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I saw a news item in a newspaper last Friday saying that Egypt is repaying $ 11 billion in foreign debts during the current year. Commenting on the news, an analysis in a quick headline added that 17% of the foreign debt is still in safe borders.
In fact, there is an analysis by the American economist George Cooper in his analysis of the causes and causes of the financial crisis that took place in the world in 2007-2008, an important part of which is an important reference by Professor Mahmoud Mohieldin, former Egyptian Minister of Investment, The current vice president of the World Bank, noting that the credit policies adopted by the central bank and state policies are closely related to economic growth.
In an important part of the study, he pointed out that there is an unfortunate reality in our economic environment that there is no analysis of the balance sheets, neither the profit and loss account nor (most) macroeconomic variables will alert us to unsustainable credit bubbles. The solution can only come through Recognizing that if “credit creation” is sustainable in the face of “economic growth,” this growth is likely to be supported by “credit creation” and will not be sustainable in credit expansion. Unsustainable credit expansion marks can be identified directly by monitoring ( Lending activity) !! Or indirectly through (inflation behavior of prices !!), especially «asset prices» !!.
Comparing growth in “asset prices and debt” with economic growth generally helps to signal future problems.
Similarly, one can see the “debt balance” as part of the size of the economy and the debt service burden as part of the income required to service the existing debt.
Accurate monitoring of the credit conditions of the private sector is also important, if the lenders (lend freely) at low interest rates !! Economic activity is likely to be strong.
But the “debt service burden” is also likely to be weak, and it is necessary to take into account what happens to the “debt service burden” and the desire to continue borrowing! In case the lenders suddenly tighten their borrowing standards !! Or the change in the price of the loan, for example in what happens to us in Egypt most of the time, causing financial confusion in the private institutions, which rely on loans mainly in the financing of the supply of raw materials and spare parts, and the price of energy changes, and other tax liabilities and insurance «unstable laws Fair »until the moment that I write this article.
In the end it is useful to look at the split of investors’ profits generated by fixed assets !!
If “asset price inflation” is unusually high, compared to the income generated by these assets, the assets may have given “value greater than their real value”. In these situations it is also necessary to take into account what will happen to “income levels” in case of “credit crunch” !!.
This point is particularly important in the stock markets, where the creation of credit flows directly to both sides of «profits and prices» in the proportion of profits of prices used and not announced !!.
Given the mechanism by which most macroeconomic data can be distorted by these financial bubbles, credit creation is not just an important economic variable, but it is the important macroeconomic variable.
So, returning to the news item published last Friday in a newspaper, the editor-in-chief pointed out that the source is an official in the Ministry of Finance and did not mention (the name of his sovereignty), and I would like to browse through this column from a known source.