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Nahanda Radio reports that the Zimbabwe government plans to re-launch the Zimbabwe dollar, but that to make it internationally acceptable, and to move away from the risks embedded in the US dollar and Rand, will back the new Zim dollar by gold.
Gideon Gono, the man who destroyed the Zim dollar by printing too much of it, said in June 2012 that his interventions that destroyed the Zim dollar
were exactly in the mould of bail out packages and quantitative easing measures currently instituted in the US and the EU…
With regards to the new Zim dollar and proposed gold standard, Gono said
The world needs to and will most certainly move to a gold standard and Zimbabwe must lead the way…The events of the 2008 global financial crisis demand a new approach to self-reliance and a stable mineral-backed currency, and to me gold has proven over the years that it is a stable and most desired precious metal.
Clearly he learnt something from the hyperinflation that he caused.
If the Zim government goes this route it will most likely be successful in relaunching the Zim dollar, as long as the public accept the currency in exchange. If they don’t, the plan will flop despite being backed by gold. Furthermore, a gold standard that is controlled by government is not guaranteed to bring stability for very long, because it is highly likely that the government will over issue paper money relative to the gold that is backing it. It’s very profitable to do this. This will again force the government to go off the gold standard at some point in the future, setting another hyperinflationary cycle in motion.
Inge Lamprecht of Moneyweb has written an article with the title: “Another rate cut? Really?” In it, she notes that the market (i.e. traders and investors) has grown more optimistic that another rate cut may be possible, while economists remain sceptical. I cheekily retweeted to say that economists are only sceptical because they have to be, the majority of them did not see more rate cuts coming and actually foresaw rate hikes this year (see here and here for two examples).
“@moneyweb: Another rate cut? Really? Market optimistic, but economists are sceptical.” Only cos majority of them didn’t see it coming.
— Chris Becker (@chrislbecker) May 17, 2013
I will here briefly note my and ETM’s view on the repo rate. I have been communicating this view to clients consistently in recent months via the ETM Morning Insight and the weekly Investor Report.
On February 18 in the Investor Report (download it here) I titled my fixed income commentary “Effects of low interest rates may pressure SARB to lower interest rates again.” In it I argued that:
As interest rates are forced artificially lower through the repo facility and printed money is flowing into SA bonds that are driving the term structure of rates lower, consumers are being pushed into spending rather than saving/investing. This is exactly what the Reserve Bank believes will stimulate economic growth. The SARB argument is that the spare capacity in the manufacturing sectors (“output gap”) must be eliminated by creating “demand” from the consumer. Lowering interest rates is an attempt to get the consumer to spend more on manufactured products, which will prompt manufacturers to increase output and employ more labour and other factors of production, which will return the economy to “full employment.”
The evidence shows that exactly the opposite is happening. As rates have been lowered in recent years, increasing amounts of investment has been allocated to the consumer related sectors. The capital for these investments have been reallocated from the capital goods sectors (mining and manufacturing) to retail.
So the question is: how does the SARB respond to the shrinking output in the manufacturing sectors going forward? Most likely is that the SARB continues to focus on the now even wider “output gap” in the mining and manufacturing sectors, and tries to stimulate consumer demand through even more rate cuts. The long-term structural dynamics now playing out in the SA economy lends us to firmly favour a flat for longer repo view, with rate cut risks still very much on the table.
I have held that view since 2010 sometime, that rates are only heading lower, not higher. This of course was not available for public viewing, but only for ETM clients. However, I dropped a hint on this blog on February 15 that the SARB may respond to rising commercial bank interest rates with more rate cuts, when I wrote that:
Banks are starting to hike interest rates despite the Reserve Bank’s 50bps rate cut in July 2012. This is the market starting to correct for the imbalances that the Reserve Bank’s interest rate distortions have caused. At 5%, the Reserve Bank’s interest rate is set too low and has caused major distortions in the economy’s capital structure. If the market continues to push interest rates higher, the economy will crash, which means the Reserve Bank may very well respond with more rate cuts to keep the phony money manipulated economic mini-boom propped up.
So this is just to say another repo rate cut by the SARB will be right in line with my and ETM’s view. It also needs to be said that another rate cut is not what I believe the SARB should do. It’s what I believe they erroneously will do based on their flawed economic models and theories. Another rate cut will fuel highly unsustainable economic balances that will result in a major interest rate, currency and economic crisis in the future.
Yesterday, minister Rob Davies (Trade and Industry) announced that the Licensing of Business Bill will be redrafted because “the current draft is too blunt.” According to Davies
the revised bill would be a “significantly improved product” from the published draft, but what would remain fundamentally unchanged with regard to the government’s determination to crack down on the illicit economy.
While Davies commits to this redrafting of what was merely put “too blunt[ly],” it is useful to note that he doesn’t reject the essence of the bill. And what is the essence?: it is to require for good and proper everyday deeds (of trade) to have prior government approval, absent which such deeds would be illicit.
Davies wants it all recorded:
The most important thing is for municipalities when they register people to put this on a national database so we can see who is trading where.
See that street vendor? See that man collecting cardboard bottles for recycling? See that small shop owner? See that auto repair business? And have a look at yourself: are you a small or large business owner; have you ever sold something over Gumtree; have you been doing some woodworking in your spare time; is your premises sometimes the site of “business activity”?
We’re all going to need licenses, open up our private premises to government scrutiny and be pressured to pay the inevitable bribes. And this is just the start of what Davies’s plan to have all commercial actors registered implies.
I suspect that, as a high-ranking member of the South African Communist Party, requiring people to have prior permission for everyday peaceful activities cannot be a foreign idea to Davies. But we, as people interested in peace, prosperity, freedom and order, must reject this bill which has as its essence an obsession with state control.
A bill with such an essence should be scrapped. Redrafting it would simply be a public relations exercise.
UPDATE: Apparently SA’s minister of planning likes the idea of a single registry of all businesses as well (ht @PositivelyNot). Any bets on the likelihood that this single business registry will be used for statistical purposes only?
As I wrote before, SARS is getting increasingly intrusive in its drive to extract as much money as possible from the private sector. While tax rates won’t be going up, SARS will “broaden the tax base” and “close loopholes” to get more money out of the productive people.
Now, SARS will force third parties such as lawyers, estate agents, and medical aid funds to automatically turn over information on their clients to SARS. It will also be able to log into the bank accounts of private individuals to see what’s going on there. Fin24.com reports that:
Johannesburg – The SA Revenue Service (Sars) has acquired new powers to gather intelligence on taxpayers and collect revenue, it was reported on Tuesday.
People and companies, such as lawyers, estate agents and medical aid funds, now had a duty to automatically submit information about their clients to Sars, The Timesreported.
The powers were reportedly gazetted last month and followed provisions of last year’s Tax Administration Act, which allows certain high-ranking Sars officials to authorise searches without warrants…
One of the biggest changes in the new Tax Administration Act was the broadening of the scope of the information Sars could request, he said.
Sars spokesperson Adrian Lackay reportedly confirmed the new regulations.
“Sars can request any information from a bank account of a taxpayer as part of its third-party data verification,” he told The Times.
This is another way government is outsourcing the tax collection process to the private sector, raising the cost of doing business in SA further. These companies now forced to automatically turn over information on their clients will have to employ people to do it. This means a drain on productivity in SA. Just another way government wastes our time and makes us all poorer.
The Ludwig Von Mises Institute of South Africa has sent a formal objection to the Business Licensing Bill (the BS Bill).
Here are some snap shots of the submissions made to the Department of Trade and Industry
on the purpose of the Bill:
on the use of the Constitution to justify the Bill:
on the power of inspectors:
This morning, the Business Day reports that:
The latest Global Entrepreneurship Monitor report found less than 14% of South Africans surveyed planned to start a business within the next three years. It also found “total entrepreneurial activity” fell to 7.3% last year, from 9.1% in 2011 and 8.9% in 2010.
The gauge measures the percentage of the population of working age about to start a business, and those having started one up to three-and-a-half years ago.
Bleak future indeed.
Talk about buying the dip.
Bloomberg reports that “The U.S. Mint ran out of its smallest American Eagle gold coin after demand surged following the biggest drop in futures in three decades. Sales of the coins weighing a 10th of an ounce were suspended after demand more than doubled in 2013 from a year earlier, the Mint said yesterday in a statement. Total sales of American Eagles in April have almost tripled from a month earlier, according to its website.”
Looking further East, “Volumes of gold products sold jumped 150 percent in Hong Kong and Macau during the April 13 weekend compared with the weekend before, according to Dennis Lau, director of sales operations at Chow Sang Sang Holdings International Ltd., last week. Retail sales tripled across China on April 15-16, the China Gold Association reported.”
Looking at demand in South Africa, Moneyweb reported that “The demand for Krugerrands has skyrocketed during the past week as investors tried to benefit from the weaker gold price… Gusta Binikos, chief executive officer of FNB Share Investing, says the average ounces [that FNB] bought back from customers per month has increased by 30% for this month, compared with the average for the prior 12 months. However, this is only a slight increase compared with the increase of [FNB's] sales to customers of 331% for the same period, says Binikos.”
Clearly, savvy investors are taking the opportunity to buy what can only be described as a SALE of physical gold.
That didn’t take long. I wrote an article last week titled “Asset Expropriation Risk Soars in Post-Hyperinflation Zimbabwe,” and published it on Mises.co.za this morning. In it I explain why asset expropriation risk in Zimbabwe is the highest in Africa, and concluded that:
Everything points toward high and rising asset expropriation risk in Zimbabwe. The less ability the regime has to expropriate resources through monetary inflation and subsidized borrowing, the more it will rely on expropriating assets visibly. The tragic irony of this is that Zimbabwe holds great investment opportunities following the ravages of hyperinflation, yet pervasive asset expropriation risk neuters those opportunities significantly. Investors should be aware that expropriation may not end with farms, banks and mines, but could spread to other industries. In fact, Zimbabwe’s current governance and institutional arrangements that place it among the least free countries in the world essentially guarantee more expropriations in the future.
Thamsanqa Netha and Ana Monteiro have just brought my attention to a Bloomberg article that says the Zimbabwe government is preparing a law that would allow it to seize company stakes without compensating the owners.
— Thamsanqa Netha (@ThamsanqaNetha) April 22, 2013
— Ana Monteiro (@sistersipho) April 22, 2013
There are good reasons for this spate of asset seizures in Zimbabwe, it was quite predictable. For more insight, read the Mises.co.za article. For even deeper analysis and risk monitoring, get in touch with me and I could introduce the Asset Expropriation Risk monitor to you.
UPDATE: In my haste to put this post up and get back to work, I wrote in the title that the law had already been “passed.” It has not been passed, it is still in the pipeline.
The only legitimate purpose of the State is to protect its citizens from any form of violence. This is the moral basis for taxation.
In the last few weeks Kwa-Zulu Natal has become a war zone. Just off the top of my head:
Businesses and individuals all over South Africa are spending a fortune on security and insurance (capital which would otherwise be used for something productive) but for some in KZN (and no doubt elsewhere) it is not enough and they are threatening to pack up and go.
Clearly, people of KZN are still spending too little on private security, and will need to spend even more to protect themselves against the failures of the state. So much for the state’s moral duty and promise to protect the taxpaying public.