unpunished; he punishes the children for the sin of the fathers to the third and fourth generation.”

    So spake Kipling! 🙂

  • Mick The Reactionary

    @WigWuk:

    “the evidence points in the opposite direction; demand for the dollar and for the debt issuance of the American Government is stronger than ever. ”

    You have evidence? Then prove your assertion.

    Stating that demand for US debt is stronger than ever is a testable assertion.

    Hot air is not a proof.

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