Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Egypt Crisis Financial Bonanza for Wall Street Investors and Speculators

Politics / Middle East Feb 06, 2011 - 07:37 AM GMT

By: Michel_Chossudovsky

Politics

Best Financial Markets Analysis ArticleMubarak's  decision not to resign was taken in close consultation with Washington.  The US administration including US intelligence had carefully identified the possible scenarios. If Washington had instructed Mubarak to step down, he would have obeyed forthright.

His decision not to resign indelibly serves US interests. It creates a situation of social chaos and political inertia, which in turn generates a vacuum in decision making at the government level.


The continued social crisis has also resulted in a massive outflow of  money capital. More concretely, what this signifies is that Egypt's official foreign exchange reserves are being confiscated by major financial institutions. 

The ransacking of the country's money wealth is an integral part of  the macroeconomic agenda. The newly formed government on instructions from Washington has not taken concrete steps to curtail the massive outward flow of money capital. A prolonged social crisis means that large amounts of money will be appropriated.  

According to official sources, Egypt's Central Bank had (prior to the protest movement) 36 billion dollars in foreign exchange reserves as well as an additional $21 billion of  deposits  with international banking institutions which are said to to constitute its so-called "unofficial reserves." (Reuters, 30 January, 2011).

Egypt's external debt, which has increased by more than fifty percent in the last five years is of the order 34.1 billion (2009). What this means is that these Central Bank reserves are de facto based on borrowed money.

In early 2010, there was a large influx of hot money deposits into Egyptian government debt instruments.

Foreign exchange flows into the country and is exchanged for Egyptian pounds (EgP),  which are then used by institutional investors and speculators to purchase high yielding government bonds and treasury bills (denominated in Egyptian pounds) with short term interest rates of the order 10 percent.

The interest rate on long term government bonds shot up to 7.2 percent at the outset of the protest movement. (Egypt Banks to Open Amid Concern Deposit-Run May Weaken Pound, Lift Yields - Bloomberg, January 2, 2011)

At the onset of the crisis, international investors owned about $25bn of Egyptian T-bills and bonds, almost a fifth of the total T-bill market and about 40 per cent of the domestic bond market. Foreign investors also accounted for about 17 per cent of the stock market’s turnover, and held about $5bn-$6bn of Egyptian shares. (Ibid)

Under its agreement with the IMF, Egypt is not allowed to implement foreign exchange controls. These hot money deposits are now leaving the country in anticipation of a devaluation of the Egyptian pound. In the days preceding Mubarak's speech, capital flight was running at several hundred million dollars a day.

In a bitter irony, Egypt deposits 21 billion with the commercial banks as "unofficial reserves" on the one hand, while the commercial banks acquire $25bn worth of EgP debt, with a yield of the order of 10 percent. What this suggests is that Egypt is financing its own indebtedness.

The protest movement started on a bank holiday. While the closure of the Cairo stock market and domestic banking system had put a temporary lid on the outflow of money capital,  large amounts of capital flight instrumented by major financial institutions had already occurred in the days leading up to the protest movement. 

Egypt's banking system reopened on February 5, leading to a renewed process of capital flight resulting in the depletion of central bank reserves and a corresponding increase in Egypt's foreign debt.

A devaluation of at least 20 percent is contemplated. According to  UBS'  emerging markets currency division, "the pound could “easily” drop by a further 50 per cent or so to E£9 per US dollar". FT.com / Currencies - Banks weigh risk of capital flight, February 1, 2010)

A devaluation of more than ten percent would wreck social havock: Domestic prices of food are dollarized. If there is a devaluation of the Egyptian pound, this would inevitably trigger a renewed increase in the prices of essential food staples, leading to a further process of impoverishment.

A scenario of currency devaluation, rising external debt coupled with a renewed  package of IMF sponsored austerity measures would inevitably lead to an accentuation of the social crisis and a new wave of protests.

The newly appointed Finance Minister Samir Radwan is firmly committed to the Washington consensus, which has served to impoverish the Egyptian people.  In a contraditory statement on February 3, Radwan confirmed that "the government won’t reduce subsidies even if global prices of food and commodities rise. Public spending will be used as a tool to “achieve social justice,” he told a news conference in Cairo."  (Bloomberg, February 5, 2011)

Radwan is abiding by IMF-World Bank guidelines: no restrictions will be placed on capital flight. The Central Bank will ensure the conversion of hot money deposits into hard currency by major financial institutions. The coffers of the central will be ransacked. 

With capital flight, domestic debt is transformed into foreign debt, putting the country into the stranglehold of foreign creditors: 

Radwan said Egypt will honor its debt obligations and urged foreign investors to have confidence in the country. “All the bond obligations, everything will be honored on time,” Radwan said in a Feb. 4 telephone interview from Cairo. “We are not defaulting on any obligations.” (Bloomberg, February 5, 2011)

In a bitter irony, Mubarak's decision to remain as head of State with Washington's approval has served the interests of institutional investors, currency traders and speculators.

Financial dislocation, rising debt and spiralling food prices:  Before "democratic" elections are called, Egypt will have been pushed into the straightjacket of a new set of IMF condionalities.

Andrew Gavin Marshall is a Research Associate with the Centre for Research on Globalization (CRG).  He is co-editor, with Michel Chossudovsky, of the recent book, "The Global Economic Crisis: The Great Depression of the XXI Century," available to order at Globalresearch.ca.

Andrew G. Marshall is a frequent contributor to Global Research. Global Research Articles by Andrew G. Marshall

© Copyright Andrew G. Marshall , Global Research, 2011

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules