Just because the US is having so much success convincing the world its debt is money good (but don't anyone dare count the $6+ trillion in GSE debt to the total US debt), the good old US of A has now decided to backstop the debt of... Egypt. Bloomberg reports: "Egypt plans to raise $1 billion by selling Eurobonds this year to diversify borrowing and finance a widening budget deficit after its economy was rocked by the worst political crisis in 30 years. The five-year bonds will be backed by a U.S. “sovereign guarantee,” Finance Minister Samir Radwan said by telephone from Cairo today...President Barack Obama promised last week $2 billion in loan guarantees and debt forgiveness." And when it comes to Uncle Sam giving his assurances to the developing world, size does not matter: "The size is not significant but the backing from the U.S. will help raise the money at a relatively inexpensive cost." Uh, should Congress perhaps have something to say about the fact that America is now somehow the guarantor of recently revolutionary African countries? Because if, heaven forbid, should the extremely stable and economically viable, but otherwise revolutionary Egyptian country suffer default and bondholders demand to be made whole, guess out of whose pocket the deficiency claims will have to be funded...
Egypt’s budget gap may widen to the highest level in more than a decade in 2012 after a popular revolt ended the three- decade rule of President Hosni Mubarak, according to the Ministry of Finance. The turmoil prompted tourists to flee, lowered the country’s credit ratings and raised borrowing costs.
The yield on Egypt’s 5.75 percent dollar bond due April 2020 rose 2 basis points, or 0.02 percentage point, to 5.89 percent at 2:01 p.m. in Cairo. The rate plunged 33 basis points on May 19, the day of Obama’s aid announcement. The cost of insuring the country’s debt against default climbed 7 basis points to 332 today, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Luckily, since the domestic bond ponzi in Egypt has not been set up yet and no Primary Dealers operate in the country, the only option is the global banking cartel:
The planned Eurobond sale “may satisfy short-term financing needs but the American backing limits the ability of Egypt as an independent entity to ask for funds in the international market in the long term,” said Moustafa Assal, head of fixed income at Beltone Financial, a Cairo-based investment bank. “At the moment the aid is welcome because Egypt has no choice but to go to the international market to get the economy back on its feet.”
But, but, can't the wonderful Japanese model (which by the way no longer works) of excess savings reinvested be transplanted to Egypt?
In the meantime, the US is merely backstopping paper by another government, which will soon be very much insolvent, and probably also need an ECB bail out for good measure. Because, you know, M.A.D...
The North African country had $35 billion in external debt at the end of 2010, according to data on the central bank’s website, making up 14.7 percent of gross domestic product. The government depends on the sale of treasury bills to finance the deficit, which may reach 11 percent of GDP in the fiscal year ending June 2012, according to finance ministry data.
The ministry has struggled to raise its targeted amounts at weekly auctions of t-bills since the uprising as yields soared.
Yesterday it raised 2.825 billion pounds ($474 million) of the 5.5 billion pounds sought by selling three-month and nine-month notes. The average yield on the 252-day notes climbed to 12.869 percent, the highest since November 2008.
Lastly, all of this may be moot. As we observed last week, May 27 may be the day when the second Egyptian revolution hits. And confirming this, below is a copy of a poster put up on Tahrir square highlighting the specific demands that already disillusioned revolutionaries are having with the current system. Note that US bond guarantees are not among the demands.