When someone speaks of economic collapse without saying what
they mean by collapse, you decide they know as much about economics as an orangutan.
This is not the first time that the editors of the New York
Times have demonstrated this level of ignorance in matters relating to
economics, but they seem to relish being seen for what they are, and so they
did it again.
They wrote: “Egypt Averts Economic Collapse, for now,” a
piece they published on November 5, 2016 in their rag. The fact that they added
“for now” to the title, says this blunder was more than an intellectual
exercise that missed the mark; it was an emotional exercise that betrayed them.
It says they did more than try to analyze the situation; they scraped the
bottom of the barrel for preconceived ideas and wishful thinking before
rattling off their dishonest point of view about Egypt .
By the time you have finished reading the first paragraph of
the editorial, you will have formulated an idea as to what they were thinking
during the past five years. Here it is: “much remains to be done to bring the
country back from the edge of economic disaster, where it has teetered since
2011, which destroyed tourism.” It says that the editors fantasized about the
collapse of the Egyptian economy for five years … not knowing how or why an
economy collapses, or what it looks like when it does.
In fact, strictly speaking, the American economy is closer
to collapse than the Egyptian ever was. That's because America 's external
debt equals 14 years the current export potential of the country, and the
future looks dim. By contrast, Egypt 's
debt equals one year the current export potential of the country, and the
future looks bright. The saving grace for America at this time is that its
external debt in foreign currency is only a trillion dollars, which equals
roughly 8 months its export potential, the rest being in American dollars. By
contrast Egypt 's
foreign debt is due entirely in foreign currency … though some creditors are
beginning to agree to other arrangements.
If and when a major holder of American debt decides it no
longer has confidence in the American dollar and begins to dump it, America will face a crisis of such dimensions it
will not begin to compare with that of Egypt . That's because America will
have no choices from which to pick a course of action; all the choices being
made by foreign countries. By contrast, a number of choices were available in
the Egyptian situation, and the Central Bank of Egypt made what it deemed was the
best for the country. However, this being economics, you can be certain that a
dozen economists would be prepared to give two dozen differing opinions.
Contrary to what other ignoramuses of the New York Times
caliber have been rattling off recently, the grants and loans in foreign
currencies and energy products that Egypt received from the Arab and
European countries, did not go toward local projects; these were paid for in
Egyptian Pounds, the local currency. Rather, the energy was used domestically,
and the cash was used to pay off short term and maturing debts owed to Qatar , some European banks, and the oil
companies operating in Egypt .
These were the choices that the Central Bank made in addition to defending the
Pound. And who is to say they were not wise choices?
We now ask: What will it be like when a credible alternative
to the dollar will gain wide acceptance, and used as reserve currency for the
world? At first, the holders will not dump their cash or dollar denominated
instruments. Instead, the major ones, such as China ,
Japan , other Asian and Gulf
countries will quietly start buying American productive assets abroad such as
mines and factories, and will buy real estate in America ; mostly residential homes
and shopping centers.
If it happens that the world will begin to view America as
turning unstable politically or financially, someone will dump at “market
price” what dollars they have left, and everyone else will try to exit the
dollar at the same time. This will start the slide down to zero, creating for
America the effect of hyperinflation like that experienced by countries such as
Germany, France, Turkey, Russia and other Third World countries in Africa and
Latin America.