A collapse in the Egyptian pound is underway. The official pegged price says one US dollar buys 8.78 Egyptian pounds. The street price says one dollar buys 13 Egyptian pounds.
Please consider Dollar Crisis Casts Shadow on Auto Sales in Egypt.
The automotive market in Egypt has been experiencing an unprecedented wave of price hikes due to a dollar crisis amid anticipation by analysts that the Egyptian pound would be further devaluated by the Central Bank.
Fluctuations in the exchange rate have cast shadow on the import sector, threatening a potential stagnation in the car market, as an acute hard currency shortage hampers trade in the import-dependent country.
“We closed our store over the past five days,” said Kareem Hussein, sales manager at Stars Auto store in downtown Cairo.
“The increase of the dollar’s exchange rate against the local currency caused stagnation in the sales and made the clients reluctant to conclude any deal,” he added.
The Egyptian pound weakened to a shocking rate of 13 against the U.S. dollar on the black market on Tuesday, at least 42 percent weaker than the Central Bank’s official rate of 8.78.
On Friday, the pound was trading at around 11 per dollar on the black market after a security crackdown had been launched on many exchange offices on Wednesday and Thursday.
The official banking system has been suffering from lack of “dollar resources” since the 2011 popular uprising, which led to the reluctance of foreign tourists and investments, the two main sources of hard currency.
Auto sales have declined by nearly 50 percent in July due to the unprecedented price hikes, Hussein said. Some 10 percent of the clients have withdrawn their deposits last week, he pointed out. “We live in a nightmare due to the dollar crisis,” he lamented.
The devaluation of pound has caused tremendous losses in the car sector and forced the merchants to increase the prices by 32 percent and made them looked like “exploiters.”
Not Enough Dollars
We see the same story once again: “There are not enough dollars to go around.” Mercy! Get out the printing presses.
Mike “Mish” Shedlock
So when we give them 3 billion in aid will that be at the official exchange rate or black market rate.
We give them crisp dollar bills. The IMF is busy preparing another loan.
Actually foreign aid does NOT involve giving money. Foreign aid money never leaves the Donor Country. Egypt gets food, medicine, pesticides, military weapons etc. Donor Country companies get the money. Foreign Aid money is domestic “stimulus” for the USA and other foreign aid “donors.”
USA politicians are not that dumb when it comes to crony capitalism. All foreign aid money goes to favored companies. Bank loans and IMF loans are another matter, though they are often erroneously called foreign aid; as in the case of Ukraine, where the national assets to be sold are so bad that they have attracted zero bids (See Bloomberg story link; another economic Greece, which is why Russia does not want it, despite neo-Con war propaganda to the contrary)
Link [http://www.bloomberg.com/news/articles/2016-07-26/skepticism-rife-as-ukraine-shifts-goalposts-on-17-5-billion-aid]
“A week after his appointment, Ukraine’s new finance minister targeted May for a resumption of inflows from the nation’s $17.5 billion bailout. The date has been pushed back repeatedly. Now it’s August, and economists say that could yet prove optimistic..Ukraine has been relying on foreign aid and reforms of industries from energy to banking to heal its economy. IMF disbursements have become bogged down as the government delays overhauls. The state-asset sale program, in the works since 2014, is yet to complete a single transaction…
So how do you explain pallets of money shipped to Iraq. If leaders of foreign countries steal millions in Swiss bank accounts cash has to change hands. I agree aid is in services but cash bribes slide in as well.
Iraq’s pallets of cash are simple to explain: Oil. In Afghanistan: Opium poppies. Africa: Oil, copper, diamonds, gold. Lots of money to be made in industry and free trade. Bribes and foreign aid are relatively small sums in comparison.
ISIS, a non-country with a huge budget and no central bank or IMF loans, seems to have relied on the oil business; plus old-fashioned war tactics (e.g. plunder, ransoms) and some true foreign aid to pay its mercenary armies. Russia was anti-free trade when it came to the ISIS-Turkey oil free trade, and got its plane shot down by Turkey and pilot killed for opposing that bit of free trade. Most likely Trump would agree with Putin in opposing that bit of free trade. Not sure if ISIS’s oil trade predated Hillary as Sec. of State; but anyway she was too busy destabilizing Libya and arming mercenaries (“moderate rebels”). Maybe back then ISIS and “moderate rebels” were one and the same, so that bit of free oil trade would have been okay. ISIS had a good business plan: no bank debt to worry about, just seize the assets and you’re in business.
Egypt imports much of its food.
Expect riots if food prices skyrocket…
Free government bread produces an endless supply of Muslims for export to Europe. Note that tourists and foreign investment are the only supply of dollars to Egypt. Muslims produce nothing of value for export unless you need a camel saddle. an Arabian horse, or a tank of gas.
Egypt used to export petroleum but now it is an importer.
The “Arab Spring” was direct result of the dramatic rise in food prices. The slow but sure rise via inflation only delays another explosion of hungry peasants. I honestly think the West should help them keep the priced of food down– and in return, take in no more “economic refugees”
What happened – what is the series of steps – that caused the currency to lose value, in what is made to appear the beginnings of out of control inflation? Specifically, from a textbook perspective, what took them from stable to the apparent beginnings of hyperinflation?
Red herrings such as non gold backing are NOT the cause. Warehouse receipts or sea shells are other forms of backing so, by inference, the lack of either would be responsible for hyperinflation if the lack of gold backing were a possible culprit. Likewise, the Fed, BOJ, and ECB all have runaway printing presses and none have as yet caused hyperinflation.
The perception of a loss of value for the entire country in what causes their currency to become worthless. They, essentially, have nothing to offer and nothing to sell. Their currency represents nothing and is backed by nothing. If their currency had value it would be backed by the discounted future value of the nation as a whole. Having gold or mud piles in vaults as backing would make no difference. Too much currency backed by nothing of value causes hyperinflation. Any fix requires a change in the perception of the value of the nation.
What steps did Egypt go through to get them to this point, chronologically, if possible. With cause and effect, not just they did bad things and nobody likes them anymore.
In fact, an extremely credible argument could be made that a runaway printing press is the root cause of deflation in some cases. Thus, the Fed, BOJ, and ECB and their respective QE programs and rate management programs are causing the very deflation they wish to cure using a runaway printing press. Going off on a tangent, this implies
1) curing deflation is not the reason for their programs. Rather support for a specific constituency (such as politicians or the 1% or both) is the actual reason
2) They are extremely incompetent and educated far beyond their intelligence.
Their currency is backed by importing arms.
I cannot believe the following chart given tourism fell through… anyone explain it to me?
http://cdn.tradingeconomics.com/charts/egypt-gdp@2x.png?s=egyptgdp&v=201607171914n
nominal value vs real value? Run the printing press for a year with-hyperinflation in tow and GDP rises 100000%. Or the same people who think up US charts did the Egyptian ones?
Something like that… just posted links ( delayed) which give inflation charts. Egypt exhange is still state managed with with capital controls, gives them a good margin to rig the show.
Link by link http://www.zerohedge.com/news/2016-05-24/egypt’s-economy-more-trouble-ahead
http://www.bloomberg.com/news/articles/2016-04-19/egypt-s-tryst-with-black-market-shows-peril-of-currency-controls
http://www.reuters.com/article/egypt-pound-businesssentiment-idUSL8N13I3UD20151123
So wordpress allowed all the links individually but delayed three in same reply.
Also an older zh post has some good charts
http://www.zerohedge.com/news/2016-05-24/egypt’s-economy-more-trouble-ahead
I don’t think the government can control the black market, so I guess 13 is still the rate in places. More outdated articles…
http://www.bloomberg.com/news/articles/2016-04-19/egypt-s-tryst-with-black-market-shows-peril-of-currency-controls
http://www.reuters.com/article/egypt-pound-businesssentiment-idUSL8N13I3UD20151123
If you really want to understand the deflation happening in Egypt and many other places (US included), read the articles by Jeffrey Snider. Especially the ones about the eurodollar. Not an easy read but satisfying:
http://www.alhambrapartners.com/author/jsnider/
tldr — QE does NOTHING because the money sits in bank balance sheets. The REAL money supply as far as everyone else is concerned is the money market — eurodollar short term lending, commercial paper, etc…
Give the individual a continuing gift of money over and above what they make in work for pay, let businesses discover their best price and then reduce prices at retail sale by say 30-40% and gift back the enterprises participating in such a policy every cent of their discounts to consumers and….voila! a stably prosperous economy that no idiot financial or economic assessment agency can hide.
You’re all nascent advocates of Wisdomics/Gracenomics.
wisdomicsblog.com
Looks like the CIA instigated Arab Spring failed.
Or maybe not……
If we can make the rest of the world poor we can perpetuate more global control.
And in comparison we look like a nation of wealthy aristocrats even though there are 45 million on food stamps.
Brilliant!
Fed toilet users:
Please flush twice… it’s a long way to Egypt.
So Egyptian cotton is on sale again. “Long underwear” would appear.
I don’t really see the significance as it’s not like the US is using nor will ever use Egypt as a military base.
The US dollar has enormous pricing power against many currencies right now…Egyptian “uncertainty” means nothing next to the same said thing happening in Brazil lr worse yet the Caribbean.
That would be the entire Caribbean I might add.
32% auto inflation in Egypt is ridiculous. Bankers should stop printing inflation already. Have bankers learned nothing from the food riots across the Mid East, caused by bankers printing food inflation.
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